C I T vs. M/S MALWA COTTON SPINNING

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ITA/396/2007HC Punjab & HaryanaPHHC01073095200725 July 2008Author: MR. JUSTICE SATISH KUMAR MITTAL,MR. JUSTICE AUGUSTINE GEORGE MASIH2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law raised in the appeal was already settled by the Supreme Court in the case of Deputy Commissioner of Income Tax versus Core Health Care Ltd. (2008) 298 ITR 194 (SC). The Court noted that the counsel for the revenue did not dispute this legal position. Therefore, in view of the Supreme Court's decision, the High Court concluded that no substantial question of law remained to be answered. The appeal was accordingly dismissed. The operative direction was the dismissal of the appeal, meaning the ITAT's order deleting the disallowance stood.

What were the facts?

The Revenue, Commissioner of Income Tax-III, Ludhiana, filed an appeal under Section 260A of the Income Tax Act, 1961, against the order dated March 27, 2007, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench 'A'. The appeal pertains to Assessment Year 2001-02 and concerns the assessee, M/s Malwa Cotton Spinning Mills Ltd., Ludhiana. The ITAT had deleted a disallowance of Rs. 1,32,57,500/- made by the Assessing Officer on account of interest relatable to investment in capital work-in-progress. The Revenue challenged this deletion, arguing that Explanation 8 to Section 43(1) of the Income Tax Act, 1961, mandates that interest on borrowed capital be treated as capital expenditure.

What were the issues?

1. Whether, on the facts and circumstances of the case, the ITAT was correct in deleting the disallowance of Rs. 1,32,57,500/- made on account of interest relatable to investment in capital work-in-progress, ignoring Explanation 8 to Section 43(1) of the Income Tax Act, 1961, which requires interest on borrowed capital to be treated as capital expenditure? (Question of law) Assessee's Contention: The assessee argued that the issue is governed by the Supreme Court's decision in Deputy Commissioner of Income Tax versus Core Health Care Ltd. (2008) 298 ITR 194 (SC). Revenue's Contention: The revenue initially raised the substantial question of law. However, at the time of hearing, the revenue's counsel did not dispute the legal position as settled by the Supreme Court in the aforementioned case.

Which sections of the Income-tax Act were involved?

Section 260A,Section 43(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 396 of 2007 DATE OF DECISION : 25.07.2008 The Commissioner of Income Tax-III, Ludhiana .... APPELLANT Versus M/s Malwa Cotton Spinning Mills Ltd., Ludhiana ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL

HON'BLE MR. JUSTICE AUGUSTINE GEORGE MASIH

Present: Mr. Rajesh Sethi, Advocate, for the appellant-revenue. Mr. Sandeep Goyal, Advocate, for the respondent-assessee.

* * * SATISH KUMAR MITTAL , J. ( Oral ) The Revenue has filed this appeal under Section 260 A of the Income Tax Act, 1961 against the order dated 27.3.2007 passed by the Income Tax Appellate Tribunal, Chandigarh Bench `A', Chandigarh (hereinafter referred to as `the ITAT') in ITA No. 1120/Chandi/2005 for the Assessment Year 2001-02, in case of the assessee, by raising the following substantial question of law :- “Whether, on the facts and the circumstances of the case, the ITAT was correct in deleting of disallowance of Rs.1,32,57,500/- made on account of interest relatable to ITA No. 396 of 2007 -2- investment in capital work-in-progress ignoring explanation 8 to section 43 (1) of the Income Tax Act, 1961 which requires the interest on borrowed capital to be treated as capital expenditure?” At the time of issuing of notice of motion, counsel for the revenue stated that the issue involved in this appeal is governed by a Full Bench decision of this Court in ITA No. 1 of 2003, titled as “Commissioner of Income Tax-I, Ludhiana Versus M/s. Vardhman Polytex Limited, Chandigarh Road, Ludhiana”, decided on 21.1.2008. Mr. Sandeep Goyal, counsel for the assessee has pointed out that the aforesaid question has now been considered and decided by the Supreme Court against the revenue in Deputy Commissioner of Income Tax versus Core Health Care Ltd. (2008) 298 ITR 194 (SC). Counsel for the revenue does not dispute this legal position. In view of the aforesaid decision of the Supreme Court, where the issue has already been settled, in our opinion, now no substantial question of law remains to be answered by this Court. Dismissed.

( SATISH KUMAR MITTAL ) JUDGE July 25, 2008 ( AUGUSTINE GEORGE MASIH ) ndj JUDGE

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