DCIT (OSD) 1(1), MUMBAI vs. HERRENKNECHT INIDA P.LTD, MUMBAI

The brief facts of the case are that the assessee filed its return of income electronically on 30.09.2008 declaring total income to the tune of Rs.Nil. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”). Notice u/s.143(2) of the Act dated 06.08.2009 was issued and served upon the assessee on 13.08.2009. Thereafter, a fresh notice u/s.143(2) of the Act dated 17.06.2010 was also issued and served upon the assessee. The Assessee is engaged in the business of tunnel boring machines and related services. The Assessing Officer from the Profit and Loss Account of the assessee observed that the assessee has incurred expenses of Rs.98,31,527/- under the head ‘interest and finance charges’ which includes interest on loans from banks of Rs.96,20,747/- and bank charges of Rs.2,10,780/-. It was found from the balance sheet that the assessee has acquired land worth Rs.22,77,80,820/-. The land was acquired on 18.01.2008. The Assessing Officer dealt the asset in the nature of capital therefore disallowed the interest expenses amounting to Rs.98,31,527/- .Assessee filed an appeal before CIT(A) Mumbai who allowed the same therefore the revenue has filed the present appeal before us.

Under this issue the revenue has raised the allowance of the expenditure on account of interest and finance expenses to the tune of Rs.98,31,527/-. The learned representative of the revenue has argued that the CIT(A) did not give any finding with regard to the fact that the assessee has started the business in this year or not, therefore, in the said A.Y. 2008-09 circumstances the finding of the CIT(A) is ambiguous which can not be treated as justifiable in accordance with law. On the other hand the learned representative of the assessee has argued that the CIT(A) has given the finding in accordance with law, specifically in view of the law settled in India Cements Vs. CIT [060-ITR 052-SC] and Bombay Steam Navigation Co. (1953) Private Ltd. Vs. CIT [056-ITR-052-SC). Therefore, in the said circumstances the appeal of the revenue is liable to be dismissed. With due regards to the contention raised by the learned representative of the parties and perusing the record carefully, we came to know that the Assessing Officer did not give any finding with regard to the initiation of the business in the relevant assessment year. It is not in dispute that the assessee has acquired land worth Rs.22,77,80,820/- and assessee claimed the interest thereon in the nature of revenue expenditure. The assessee has engaged in the business of tunnel boring machines and related services, no doubt for the initiation of the said business the capital amount is required to be expended. There is no dispute with regard to the law relied by the learned representative of the assessee is concerned, but we are of the view that it is necessary on the part of the AO to record the fact about the commencement / set up of the business of the assessee i.e in which year assessee commenced the business. Therefore, in view of the said circumstances we are of view that the finding given by the CIT(A) is not liable to be sustained in the eyes of law, therefore we set aside the order on this issue and direct the AO to record the reason in this regard and to dispose the appeal in accordance with law specifically in view of the observations made above. Accordingly the appeal of the revenue is hereby allowed for statistical purpose accordingly. A.Y. 2008-09

In the result the appeal filed by the revenue is hereby allowed for statistical purpose.