( 1 ) IN both these appeals the following common substantial question of law has been formulated for consideration at the time of admission of these appeals :"whether on the facts and circumstances of the case, the Appellate Tribunal has substantially erred in law in allowing as deduction, interest on borrowing made for acquisition as capital assets, though pertaining to period prior to commencement of production, under section 36 (1) (iii) of the Act ?"the brief facts for appreciating the controversy are : the assessee company, in which the public are substantially interested, is principally engaged in the business of manufacturing Intravenous Injection of two types - large volumes parental i. e. LVP and Sterile Water for Injection (small volumes parental i. e. SVP ). The company carries on its manufacturing activities at factory situated at village Rajpur, Taluka Kadi, District Mehsana, a centrally notified backward area. The assessment year is 1992-93 and the previous year is F. Y. 1991-92. The commercial production had commenced since February,1988 and the manufacturing capacity has been gradually increased from time to time. During the financial year ended on 31/3/1992, the company installed three more machines (in addition to existing three machines) for the production of LVP and SVP resulting in substantial increased in capacity of the manufactured products. The new machines which were purchased during the previous year are installed at the same location at Rajpur where the company had already carried on its manufacturing operations.

( 2 ) ON 31/12/1992 the company filed its return declaring nil income for assessment year 1992-93. A revised return was filed on 6/8/1993 declaring the loss of Rs. 1,11,68,518. 00. The reasons for filing the revised return were mentioned in the note attached to the return of income and the said note reads as under :"following expenses incurred during the previous year have not been charged to profit and loss account of the year but have been capitalised in the books of account of the company. @@@ rupees. a) interest 1,56,76,000 b) salaries and Wages 21,80,000 c) travelling expenses (including foreign travelling of rs. 8,90,000) 16,30,000 d) telephone, telex expenses 5,06,000 e) professional fees 3,50,000 f) lease Rental charges of vehicles. 5,58,000 g) factory Misc. expenses 7,20,000 h) recruitment expenses. 4,64,000 i) expenses incurred on trial runs of machineries including cost of raw materials, fuel, power,wages, etc. 14,14,000 j) insurance 3,61,459 ___________ 2,38,59,459 Out of these, following expenses are directly related to the acquisition/installation of the capital assets : foreign Travelling 8,90,000 professional fees 3,50,000 trial Runs expenses 14,14,000 26,54,000 -OTHER expenses aggregating to Rs. 2,12,05,459. 00 are of revenue nature and are fully deductible under the provisions of Income-Tax Act,1961. These expenses are of revenue nature and are incurred wholly and exclusively for the purposes of business. These are fully deductible under the provisions of Income-tax Act,1961 and hence, the same are claimed in full. It is submitted that the same be allowed in full. Subsequently, on reversal of capitalised expenditure, the depreciation has been claimed on the basis of revised cost as per attached computation of Depreciation. ORIGINAL return of income is revised to the above extent. "

( 3 ) THE Assessing Officer disallowed the amount of Rs. 2,12,05,459. 00 out of the new project expenses which was claimed as revenue expenses as per note attached with the revised return reproduced hereinbefore. The aforesaid action of the Assessing Officer was confirmed in appeal and the assessee company challenged the appellate order before the Income Tax Appellate Tribunal, Ahmedabad Bench. This appeal was registered as I. T. A. No. 444/ahd/1997. Tax Appeal No. 449 of 2000 arises out of this appeal.

( 4 ) IN so far as certain other issues which were decided in fav