N.K. Karhail, J.M. ORDER This appeal of Revenue is directed against order dt. 24th June, 2002 passed by CIT(A)-VIII, New Delhi for asst. yr. 1996-97. first ground of appeal states that on facts and in circumstances of case learned CIT(A) has erred in allowing claim of assessee of sum of Rs. 5,66,79,270 as revenue expenditure in connection with setting of sugar unit at Muzaffarnagar (U.P.). 2 . Briefly stated facts are that assessee company had set up Ferro- alloys manufacturing plant in Raipur in 1991. It was also engaged in trading business of Ferro-Alloys. In years 1994-95 and 1995-96 it set up sugar manufacturing project at Unn, District Muzaffarnagar with installed capacity of 2500 TCD. It was claimed that this project started production in month of March, 2006. project cost stated by assessee was Rs. 56.74 crores which was raised by way of term loans, right and public issue, etc. It was contended by assessee that project for manufacturing of sugar started production from 20th March, 1996. It was stated before AO that Revenue expenditure capitalised to fixed assets was to order of Rs. 5,66,79,270 details of which were as under : Material consumed in (a) - 16,62,372 trial production (b) Power and Fuel - 28,99,256 Salary, wages and (c) - 70,02,410 amenities (d) Admn. Expenses - 1,11,34,625 (e) Financial charges - 3,50,83,472 Less : Closing stock - 11,02,865 of finished goods and WDV Total 5,66,79,270 3 . case of assessee was that these expenses were Revenue in nature since it did not represent any tangible asset and, therefore, it had been claimed in computation of net assessable income as revenue expenses. assessee submitted that as per principle laid down in various judicial pronouncements all revenue expenses including interest incurred during pre- operative period even prior to trial run period in connection with expansion of existing unit and for setting up of new unit which formed part of same business carried on by assessee were to be allowed as deduction as revenue expenses. It was, therefore, contended that sugar project was new line of business in same business fold, having unity of control, interlacing of funds, interdependence of new division, thus, was extension of already existing business and hence, related expenditure was allowable as revenue business expenditure. 4. AO, however, observed that (i) business and project set up to manufacture sugar was new and separate business; (ii) sugar project was source of income newly coming into existence, previous year of which shall begin with date of setting up of business; (iii) expenditure in relation to sugar project has necessarily to be capitalised upto date of setting up; (iv) that account capitalizing expenditure is correct and claim made as revenue expenditure for income-tax purposes is misplaced as is also erroneous. AO further observed that it had been endeavoured by assessee to justify claim as being Revenue as it constituted same business. In Waterfall Estates Ltd. vs. CIT (1996) 132 CTR (SC) 495 : (1996) 219 ITR 563 (SC) wherein Hon ble Supreme Court has held that, whether business constituted to be same business or separate business was necessarily question of fact. It was held: "It is trite law that business could not be said to be same if it did not stand judicial test which inter alia include : (i) location of project at different places and acquired at different times and were independent of closure of one another. (ii) Each business had its own subsidiary account through headoffice consolidated accounts. (iii) Each had separate staff, workmen, supervisor, etc. (iv) They were separately located. (v) Apart from centralized management there was no irrebuttable evidence relating to interlacing, interconnection, interdependence of various projects in day-to-day affairs of their functioning being dovetailed into one another. 5 . Thus, AO did not accept contention of assessee that aforesaid expenditure was revenue in nature. AO observed that sugar project was new source of income and was not same business as that of manufacturing Ferro-chrome or trading in it. AO also held that even when assessee had made out case of interlacing, etc. in general terms, but did not stand any case when tests mentioned above were applied to it. For reasons given in assessment order, AO concluded that claim of assessee was that of revenue expenditure was not admissible. Further, AO also sought to distinguish between as to when business was ready to commence and when it was only set up. AO further held that expenditure incurred in new project was not deductible as same was incurred for separate business as held in Travancore Chemical & Mfg. Co. Ltd. vs. CIT (1992) 102 CTR (Ker) 15 : (1993) 199 ITR 484 (Ker), CIT vs. Blue Mountain Estates & Industries Ltd. (1984) 43 CTR (Mad) 58 : (1985) 151 ITR 616 (Mad) and CIT vs. K. Ravindranathan Nair (1984) 43 CTR (Ker) 95 : (1985) 152 ITR 138 (Ker). AO pointed out that different lines of business carried out by assessee were held not constituting to be same business. Thus, AO rejected claim of assessee. 6 . Being aggrieved, assessee preferred appeal before CIT(A). learned counsel for assessee has submitted that view of AO that said expenditure was capital in nature as having been incurred upto date of setting up of sugar project was not correct. It was wrong to say that sugar project was new source of income newly coming into existence. As per principle laid down in various decisions all revenue expenditures including interest incurred during pre-operative period, even prior to trial run period in connection with expansion of existing unit and of setting up of new unit which formed part of same business carried out by assessee company was to be allowed as deduction as revenue expenditure. It was stated that Hon ble Supreme Court in case of Setabganj Sugar Mills Ltd. vs. CIT (1961) 41 ITR 272 (SC) has held that in determining whether different ventures may be said to constitute same business, it has to be seen, whether there was any interconnection, any interlacing and any interdependence, any unity embracing venture and whether different ventures were so interlaced and so dovetailed into each other as to make them into same business. aforesaid test for determining whether different ventures constituted same business have been reiterated by Hon ble Supreme Court in cases of CIT vs. Prithvi Insurance Co. Ltd. (1967) 63 ITR 632 (SC), L.M. Chhabda & Sons vs. CIT (1967) 65 ITR 638 (SC), Produce Exchange Corpn. Ltd. vs. CIT (1970) 77 ITR 739 (SC), B.R. Ltd. vs. V.P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC). learned counsel has further stated that Hon ble Supreme Court in case of Produce Exchange Corpn. Ltd. (supra) was considering case where assessee claimed carried forward and set off o f losses suffered in share business against profits from transaction of commodities, viz., sugar, molasses, etc. Tribunal found that there was complete unit of control and shares were one of number of commodities in which company dealt in ordinary course of business and that there was n o element of diversity or distinction of separateness about that transaction in shares and accordingly, upheld assessee s claim. On reference, Hon ble High Court has held that essential matter to be considered was nature of two lines of business and not merely unity of control and that therefore, Tribunal erred in holding that whole trading activity formed one business. Hon ble Supreme Court in appeal, reversing decision of High Court held that decisive test for terming whether two lines of business constitute same business was unity of control and not nature of two lines of business. He has submitted that Bombay High Court in case of Calico Dyeing & Printing Works vs. CIT (1958) 34 ITR 265 (Bom) held that interest on capital borrowed for purchases and erection of additional plant and machinery in connection with expansion of business was allowable deduction under s. 10(2)(iii) of IT Act, 1922 (corresponding to s. 36(1)(iii) of 1961 Act) and it was not relevant whether capital was borrowed in order to acquire revenue or capital asset. He has further mentioned that Gujarat High Court in case of CIT vs. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj) on basis of ratio of decisions of Bombay High Court in Calico Dyeing & Printing Works s case (supra) and decision of Supreme Court in cases of India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC) and Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) evolved following tests to determine whether interest on borrowing is allowable as revenue expenditure : (a) Where borrowing is made for purposes of business, interest paid on such borrowing becomes eligible to deduction contemplated by s. 10(2)(iii) of 1922 Act or s. 36(1)(iii) of 1961 Act. (b) This could be so even if capital is invested in order to acquire revenue asset or capital asset because act of borrowing capital is distinct from act of investment or that capital to acquire asset. 7 . learned counsel for assessee has also submitted that assessee company is having common management which is looking after and responsible for affairs of both units, assessee company has its business organizations in form of common management, top executives common share capital and shareholders, head office and common business accounts. learned counsel for assessee has also made reference to various decisions of High Courts including decision of Delhi High Court in case of CIT vs. Triveni Engineering Works Ltd. (1990) 18 3 ITR 437 (Del) wherein Hon ble High Court has dismissed reference application filed by Department against order of Tribunal, holding that interest paid on borrowed capital for modernization and expansion of assessee s units could not be treated as capital expenditure. CIT(A), after having considered submissions of assessee raised question as to whether sugar project which was new source of income was same business of manufacturing ferrochrome or trading in it. He has observed that recently Delhi High Court which is jurisdictional High Court again in case of CIT vs. Modi Industries (1993) 109 CTR (Del) 9 : (1993) 200 ITR 341 (Del) considered issue whether expenditure incurred by assessee in year in which unit had not started working was allowable as business expenditure. In that case assessee company which manufactured various commodities like sugar, vanaspati, soaps, paints and varnish, torch and lantern, started manufacturing new commodity viz., special alloy wires and billets. Debentures were issued for raising funds for this new steel unit and assessee incurred expenditure for issue of debentures. On reference their Lordships of Delhi High Court held affirming decision of Tribunal that all assessees did was to start manufacturing new commodity. In larger sense business of assessee remained same viz., business of manufacturing diverse items and new item was added to this business. Tribunal had found that there was complete unity of control and that there was common fund which were most material for testing whether business was same. Tribunal was justified in holding that business of manufacturing special alloy wires and billets was and extension of business and not new business and expenditure incurred for raising loans by issue of debentures was allowable as deduction. learned CIT(A) has further examined issue as to whether assessee s case of interlacing was in general terms or in specific terms. In this connection he has examined submission of assessee with regard to common place of business, employment of same set to run business, possibility of one unit being closed without affecting other and that assessee company has balance sheet common for both units reflecting financial health of total business unit. Similarly, there is consolidated P&L a/c which reflects operational efficiency of business as whole. learned CIT(A) has finally concluded as under : "In particular, it is to be noticed that as per decision of Bombay High Court in Calico Dyeing & Printing Works vs. CIT (1958) 34 ITR 265 (Bom) and, in India Cement Ltd. vs. CIT (1966) 60 ITR 52 (SC) and Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC), it was held that interest, miscellaneous expenses and travelling expenses incurred for purpose of assessee s business were held allowable as revenue expenses. Also, as per Calcutta High Court decision in case of Kesoram Industries & Cotton Mills Ltd. vs. CIT (1992) 196 ITR 845 (Cal), it was held that expenses incurred in connection with expansion or extension of business expenses incurred in connection with expansion or extension of business already in existence were deductible revenue expenses, i.e., expenses such like as miscellaneous expenses and low charges included in proposed factory project. (f) In light of these submissions and Delhi High Court decision in CIT vs. Modi Industries (1993) 109 CTR (Del) 9 : (1993) 200 ITR 341 (Del) it is to be held that sugar project was in same business fold that of business of manufacture as that of ferrochrome or trading it. Similarly, it is to be held as per submissions and case laws that it was case of interlacing not in general terms but in specific terms. In light of it, AO is directed to allow appellant claim for Revenue expenses as per merit and facts." 8. Before us, learned Departmental Representative has submitted that assessee was having ferroalloys manufacturing plant in Raipur since 1991. It is also engaged in trading of ferroalloys. During year under consideration and during preceding year assessee set up sugar manufacturing unit in Muzaffarnagar (UP). This new unit commenced trial production on 20th March, 1996. As per assessee project cost of new sugar unit is Rs. 56.74 crores financed by way of term loans and right/public issue. question arises for consideration is whether expenditure amounting to Rs. 5.6 crores capitalized in books of account as pre-operative expenditure, is allowable as revenue expenditure for tax purposes. He has further submitted that admittedly, sugar unit is new source of income "may be within same business" which has come into existence during assessment year under consideration. As per s. 3 (proviso) previous year of new source of income coming into existence during previous year accounts of that source are to be maintained from date of coming into existence of new source to end of previous year. In this case, admittedly, sugar unit commenced trial production on 20th March, 1996. Therefore, P&L a/c of new source has to be prepared only for period starting from 20th March, 1996 till 31st March, 1996. All expenses incurred during this period, admittedly, are to be allowed as per law. necessary concomitant is that expenditures up to 19th March, 1996, whether capital or revenue in nature are classifiable as pre-operative expenditures qua source of income. Once it is not disputed that expenditure under consideration is pre-operative expenditure, necessary consequences follow that it has to be capitalised in books as per settled norms. He has further submitted that AO has held that there is difference between business and various other sources of income comprised in that business. He has further submitted that case laws relied upon before CIT(A) are distinguishable as they were given in different context. However, he has further relied upon decision of Tribunal D Bench in case of Morepen Hotels Ltd. (ITA No. 3583/Del/2003 dt. 4th Aug., 2006). Thus, he has supported order of AO. 9 . During course of hearing, assessee moved application for admission of additional evidence under r. 29 of IT Act (Tribunal) rules, 1963. learned counsel for assessee has submitted that assessee was engaged in business of ferroalloys. During relevant previous year, applicant incurred certain revenue expenses in connection with expansion of manufacturing and implemented sugar project at Unn, District Muzaffarnagar (UP). These expenses were claimed as revenue expenses in return of income on ground that same were incurred in connection with expansion of same business already carried out by assessee. assessee has always maintained and established stand before lower authorities that existing activities and new activities of applicant were interdependent, interconnected, operated by common funds and controlled by common management and, therefore, two lines of activity constituted same business. stand of assessee was not accepted by AO, but was accepted by CIT(A). assessee now intends to produce additional evidence in addition to evidence already on record which would further establish/corroborate that aforesaid tests are satisfied in case of assessee. Thus, it has been submitted that in interest of justice additional evidence filed along with application may be admitted and taken into consideration while adjudicating appeal of Revenue. However, learned Departmental Representative has opposed application, for admission of additional evidence. He has submitted that additional evidence filed by assessee was very much available with assessee at initial stages, but they were neither filed before AO nor before CIT(A). While referring to r. 29 of IT (Tribunal) Rules, 1963, he has submitted that Tribunal can accept additional evidence only in following situations : (i) If Tribunal required any document/witnesses or any affidavit to be filed; or (ii) If IT authorities have decided case without giving proper opportunity of being heard; or (iii) If Tribunal thinks that additional evidence is necessary to enable it to pass order. 10. If any of above situations occur, then Tribunal can accept additional evidence. However, in instant case, neither this is case where Tribunal required any evidence nor it is case where opportunity of being heard was denied. first two situations automatically become out. After looking to facts of case, it is clear that sugar business and business of ferroalloys is not interrelated or interdependent. contention is only to establish that both businesses have common management, control and funds. Thus, he has urged that admission of additional evidence at appellate stage is not justifiable. learned Departmental Representative has further submitted that additional evidence now proposed to be filed are only in order to overcome decision of Tribunal in case of Morepen Hotels Ltd. (supra). Thus, he has urged that application filed by assessee under r. 29 of IT (Tribunal) Rules, 1963 be rejected. 11. case of assessee is that existing activities of assessee were indeed interdependent, interconnected, operated by common funds and controlled by common management and, therefore, two lines of business constitute same business. assessee has made similar submissions before lower authorities that its business organization is common to both units in form of common management, common top executives, common share capital and common shareholders, common headoffice and common business funds. Thus, additional evidence now placed by assessee are crucial and are necessary to be on record to enable Tribunal to pass appropriate order in matter. Therefore, in interest of justice, additional evidence filed by assessee are required to be admitted. Hence, we allow applications of assessee filed under r. 29 of IT (Tribunal) Rules, 1963. 12. As regards merits of case, learned counsel has submitted that assessee company was engaged in business of ferroalloy. During previous year relevant to assessment year under consideration assessee incurred certain revenue expenditure in connection with expansion of manufacturing activity in setting up sugar manufacturing project in Unn, Distt. Muzaffarnagar, UP. assessee had incurred revenue expenditure of R s . 5,66,79,270 for sugar division which were capitalised in books of account. However, in return of income these expenditure were claimed as revenue expenditure as these expenses were of revenue nature and does not represent any tangible asset. learned counsel for assessee has submitted that all direct expenses in setting up sugar project has been capitalised and incidental expenditure such as salary, wage, etc. have been claimed as revenue expenditure. In this connection he has referred to balance sheet as on 31st March, 1996 placed on record at p. 14 of paper book. Item 5(a) relates to capital expenditure and item 5(b) relates to revenue expenditure. same read as under : "5. Fixed assets and depreciation (a) Fixed assets are stated at their original cost of acquisition inclusive of inward freight, duties and expenditure incurred in acquisition, construction and installation. (b) Incidental expenditure on erection and commissioning of sugar project t Muzaffarnagar upto date of commercial production shall be allocated to fixed assets on pro rata basis." 13. learned counsel has further referred to details of incidental expenditure on erection and commissioning of sugar project to be allocated to fixed assets which are given in said balance sheet at p. 16 of paper book. These incidental expenditure have been claimed by assessee as revenue expenditure. 14. learned counsel has submitted that sugar project was new line of business of assessee having unity of control, interlacing of fund, interdependence. Thus, it was extension of existing business of assessee. Therefore, revenue expenses incurred in connection with sugar project were allowable expenses. learned counsel has relied upon following decisions wherein tests have been laid down for determining whether different lines of activities carried on by assessee would constitute one and same business : (i) CIT vs. Prithvi Insurance Co. Ltd. (supra); (ii) Produce Exchange Corpn. Ltd. vs. CIT (supra); (iii) B.R. Ltd. vs. V.P. Gupta, CIT (supra); (iv) CIT vs. Modi Industries (supra). 15. He has further submitted no single test can be devised as universal and conclusive. question has to be decided on consideration of all relevant facts and circumstances of case. Some facts may tend one way and some others other way. Therefore, overall view has to be taken and conclusion to be arrived at. circumstances that closure of one unit would not affect activities of other unit is not at all decisive consideration for determining interconnection, interlacing and interdependence between two activities of assessee s business. learned counsel has further submitted in case of Produce Exchange Corporation (supra) decisive test laid down was unity of control and not nature of two lines of business. This view has been affirmed in B.R. Ltd. vs. V.P. Gupta, CIT (supra). learned counsel further referred to page 2/paper book showing that Board of Director for both units are common, registered and corporate office is common. Therefore, there is common control and management of both units. He has stated that obviously place of both units are different place but this is not material. Finance, marketing, secretariat and legal are common, only staff peculiar to requirement of each unit would be different. He has further submitted that project cost of sugar activity is Rs. 56.74 crores, part of which is backed by right cum public issue and balance have come from loans and internal accrual of Ferro- Chrome division. He has stated that right issue are given to existing shareholders of Ferro-Chrome. This shows that there is intermingling and interlacing of funds. Sale proceeds of both units are kept in same bank account. There is common employees provident and gratuity fund for both units. 16. learned counsel has submitted Rs. 49 crores has been capitalised and only Rs. 5 crores (approx.) have been claimed as revenue expenditure. Out of this Rs. 5 crores above Rs. 3 crores are on account of interest on borrowed funds. nature of expenses are salary, administrative expenses, power and fuel expenses incurred on trial run. learned counsel has further explained that business set up means that assessee has set up first business and when assessee starts new lines of business, assessee is not setting up new business. Therefore, previous year for both units would be financial year 1995-96. Hence, argument of learned Departmental Representative that there would be different previous year for sugar division is not correct. Reliance is placed on case of Modi Industries (supra). 17. learned counsel for assessee has submitted that Madras High Court in case of CIT vs. Veecumsee (1987) 63 CTR (Mad) 260 : (1985) 152 ITR 708 (Mad) held that where closure of one activity of business has not affected other business activities, there was no interconnection, interlacing or interdependence between two activities of business of assessee. However, apex Court in case of Veecumsees vs. CIT (1996) 133 CTR (SC) 500 : (1996) 220 ITR 18 5 (SC) has held this is not decisive test. learned counsel has pointed out in this case that apex Court has reversed decision of Madras High Court in case of CIT vs. Veecumsees (supra). He has further pointed out that Madras High Court in Veecumsees case (supra) has followed decision in case of CIT vs. Blue Mountain Estates & Industries Ltd. (supra). Thus, ratio laid down in Blue Mountain Estates & Industries Ltd. s case (supra) is deemed to have been reversed. He has further submitted that decision in case of Blue Mountain Estates & Industries Ltd. (supra) has also been distinguished in case of Kalyani Steels Ltd. vs. Dy. CIT (1997) 59 TTJ (Pune) 316 : (1997) 62 ITD 233 (Pune). Thus, he has Dy. CIT (1997) 59 TTJ (Pune) 316 : (1997) 62 ITD 233 (Pune). Thus, he has argued that decision of Tribunal in case of Morepan Hotels Ltd. (supra) cannot be said to be binding precedent. 18 . Thus, learned counsel has argued that existing activities and new activities of assessee are interdependent, interconnected, operated by common fund and controlled by common management, therefore, two lines of activities of assessee constituted same business. Thus, he has supported order of CIT(A). 19. We have heard parties and perused record of case. assessee company had set up Ferro Alloys manufacturing plant in Raipur in 1991. It was also engaged in trading business of ferroalloys. In years 1994-95 and 1995-96 it has set up sugar manufacturing project in Unn District, Muzaffarnagar. project cost was Rs. 56.74 crores. It is claim of assessee that revenue expenditure capitalised to fixed assets was about Rs. 5,66,79,270, details of which have been mentioned in preceding paras. These expenses were revenue in nature and did not represent any tangible asset. Therefore, it has been claimed as revenue expenditure in return of income filed by assessee. According to assessee sugar project was n e w line of business in same business fold, having unity of control, interlacing of funds, interdependence and thus was extension of existing business and, therefore, related expenditure are allowable as revenue business expenditure. However, AO has held that sugar project was new source of income and was not same business. Hence, he has disallowed claim of assessee. Thus, question for consideration is whether sugar division of assessee constitute same business of assessee or different and distinct business of assessee. It may be mentioned that aforesaid question is essentially question of fact. question has to be decided on consideration of all relevant facts and circumstances of case. It may be mentioned that in case of Setabganj Sugar Mills Ltd. vs. CIT (supra) Hon ble Supreme Court has held that in determining whether different ventures may be said to constitute same business, it has to be seen that whether there was any interconnection, interlacing, interdependence, unity of embracing, unity venture and whether different ventures were so interlaced and so dovetailed into each other as to make them into same business. aforesaid tests for determining whether different ventures constitute same business have been reiterated in case of CIT vs. Prithvi Insurance Co. Ltd. (supra). In said case Hon ble Supreme Court was considering case where assessee claimed carry forward and set off of losses suffered in share business against profits from transaction of other commodities viz., sugar, molasses, etc. Tribunal found that there was complete unity of control and shares were one of number of commodities in which company dealt in ordinary course of business and that there was no element of diversity or distinction or separateness about transaction in shares and, accordingly, upheld assessee s claim. On reference, High Court held that essential matter to be considered was nature of two lines of business and not merely their unity of control and that, therefore, Tribunal erred in holding that whole trading activity formed one business. However, Hon ble Supreme Court has held that decisive test for determining whether two lines of business constitute same business is unity of control of two activities and not nature of two lines of business. To similar effect is another decision of Supreme Court in case of B.R. Ltd. vs. V.P. Gupta, CIT (supra) wherein Hon ble Supreme Court while following decision in Produce Exchange Corpn. Ltd. s case (supra) came to conclusion that (at p. 654) : "Thus, unity of control and other circumstances adverted to above show that there was dovetailing or interlacing between business of import and business of export carried on by assessee and that they constitute same business." 20. In coming to this decision Hon ble Supreme Court observed that decisive test was unity of control and not nature of two lines of business. 2 1 . Delhi High Court in case of Modi Industries (supra) has considered issue whether expenditure incurred by assessee by way o f interest was allowable as business expenditure in year in which unit h d not started. In that case assessee company, which manufactured various commodities like sugar, vanaspati, soaps, paints and varnish, torch and lantern started manufacturing new commodity, viz., special alloy wire and billets. Debentures were issued for raising funds for this new steel unit and assessee incurred expenditure for issue of debentures. question was whether expenditure incurred by assessee in year in which unit had not started working was allowable as business expenditure. Tribunal found that management of new unit and earlier business were same and there was unity of control and common fund, and held that manufacture of special alloy and billets was extension of assessee s business and not new business and allowed deduction of expenditure. 22. On reference, their Lordships of Delhi High Court held, affirming decision of Tribunal that all that assessee did was to start manufacturing new commodity. Their Lordship observed that assessee was already manufacturing diverse items and new item was added to this business, in larger sense business of assessee remained same, viz., business of manufacture. Taking note of finding recorded by Tribunal that there was complete unity of control and that there was common fund, Court held that Tribunal was justified in holding that business of manufacturing special alloy wires and billets was extension of business and not new business and expenditure incurred for raising loans by issue of debentures was allowable as deduction. 23. In recent decision in case of CIT vs. Relaxo Footwears Ltd. (IT Appeal No. 387 of 2007 dt. 25th April, 2000) (reported in Lex Reported) Delhi High Court while following decision of Modi Industries case (supra) has held that expenses incurred by assessee for setting up of new unit which was part of existing business are, therefore, to be allowed as revenue expenditure. 2 4 . Supreme Court in case of Veecumsees (supra) was considering case where assessee, running jewellery business, commenced business also in exhibition of cinematographic films. In 1961, it obtained loans for building cinema theatre which was built in 1962 and was run by assessee until 31st July, 1965 when it was transferred to another firm. For years during which assessee exhibited films in said theatre, interest paid on aforesaid loans was allowed as deduction under s. 36(1)(iii). However, for asst. yrs. 1967-68 to 1969-70 AO declined deduction of interest paid by assessee, on ground that business of exhibition of films in theatre was no longer in existence. AAC, however, allowed deduction. Tribunal, finding that business carried on by assessee as jewellers and business of running of said theatre were composite, upheld decision of AAC. On reference, High Court concluded that since closing of cinema business had not affected in least assessee s old business in jewellery there was no interconnection, interlacing or interdependence between jewellery business and cinema business and, therefore, borrowings made by assessee for construction of said theatre could not be allowed as deduction from business income after business of running cinema had been closed. 25. On appeal to Supreme Court, their Lordships observed that fact that Revenue had during years when assessee carried on business of cinematographic films permitted as deduction under s. 36(1)(iii) interest on loans obtained by assessee for purpose of constructing said theatre, showed that at time when loans were obtained said theatre was part of business of assessee. 26. Their Lordships further observed that it was interest on these loans, borrowed for purpose of business of assessee, which was being paid in years in question and Tribunal was right in concluding that such interest had to be treated as deduction under s. 36(1)(iii) since loans had been obtained for purposes of assessee s business. Their Lordships further observed that fact that particular part of business for which loans had been obtained had been transferred or closed down did not alter fact that loans had, when obtained, been for purpose of assessee s business. 27. Their Lordships further held that in view of finding of Tribunal that business carried on by assessee as jeweller and in running cinema theatre was composite business, assessee was entitled to deduction of interest paid on loans under s. 36(1)(iii) of Act. 28. It may be mentioned that while passing aforesaid judgment Hon ble Supreme Court has reversed decision of Madras High Court in Veecumsees case (supra). It may further be mentioned that Madras High Court in case of Veecumsee (supra) has followed its decision in case of CIT vs. Blue Mountain Estates & Industries Ltd. (supra) wherein Court held as under: "Held, that assessee in instant case was originally carrying on business in tea and later began dealings in coffee and, ultimately began to carry on industrial activity. In such circumstances, it could not be said that it was not possible to carry on one activity without reference to other activity. Even though test of unity of control was established as finances and control were from head office of company, new business undertaken by assessee could not be taken to have any connection with earlier business in tea and coffee. Further, fertilizers could not be said to be one of commodities in which company dealt with in ordinary course of business in coffee or tea. It was not case of assessee that manufacture of fertilizers was undertaken to meet its own needs. There was clear diversity or distinction or separateness in regard to fertilizers qua other trading activities of company such as sale of coffee or tea. Accordingly, deduction under heads of managing agency commission, sitting fees and head office expenses should be restricted with reference to income earned, in business carried on in tea and fertilizers and deduction under those heads could not be given in relation to expenses incurred in connection with business in coffee." 29. Thus, ratio laid down in Blue Mountain Estates & Industries Ltd. s case (supra) would be deemed to have been implied overruled by Hon ble Supreme Court in Veecumsees case (supra). Therefore, decision in case of Morepen Hotels Ltd. (supra) given on basis of Blue Mountain Estates & Industries Ltd. s case (supra) has lost binding precedent force. 3 0 . We have perused record of case including additional evidence placed at pp. 19 to 141 of paper book II viz., relating to copy of bank statement of sugar division and copy of relevant extract of minutes of Board meeting of assessee from time to time. assessee company has maintained balance sheet common for both units reflecting financial health of total business and consolidated P&L a/c for whole business. existing ferro-chrome and alloys division and sugar division are controlled by same Board of Directors. Board of Directors are stationed at Delhi headoffice and look after affairs of Ferro-chrome unit as well as sugar unit. Company Secretary, General Manager (Finance and Admn.) and HRD Managers are common to both units. As both units are dealing in different products viz., Ferro Chrome and Sugar having manufacturing units at different locations, it has separate team for production at site. However, marketing of two units is supervised and controlled by same set of executives at headoffice. Further, management of business is centralized in Delhi Office. Thus, it can be said that assessee company is having common management which is looking after and is responsible for affairs of both units. 3 1 . finances of assessee company are controlled from headoffice at Delhi through accounts in various banks in Delhi. There is common pool of funds which is utilized for meeting Revenue and capital expenses of both units. assessee company is having common share capital with common shareholders. submission that project cost of sugar activity is backed by right cum public issue and balance have come from loans and internal accrual of ferro-chrome division and rights are given to existing shareholders of ferro-chrome has not been disputed by Revenue. Therefore, source of fund is common for both divisions. Thus, we are of view that there is intermingling and interlacing of funds. test for considering whether particular unit is separate business from business of other unit or not, is to see whether closure of one unit would affect other unit or not, as contended by Revenue, closure of any of two units would surely affect working and business of remaining business, for simple reason that larger liability of whole business would obviously have to be borne by other unit on closure of one unit. In view of above we are of view that there is unity of control, common management and interlacing of funds between two lines of activities of assessee. sugar manufacturing plant was mere extension of existing business of ferro-alloys and its trading. Therefore, assessee was engaged in same business inasmuch as decisive test is unity of control and not same line of business. In case of Modi Industries Ltd. (supra) assessee, who was engaged in manufacturing activities of various commodities like sugar, vanaspati, soap, paints, etc., started manufacturing of new commodity viz., special alloy wires and billets. management of new unit and earlier business was same and there was unity of control and common fund. jurisdictional High Court of Delhi held that in larger sense business of assessee remained same viz., business of manufacturing. It was already manufacturing diverse items and new item was added to this business. We are of view that ratio laid down in case of Modi Industries (supra) squarely apply to facts of instant case. Thus, we hold that sugar division was in same line of business of assessee. next question thus arise is whether expenditure incurred by assessee in respect of sugar unit is allowable as revenue expenditure. It is seen that out of expenditure of Rs. 5,66,79,270 expenditure incurred on financial charges was of Rs. 3,50,83,472. It may be mentioned that there is distinction in treatment of interest on borrowed fund in situation where business has not yet set up new business and where assessee is in business and borrowed fund to expand existing business or set up new unit within same business fold. interest is allowable as deduction under s. 36(1)(iii). As per said section interest paid in respect of capital borrowed for purpose of business and profession is allowable as deduction. In case of India Cements Ltd. vs. CIT (supra) Hon ble Supreme Court has held thus : "Held that amount spent was not in nature of capital expenditure and was laid out or expended wholly and exclusively for purpose of assessee s business and was therefore allowable as deduction under s. 10(2)(xv) of Indian IT Act, 1922. act of borrowing money was incidental to carrying on of business, loan obtained was not asset or advantage of enduring nature, expenditure was made for securing use of money for certain period, and it was irrelevant to consider object with which loan was obtained." 32. Further, in case of CIT vs. Alembic Glass Industries Ltd. (supra) 32. Further, in case of CIT vs. Alembic Glass Industries Ltd. (supra) Hon ble High Court has held thus : "(ii) It was contended for Revenue that, since during relevant account years, unit at Bangalore had not started production, payment of interest on borrowing which was utilized for purpose of establishing that new unit should go towards cost of new unit and, therefore, on principle accepted by Supreme Court in Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC) this interest should be treated as capital expenditure and not as revenue expenditure. This contention was not correct. ratio of decisions of Bombay High Court in Calico Dyeing & Printing Works vs. CIT (1958) 34 ITR 265 (Bom) and of Supreme Court in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC) and Challapalli Sugars Ltd. s case (supra) is: (1) Where borrowing is for purpose of business, interest paid on such borrowing becomes eligible for deduction contemplated by s. 10(2)(iii) of 1922 Act or s. 36(1)(iii) of 1961 Act; (2) this would be so, whether capital is invested in order to acquire revenue asset or capital asset, because act of borrowing capital is distinct from act of investment of capital to acquire asset; (3) however, business for which asset of enduring nature is purchased with borrowed capital should not be separate or distinct from business for purpose of which capital is borrowed, if deduction under s. 10(2)(iii) is to be allowed and (4) if there is no existing business with reference to which capital is borrowed and borrowed capital is invested to purchase new asset of enduring nature, then interest paid on such borrowing till asset so purchased goes into production, increases cost of installation of said asset, and hence should be treated as capital expenditure not covered by s. 10(2)(iii) of 1922 Act or s. 36(1)(iii) of 1961 Act. Applying above principles interest incurred by assessee on borrowing, utilized for purpose of establishing Bangalore unit is for purposes of assessee s business and as such allowable as revenue expenditure." 33. In view of above legal position, we are of view that expenditure of financial charges of Rs. 3,50,83,472 incurred for purpose of setting up sugar division was for purpose of business of assessee, therefore, same is allowable as deduction under s. 36(1)(iii). Therefore, AO is directed to allow expenditure of Rs. 3,50,83,472 to assessee. However, whether any other expenditure incurred in connection with new project will be allowable or not, will depend upon question whether expenditure is capital or Revenue in nature. We find that similar issue has been considered by Hon ble High Court of Delhi in case of Triveni Engineering Works Ltd. vs. CIT (1999) 152 CTR (Del) 433 : (1998) 232 ITR 639 (Del). Matter in our view requires fresh examination in light of said judgment and other judgments that may be available on subject. We, therefore, set aside order and restore same back to AO for passing fresh order after necessary examination and after allowing opportunity of being heard to assessee. 3 4 . second ground of appeal states that on facts and in circumstances of case learned CIT(A) has erred in allowing claim of depreciation to extent of Rs. 1,43,06,062. 35. Briefly stated facts are that AO had observed that assessee has made claim of depreciation @ 100 per cent on flameless induction furnace which it claim to have purchased in asst. yr. 1995-96, 50 per cent of depreciation has already been claimed in that assessment year and balance 50 per cent has been claimed in this assessment year. On 1st March, 1999, Authorised Representatives of assessee were requested to furnish papers and documents evidencing market worth of assets purchased and its evaluation by company before its purchase from Ahmedabad based party. assessee in its reply has instead of furnishing evidence regarding genuineness of transaction and genuineness of claim of purchase had dealt with financial soundness and health of supplier. AO further observed that under IT Act onus squarely vests on person making claim to prove that claim made was genuine supported by evidence in this regard. default in case of assessee in not discharging onus was manifest. Accordingly, he disallowed claim of depreciation on this block of assets of Rs. 1,43,06,062. 36. On appeal before learned CIT(A) assessee has submitted that in earlier asst. yr. 1995-96, assessee company purchased assets at total cost of Rs. 2,86,12,124 being energy saving devices on which 100 per cent depreciation was allowable as per Appendix I of IT Act/Rules. Since assets were put to use for less than 18 2 days and hence depreciation was claimed at 50 per cent as per proviso to s. 32(1) of IT Act. aforesaid energy saving devices were still on lease and therefore such assets were used for leasing business of assessee and hence as per rates prescribed under Appendix I of IT Rules, depreciation has been claimed at 100 per cent on such opening WDV of assets. Further, in this year user of this assets was for more than 18 2 days and hence depreciation was allowable at 100 per cent as stated above. assessee has further submitted that as regards 100 per cent depreciation assets on which 50 per cent depreciation has been claimed in asst. yr. 1996-97 detail of purchase showing name and address of parties from whom assets were purchased were also filed before learned CIT(A). assessee also filed copy of lease deed as well as copy of bill of purchases. assessee further submitted that 100 per cent depreciation assets which were leased out in asst. yr. 1995-96 were purchased from M/s Inductotherm (India) Ltd. aforesaid company was limited company incorporated in India under Foreign Collaboration with parent company in USA. company is assessed to tax by Jt. CIT, special Range-8, Ahmedabad and its P.A. No. is AAACI 367 2. He has further mentioned that payment to supplies of machinery M/s Inductotherm (India) Ltd. was made only after careful evaluation of product quality, market image and financial health of supplier. During asst. yr. 1995-96, assessee company has leased out assets to various companies as per details of lease agreement filed during appellate proceedings. He has further mentioned that transaction of lease to M/s Monnet Ispat Ltd. was not singular isolated transaction. complete details of assets on which 100 per cent depreciation was claimed by assessee company was filed during course of assessment proceedings along with copy of purchase bills and copy of lease deed in respect of lease of such fixed assets by assessee company. Therefore, as complete documentary evidence in respect of leased out assets on which 100 per cent depreciation was claimed was filed during course of assessment proceedings and therefore requested for allowing depreciation of Rs. 1,43,06,062 on such assets. 3 7 . He has further submitted that aforesaid fixed assets were purchased by assessee company in asst. yr. 1994-95 relevant to asst. yr. 1995-96 for sum of Rs. 2,86,12,124. depreciation on such fixed assets w s claimed by assessee company @ 50 per cent amounting to Rs. 1,43,06,062 as aforesaid assets were put to use for less than 18days. However, AO vide order under s. 147/143(3) disallowed claim of assessee company on grounds that aforesaid assets were not put to use in financial year 1994-95 relevant to asst. yr. 1995-96 but were put to use in financial year 1995-96 relevant to asst. yr. 1996-97. assessee company filed appeal against assessment order for asst. yr. 1995-96 and learned CIT(A) deleted entire disallowance of depreciation of such assets leased out amounting to Rs. 1,43,06,062 in appeal No. 286/2001-02 vide order dt. 20th Feb., 2002. 3 8 . learned CIT(A) after having considered submission of assessee has held that it cannot be said that assessee company did not discharge its onus in not furnishing documents evidencing market worth of assets purchased and its evaluation by assessee company before its purchase from Ahmedabad based party. As such very basis on which disallowance has been made does not have any force. As result he has directed AO to allow claim of depreciation as due as per merit and facts. 39. We have heard parties and perused record of case. assets in question were purchased by assessee company in asst. yr. 1994- 9 5 relevant to asst. yr. 1995-96 for sum of Rs. 2,86,12,124. said assets were purchased from M/s Inductotherm (India) Ltd., company which is limited company incorporated in India, under foreign collaboration with parent company in USA. said company is assessed to tax by Jt. CIT, special Range-8, Ahmedabad and its P.A. No. is AAACI 367 2. assessee filed complete details of assets on which 100 per cent depreciation was claimed along with copy of purchase details and copy of lease deeds in respect of lease of s u c h fixed assets by assessee company. In circumstances, genuineness of transaction of purchase of impugned assets cannot be doubted. 4 0 . It is further seen that depreciation on lease fixed assets was claimed by assessee company at rate of 50 per cent for asst. yr. 1995-96 amounting to Rs. 1,43,06,062 as aforesaid were put to use for less than 18days. However, AO vide its order under s. 143/143(3) disallowed claim of assessee on ground that said assets were not put to use in financial year 1994-95 relevant to asst. yr. 1995-96 but were put to use for financial year 1995- 96 relevant to asst. yr. 1996-97. However, on appeal filed against assessment order passed for asst. yr. 1995-96, learned CIT(A) deleted entire disallowance of depreciation on such assets leased out vide its order dt. 20th Feb., 2002. said order of learned CIT(A) have been accepted by Revenue Department as no appeal seems to have been filed against same. Thus genuineness of transaction of purchase of impugned assets has been accepted by Revenue. We, therefore, find no reason to interfere in order passed by learned CIT(A), hence same is upheld. 4 1 . In result, appeal filed by Revenue is partly allowed for statistical purpose. *** INCOME TAX OFFICER v. MONNET INDUSTRIES LTD.