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Facts
The Revenue appealed against the deletion of disallowance of interest expenses by the Ld. CIT(A). The assessee firm, engaged in investment, finance, and trading, borrowed substantial interest-bearing funds. A portion of these funds was advanced as interest-free loans to certain parties. The Assessing Officer disallowed a portion of the interest paid on borrowed funds.
Held
The Tribunal held that for the deduction of interest under Section 36(1)(iii) of the Act, borrowed funds must be utilized for business purposes or commercial expediency. If funds are advanced as interest-free loans to a sister concern, the assessee must demonstrate commercial expediency. The assessee's suo motu disallowance was found to be lacking detailed justification and was therefore restored to the Assessing Officer for fresh calculation.
Key Issues
Whether the disallowance of interest on borrowed funds advanced as interest-free loans to certain parties is justified.
Sections Cited
36(1)(iii)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
PER OM PRAKASH KANT, AM
These appeals by the Revenue are directed against two separate orders dated 06.03.2024 and 07.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 and 2014-15 respectively.
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The sole ground involved in both these appeals is in respect of The sole ground involved in both these appeals is in respect of The sole ground involved in both these appeals is in respect of the disallowance of interest u/s 36(1)(iii) of the Income-tax Act, the disallowance of interest u/s 36(1)(iii) of the Income the disallowance of interest u/s 36(1)(iii) of the Income 1961 (in short ‘the Act’). Therefore, both these appeals were heard 1961 (in short ‘the Act’). Therefore, both these appeals were heard 1961 (in short ‘the Act’). Therefore, both these appeals were heard together and disposed off by together and disposed off by way of this consolidated order way of this consolidated order for convenience. For Brevity the ground raised by the assessee in . For Brevity the ground raised by the assessee in . For Brevity the ground raised by the assessee in assessment year 2013 assessment year 2013-14 is reproduced as under:
On the facts and in the circumstances of the case and in law, the Ld. On the facts and in the circumstances of the case and in law, the Ld. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the CIT(A) erred in deleting the disallowance of interest of Rs.123046063/ disallowance of interest of Rs.123046063/- u/s 36(1)(iii) of the Income Tax Act. u/s 36(1)(iii) of the Income Tax Act. 3. Briefly stated facts of the case are that the assessee firm is in Briefly stated facts of the case are that the assessee firm is in Briefly stated facts of the case are that the assessee firm is in the business of investment and finance activity along with trading the business of investment and finance activity along with trading the business of investment and finance activity along with trading in goods and commodities. The assessee in goods and commodities. The assessee filed return of income filed return of income electronically electronically electronically on on on 29.09.2013 29.09.2013 29.09.2013 declaring declaring declaring total total total income income income at at at Rs.35,99,660/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were selected for scrutiny and statutory notices under the Act were selected for scrutiny and statutory notices under the Act were issued and complied with. During scrutiny proceedings, the issued and complied with. During scrutiny proceeding issued and complied with. During scrutiny proceeding Assessing Officer noted that partner’s capital in the firm was only to Assessing Officer noted that partner’s capital in the firm was only to Assessing Officer noted that partner’s capital in the firm was only to the extent of Rs.1,00,000/ the extent of Rs.1,00,000/- and the assessee borrowed int and the assessee borrowed interest bearing funds and advanceed bearing funds and advanceed those funds on interest, however part those funds on interest, however part of the loans given were interest free. At the yea of the loans given were interest free. At the year end i.e. 31.03.2013 end i.e. 31.03.2013 the borrowed fund stood at Rs.832.74 crores and interest paid was the borrowed fund stood at Rs.832.74 crores and interest the borrowed fund stood at Rs.832.74 crores and interest of Rs.107.24 crores. Against which the assessee has shown balance of Rs.107.24 crores. Against which the assessee has shown balance of Rs.107.24 crores. Against which the assessee has shown balance outstanding of the advances given at Rs.828.04 crores and shown outstanding of the advances given at Rs.828.04 crores and shown outstanding of the advances given at Rs.828.04 crores and shown interest received during the year at R interest received during the year at Rs.99.47 crores. The Assessing s.99.47 crores. The Assessing Officer accordingly observed that assessee incurred losses in the Officer accordingly observed that assessee incurred losses in the Officer accordingly observed that assessee incurred losses in the
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business of advancing loans. The Assessing Officer analyzed party- business of advancing loans. The Assessing Officer analyzed party business of advancing loans. The Assessing Officer analyzed party wise interest paid in respect of funds borrowed and interest earned wise interest paid in respect of funds borrowed and interest earned wise interest paid in respect of funds borrowed and interest earned in respect of loans advanc in respect of loans advanced. The Assessing Officer has mentioned ed. The Assessing Officer has mentioned that assessee has paid interest on borrowed funds in the range of that assessee has paid interest on borrowed funds in that assessee has paid interest on borrowed funds in 10.10% to 15.10%, wh 10.10% to 15.10%, whereas, the interest received was almost same ereas, the interest received was almost same but in some cases it was even lower and in also few cases interest but in some cases it was even lower and in also few cases interest but in some cases it was even lower and in also few cases interest free funds have been advanced by the assessee. Accordingly, the en advanced by the assessee. Accordingly, the en advanced by the assessee. Accordingly, the Assessing Officer issued show cause to the assessee as why the Assessing Officer issued show cause to the assessee as why the Assessing Officer issued show cause to the assessee as why the interest may not be disallowed out of the interest paid on the interest may not be disallowed out of the interest paid on the interest may not be disallowed out of the interest paid on the borrowed funds. It was submitted by the assessee that it had borrowed funds. It was submitted by the assessee that it had borrowed funds. It was submitted by the assessee that it had advanced interest free advanced interest free loans to six entities and there loans to six entities and therefore, the assessee himself had assessee himself had disallowed interest of Rs.7,70,05,688/ disallowed interest of Rs.7,70,05,688/- which was worked out on notional basis. A chart of such disallowance by was worked out on notional basis. A chart of such disallowance by was worked out on notional basis. A chart of such disallowance by the assessee is reproduced as under: the assessee is reproduced as under:
Sr. No. Name of the Party Name of the Party Balance as on 31" Interest income Interest income 03-2013 worked out at the worked out at the rate recovered per rate recovered per month month 1 Amish Infrastructure Pvt. Ltd. Amish Infrastructure Pvt. Ltd. 29,69,15,000 3,64,27,965 3,64,27,965 2 Keystone Corporate Solutions Pvt. Lt Keystone Corporate Solutions Pvt. Ltd. 12,50,00,000 1,53,74,417 1,53,74,417 3 Moonscape Facility Pvt. Ltd. Moonscape Facility Pvt. Ltd. 37,07,50,000 4,56,00,523 4,56,00,523 4 Proprity Construction Pvt. Ltd. Proprity Construction Pvt. Ltd. 1,20,000 14,787 14,787 5 Aplex Power Pvt. Ltd. Aplex Power Pvt. Ltd. 3,00,000 26,463 26,463 6 Piramal Texturising Pvt. Ltd. Piramal Texturising Pvt. Ltd. 4,00,000 37,939 37,939 7 PHL Holdings Pvt. Ltd. PHL Holdings Pvt. Ltd. -2,04,76,406 2,04,76,406 (interest free unsecured loan availed on (interest free unsecured loan availed on which interest expense has been which interest expense has been computed) Total 79,34,85,000 7,70,05,688 7,70,05,688 3.1 The Assessing Officer however rejected the contention of the The Assessing Officer however rejected the contention of the The Assessing Officer however rejected the contention of the assessee and restricted the interest payment up to the 11% and assessee and restricted the interest payment up to the 11% and assessee and restricted the interest payment up to the 11% and
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excess amounting to Rs.12,30,46,063/ excess amounting to Rs.12,30,46,063/- was disallowed invoking was disallowed invoking section 36(1)(iii) of the Act. section 36(1)(iii) of the Act.
On further appeal, the Ld. CIT(A) deleted the addition On further appeal, the Ld. CIT(A) deleted the addition On further appeal, the Ld. CIT(A) deleted the addition observing as under:
“7.1 During, the appellate proceedings, the appellant has given the details 7.1 During, the appellate proceedings, the appellant has given the details 7.1 During, the appellate proceedings, the appellant has given the details of unsecured loans availed and outstanding, rate of interest at which the ured loans availed and outstanding, rate of interest at which the ured loans availed and outstanding, rate of interest at which the loans were borrowed and rate of interest at which the loans were given to loans were borrowed and rate of interest at which the loans were given to loans were borrowed and rate of interest at which the loans were given to various parties. It was also pleaded that the appellant had given loans to various parties. It was also pleaded that the appellant had given loans to various parties. It was also pleaded that the appellant had given loans to some parties without charging any interes some parties without charging any interest thereon for which the appellant t thereon for which the appellant had suo-moto disallowed the interest to the tune of Rs.7,70,05,688/ moto disallowed the interest to the tune of Rs.7,70,05,688/-. It moto disallowed the interest to the tune of Rs.7,70,05,688/ was pleaded that the appellant had earned total income of Rs.35,99,663/ was pleaded that the appellant had earned total income of Rs.35,99,663/ was pleaded that the appellant had earned total income of Rs.35,99,663/- on which the appellant had paid the taxes. It was submitted that the claim on which the appellant had paid the taxes. It was submitted that the claim on which the appellant had paid the taxes. It was submitted that the claim of the AO that the appellant had incurred loss was incorrect as appellant f the AO that the appellant had incurred loss was incorrect as appellant f the AO that the appellant had incurred loss was incorrect as appellant had returned income in the return filed as per the computation of total had returned income in the return filed as per the computation of total had returned income in the return filed as per the computation of total income though there was loss as per the P&L a/c. income though there was loss as per the P&L a/c. 7.2 As regards, the finding of the AO that the cost of procuri 7.2 As regards, the finding of the AO that the cost of procuri 7.2 As regards, the finding of the AO that the cost of procuring funds should have been at lower rate for earning profits, it was pleaded that the should have been at lower rate for earning profits, it was pleaded that the should have been at lower rate for earning profits, it was pleaded that the appellant borrows funds from the market at the best available rates. appellant borrows funds from the market at the best available rates. appellant borrows funds from the market at the best available rates. However, sometimes the borrowed funds do not get deployed immediately However, sometimes the borrowed funds do not get deployed immediately However, sometimes the borrowed funds do not get deployed immediately which results in loss. It was fu which results in loss. It was further argued that the AO has accepted the rther argued that the AO has accepted the genuineness of the loans taken and interest paid thereon. That being the genuineness of the loans taken and interest paid thereon. That being the genuineness of the loans taken and interest paid thereon. That being the case the rate of interest cannot be questioned by the AO especially when case the rate of interest cannot be questioned by the AO especially when case the rate of interest cannot be questioned by the AO especially when the interest is not paid to the persons specified in Section 40(2)(b the interest is not paid to the persons specified in Section 40(2)(b the interest is not paid to the persons specified in Section 40(2)(b) of the Act. Reliance was placed on the decision of Hon'ble Supreme Court in the Reliance was placed on the decision of Hon'ble Supreme Court in the Reliance was placed on the decision of Hon'ble Supreme Court in the case of SA Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Hon'ble Supreme Court held that Revenue cannot justifiably claim to put Hon'ble Supreme Court held that Revenue cannot justifiably claim to put Hon'ble Supreme Court held that Revenue cannot justifiably claim to put itself in the arm chair of th itself in the arm chair of the businessman to decide how much is e businessman to decide how much is reasonable expenditure having regard to the circumstances of the case and reasonable expenditure having regard to the circumstances of the case and reasonable expenditure having regard to the circumstances of the case and it was further held that no businessman can be compelled to maximise is it was further held that no businessman can be compelled to maximise is it was further held that no businessman can be compelled to maximise is profits. 7.3 I agree with the contention of the appellant that the AO can 7.3 I agree with the contention of the appellant that the AO can 7.3 I agree with the contention of the appellant that the AO cannot disallow the interest on the basis of reasonableness when once the AO is satisfied the interest on the basis of reasonableness when once the AO is satisfied the interest on the basis of reasonableness when once the AO is satisfied that the loan has been taken by the appellant and interest as claimed has that the loan has been taken by the appellant and interest as claimed has that the loan has been taken by the appellant and interest as claimed has been paid on such loan. been paid on such loan. It is not the case that the appellant has been It is not the case that the appellant has been paying interest to the r paying interest to the related parties as prescribed in Section 40A(2)(b) of elated parties as prescribed in Section 40A(2)(b) of the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the said case, it was held that the interest paid could n said case, it was held that the interest paid could not be subject matter of ot be subject matter of test of reasonableness and hence, the AO was held to be in error to test of reasonableness and hence, the AO was held to be in error to test of reasonableness and hence, the AO was held to be in error to determine as to what rate of interest should have been charged. determine as to what rate of interest should have been charged. determine as to what rate of interest should have been charged. 7.4 As regards, the loans given by the appellant to some of the entities 7.4 As regards, the loans given by the appellant to some of the entities 7.4 As regards, the loans given by the appellant to some of the entities without charging of interes without charging of interest is concerned, it is found that the appellant has t is concerned, it is found that the appellant has
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disallowed the interest claimed in the computation of income to the tune of disallowed the interest claimed in the computation of income to the tune of disallowed the interest claimed in the computation of income to the tune of Rs.7,70,05,688/ Rs.7,70,05,688/- to 6 entities after adjusting the interest free loans to 6 entities after adjusting the interest free loans received. On page 5 of the assessment order, the AO himsel received. On page 5 of the assessment order, the AO himsel received. On page 5 of the assessment order, the AO himself has given the chart wherein notional interest on funds lent interest free has been worked chart wherein notional interest on funds lent interest free has been worked chart wherein notional interest on funds lent interest free has been worked out and the same has been disallowed in the computation of income. When out and the same has been disallowed in the computation of income. When out and the same has been disallowed in the computation of income. When the appellant has suo moto disallowed the said interest in the the appellant has suo moto disallowed the said interest in the the appellant has suo moto disallowed the said interest in the computation, again restrictin computation, again restricting the interest beyond 11% and disallowing g the interest beyond 11% and disallowing interest has amounted to double addition. interest has amounted to double addition. 7.5 In view of the above, I agree with the contention of the appellant that in 7.5 In view of the above, I agree with the contention of the appellant that in 7.5 In view of the above, I agree with the contention of the appellant that in the facts and circumstances of the appellant's case there was no the facts and circumstances of the appellant's case there was no the facts and circumstances of the appellant's case there was no requirement to disallow the requirement to disallow the interest. The appellant has borrowed the funds interest. The appellant has borrowed the funds as per its requirements and at the rates prevailing in the market, which is as per its requirements and at the rates prevailing in the market, which is as per its requirements and at the rates prevailing in the market, which is an accepted fact. The interest paid on these loans is also not disputed. The an accepted fact. The interest paid on these loans is also not disputed. The an accepted fact. The interest paid on these loans is also not disputed. The appellant has disallowed the interest on loans given int appellant has disallowed the interest on loans given int appellant has disallowed the interest on loans given interest free to 6 parties in the computation of total income amounting to Rs.7,70,05,688/ parties in the computation of total income amounting to Rs.7,70,05,688/ parties in the computation of total income amounting to Rs.7,70,05,688/-. In these facts and circumstances of the case, the disallowance made by In these facts and circumstances of the case, the disallowance made by In these facts and circumstances of the case, the disallowance made by the AO of Rs. 12,66,45,730/ the AO of Rs. 12,66,45,730/- cannot be sustained and the same is cannot be sustained and the same is accordingly deleted. Ground no accordingly deleted. Ground no.1 is allowed.” 5. Despite notifying neither anyone attended Despite notifying neither anyone attended on behalf of the on behalf of the assessee nor was any adjournment was any adjournment filed. Therefore, we Therefore, we were of the opinion that assessee opinion that assessee was not interested in prosecuting the appeal not interested in prosecuting the appeal and therefore, same and therefore, same is being adjudicated afte after hearing the arguments of the Ld. Departmental Representative (DR) and perusal arguments of the Ld. Departmental Representative (DR) and perusal arguments of the Ld. Departmental Representative (DR) and perusal of the records.
In the case assessee has filed list of the parties from whom it In the case assessee has filed list of the parties from whom it In the case assessee has filed list of the parties from whom it has borrowed funds at the rate specified has borrowed funds at the rate specified. The relevant table available on paged 4 of the Ld. available on paged 4 of the Ld. CIT(A) is reproduced for ready CIT(A) is reproduced for ready reference:
Sr. No. Name of the party Balance per Balance per Cheque issued Total O/s Interest paid Interest paid Rate of books as on books as on for repayment unsecured loans interest 31.03.2013 31.03.2013 but not cleared as on as on 31.03.2013 31.03.2013
1 Alpex Holdings Pvt. — — - — 4,59,24,859 4,59,24,859 12.85% Ltd.
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2 Encore Natural - _ - 5,42,465 5,42,465 11.00% Polymers Pvt. Ltd. 3 Lucky Vyapar & _ 25,918 25,918 11.00% Holdings Pvt. Ltd. 4 Navbharat 1,78,00,000 1,78,00,000 _ 4,67,786 4,67,786 11.00% Refrigeration & Ind. Ltd. 5 Propiedades Realties - _ 15,79,295 15,79,295 15.10% Pvt. Ltd. 6 The Swastik Safe Dep. -- _ - 1,67,868 1,67,868 10.10% & Investment Ltd. 7 Piramal Glass Ltd. 2,10,00,00,000 - 38,43,94,744 38,43,94,744 12.1 5% to 13.00% 8 PHL Fininvest Pvt. Ltd. _ 6,20,96,00,000 — 63,92,55,473 63,92,55,473 12.35% 9 PHL Holdings Pvt. Ltd. — — 4,59,24,859 4,59,24,859 — Total 1,78,00,000 1,78,00,000 8,30,96,00,000 8,32,74,00,000 1,07,23,58,408 1,07,23,58,408
On the contrary, the assessee has reproduced list of the On the contrary, the assessee has reproduced list of the On the contrary, the assessee has reproduced list of the parties to whom funds stood advanced during the year under parties to whom funds stood advanced during the year under parties to whom funds stood advanced during the year under consideration along with interest charged. The relevant table is consideration along with interest charged. The relevant table is consideration along with interest charged. The relevant table is reproduced for ready reproduced for ready reference:
“Loans and Advances given as at year end Loans and Advances given as at year end and interest received and interest received
Sr. No. Name of the Party Balance as on Interest earned Interest earned Rate of interest 31.03.2013 1. Amish Infrastructure Pvt. Ltd. Amish Infrastructure Pvt. Ltd. 29,69,15,000 - Int. free Int. free 2. Keystone Corporate Solutions Pvt. Ltd. Keystone Corporate Solutions Pvt. Ltd. 12,50,00,000 Int. free 3. Moonscape Facility Mgmt Moonscape Facility Mgmt Pvt. Ltd. 37,07,50,000 4. Akshat Fincorp Pvt. Ltd. Akshat Fincorp Pvt. Ltd. 7,38,03,628 67,59,662 67,59,662 12.07% to 12.55% 5. Alpex Holdings Pvt. Ltd. Alpex Holdings Pvt. Ltd. - 2,51,765 2,51,765 12.07% to 12.55% 6. Ansa Decoglass Pvt. Ltd. Ansa Decoglass Pvt. Ltd. 39,13,23,480 4,10,77,714 4,10,77,714 12.25% to 13.10% 7. Ansa Pack Pvt. Ltd. Ansa Pack Pvt. Ltd. 6,00,04,219 62,02,770 62,02,770 12.25% to 13.10% 8. Encore Natural Polymers Pvt. Ltd. Encore Natural Polymers Pvt. Ltd. 1,62,57,923 1,49,80,822 1,49,80,822 12.07 % to 12.55% 9. Encore Healthcare Pvt. Ltd. Encore Healthcare Pvt. Ltd. -12,67,301 12,67,301 12.07 % to 12.55% 10. India Venture Adv. P. Ltd. India Venture Adv. P. Ltd. 1,15,68,231 1,16,54,474 1,16,54,474 12.07 % to 12.55% 11. Neptune Developers & Constructions Neptune Developers & Constructions 13,39,47,506 1,05,75,341 1,05,75,341 20% Pvt. 12. PEL Mgmt Services Pvt. Ltd. PEL Mgmt Services Pvt. Ltd. 20,30,52,068 59,46,742 59,46,742 12.07 % to 12.55% 13. Piramal Corp Services Ltd. Piramal Corp Services Ltd. 28,46,13,849 1,91,59,895 1,91,59,895 12.07 % to 12.55% 14. Piramal Estates Pvt. Ltd. Piramal Estates Pvt. Ltd. 1,69,66,48,142 40,01,27,049 40,01,27,049 12.07 % to 12.55% 15. Piramal Realty Pvt. Ltd. Piramal Realty Pvt. Ltd. 4,12,45,36,016 40,01,27,049 40,01,27,049 12.07 % to 12.55% 16. Propiedades Realties Pvt. Ltd. Propiedades Realties Pvt. Ltd. 55,04,015 12.07 % to 12.55% 17. Proprity Consul P. Ltd. Proprity Consul P. Ltd. 1,20,000 - Int. Free
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Ajay G. Piramal Foundation Ajay G. Piramal Foundation 7,28,37,059 48,33,091 48,33,091 12.07 % to 12.55% 19. Thoughtful Realtors Pvt. Ltd. Thoughtful Realtors Pvt. Ltd. 19,41,360 2,07,899 2,07,899 12.07 % to 12.55% 20. Topzone Mercantile Co. LLP. Topzone Mercantile Co. LLP. 38,09,33,199 4,30,37,976 4,30,37,976 13% 21. Welpure Pharma Pvt. Ltd. Welpure Pharma Pvt. Ltd. 1,31,33,826 13,23,480 13,23,480 12.07 % to 12.55% 22. The Swastik Safe Dep. & The Swastik Safe Dep. & Investment - 17,882 12.07 % to 12.55% Ltd. 23. Alpex Power Pvt. Ltd. Alpex Power Pvt. Ltd. 3,00,000 - Int. Free 24. Halcyon Labs Pvt. Ltd. Halcyon Labs Pvt. Ltd. 1,08,12,730 8,18,789 8,18,789 12.07 % to 12.55% 25. Piramal Texturising Pvt. Ltd. Piramal Texturising Pvt. Ltd. 4,00,000 *Int. Free 26. Thaler Developers Pvt. Ltd. Thaler Developers Pvt. Ltd. 31,88,440 1,89,845 1,89,845 12.07 % to 12.55% 27. Vulcan Investments Pvt. Ltd. Vulcan Investments Pvt. Ltd. 25,50,000 2,08,097 2,08,097 12.07 % to 12.55% Other Receivables (Vulcan Interest) 28. Other Receivables (Vulcan Interest) 2,22,651 - Int. Free Total 8,28,03,63,342 99,47,45,229” 99,47,45,229
7.1 In view of the above, In view of the above, the question is whether the the question is whether the suo-motu disallowance made by the assessee of Rs.7,70,05,688/- is sufficient disallowance made by the assessee of Rs.7,70,05,688/ disallowance made by the assessee of Rs.7,70,05,688/ enough to cover the disallowance u/s 36(1)(iii) of the Act and enough to cover the disallowance u/s 36(1)(iii) of the Act and enough to cover the disallowance u/s 36(1)(iii) of the Act and separate disallowance made by the AO of Rs.12,30,46,063/- as separate disallowance made by the AO of Rs.12,30,46,063/ separate disallowance made by the AO of Rs.12,30,46,063/ reproduced above is required. The section 36(1)(iii) of the Act is reproduced above is required. The section 36(1)(iii) of the Act reproduced above is required. The section 36(1)(iii) of the Act reproduced for ready reference: reproduced for ready reference:
“Section 36(1) “Section 36(1)- The deduction provided for in the following clauses shall be The deduction provided for in the following clauses shall be allowed in respect of matters dealt with therein , in computing the income allowed in respect of matters dealt with therein , in computing the income allowed in respect of matters dealt with therein , in computing the income reffred to in section 28 – reffred to in section 28
(i) ………………………. ………………………. (ia) ……………………….. ……………………….. (ib) ……………………….. ……………………….. (ii) ………………………. ………………………. (iia) ……………………………. (iia) ……………………………. (iii) the amount of the interest paid in respect of capital borrowed for the the amount of the interest paid in respect of capital borrowed for the the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: purposes of the business or profession:
[Provided that any amount of the interest paid, in respect of capital borrowed [Provided that any amount of the interest paid, in respect of capital borrowed [Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of for acquisition of an asset (whether capitalised in the books of account or not); an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for for any period beginning from the date on which the capital was borrowed for for any period beginning from the date on which the capital was borrowed for
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acquisition of the asset till the date on which such asset was first put to use, acquisition of the asset till the date on which such asset was first put to use, acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. shall not be allowed as deduction.]
Explanation. - Recurring subscriptions paid periodically by shareholders or Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfill such conditions as may be subscribers in Mutual Benefit Societies which fulfill such conditions as may be subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this prescribed, shall be deemed to be capital borrowed within the meaning of this prescribed, shall be deemed to be capital borrowed within the meaning of this clause;
(iv) to (xviii)…………………………………………. iii)………………………………………….”
7.2 The Hon’ble Supreme Court in the case of SA Builders v. CIT The Hon’ble Supreme Court in the case of SA Builders v. CIT The Hon’ble Supreme Court in the case of SA Builders v. CIT (2007) 288 ITR 1 (SC) (2007) 288 ITR 1 (SC) discussed the issue of interest disallowance discussed the issue of interest disallowance u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle Supreme Court is reproduced as Supreme Court is reproduced as under:
We have considered the submissions of the respective parties. The question involved We have considered the submissions of the respective parties. The question involved We have considered the submissions of the respective parties. The question involved in this case is only about the allowability of the interest on borrowed funds and hence in this case is only about the allowability of the interest on borrowed funds and hence in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of we are dealing only with that question. In our opinion, the approach of the High Court as we are dealing only with that question. In our opinion, the approach of well as the authorities below on the aforesaid question was not correct. well as the authorities below on the aforesaid question was not correct. well as the authorities below on the aforesaid question was not correct. 17. In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred to as the ‘Act’) which states that "the amount of the interest paid in to as the ‘Act’) which states that "the amount of the interest paid in respect of capital to as the ‘Act’) which states that "the amount of the interest paid in borrowed for the purposes of the business or profession" has to be allowed as a borrowed for the purposes of the business or profession" has to be allowed as a borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the income-tax under s. 28 of the Act. deduction in computing the income 18. In Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, this Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, Court held that the expression "for the purpose of business" occurring under the that the expression "for the purpose of business" occurring under the that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, provision is wider in scope than the expression "for the purpose of earning income, provision is wider in scope than the expression "for the purpose of earning income, profits or gains", and this has been the consistent view of this Court. profits or gains", and this has been the consistent view of this Court. 19. In our opinion, the High C In our opinion, the High Court in the impugned judgment, as well as the Tribunal ourt in the impugned judgment, as well as the Tribunal and the IT authorities have approached the matter from an erroneous angle. In the and the IT authorities have approached the matter from an erroneous angle. In the and the IT authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its present case, the assessee borrowed the fund from the bank and lent some of it to its present case, the assessee borrowed the fund from the bank and lent some of it to its sister-concern (a subsidiary) on concern (a subsidiary) on interest-free loan. The test, in our opinion, in such a case free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. is really whether this was done as a measure of commercial expediency. is really whether this was done as a measure of commercial expediency. 20. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. 36(1)(iii) because in s. 37 also the expression used is "for the purpose of business". It 36(1)(iii) because in s. 37 als o the expression used is "for the purpose of business". It has been consistently held in decisions relating to s. 37 that the expression "for the has been consistently held in decisions relating to s. 37 that the expression "for the has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial purpose of business" includes expenditure voluntarily incurred for commercial purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. expediency, and it is immaterial if a third party also benefits thereby.
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Thus in Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases 155 (HL), it was held by the House of Lords that in order to claim a deduction, it is it was held by the House of Lords that in order to claim a deduction, it is it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct enough to show that the money is expended, no t of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in and immediate benefit, but voluntarily and on grounds of commercial expediency and in and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The above test in order to indirectly facilitate the carrying on the business. The above test in Atherton’s order to indirectly facilitate the carrying on the business. The above test in case (supra) has been approved by this Court in several decisions e.g. case (supra) has been approved by this Court in several decisions e.g. Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), etc. (1960) 38 ITR 601 (SC), 22. In our opinion, the High Court as well as the Tribunal and other IT authorities In our opinion, the High Court as well as the Tribunal and other IT authorities In our opinion, the High Court as well as the Tribunal and other IT authorities should have approached the question of allowability of interest on the borrowed funds should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have from the above angle. In other words, the High Court and other authorities should have from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest-free loan was given to the sister company (which is a enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it he assessee) as a measure of commercial expediency, and if it was, it he assessee) as a measure of commercial expediency, and if it was, it should have been allowed. should have been allowed. 23. The expression "commercial expediency" is an expression of wide import and The expression "commercial expediency" is an expression of wide import and The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of busi includes such expenditure as a prudent businessman incurs for the purpose of business. includes such expenditure as a prudent businessman incurs for the purpose of busi The expenditure may not have been incurred under any legal obligation, but yet it is The expenditure may not have been incurred under any legal obligation, but yet it is The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial allowable as a business expenditure if it was incurred on grounds of commercial allowable as a business expenditure if it was incurred on grounds of commercial expediency. 24. No doubt, as held in No doubt, as held in Madhav Prasad Jatia vs. CIT (supra), if the borr (supra), if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of was donated for some sentimental or personal reasons and not on the ground of was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under s. commercial expediency, the interest thereon could not have been allowed under s. commercial expediency, the interest thereon could not have been allowed under s. 36(1)(iii) of the Act. In Madhav Prasad’s Madhav Prasad’s case (supra), the borrowed amount was donat case (supra), the borrowed amount was donated to a college with a view to commemorate the memory of the assessee’s deceased to a college with a view to commemorate the memory of the assessee’s deceased to a college with a view to commemorate the memory of the assessee’s deceased husband after whom the college was to be named. It was held by this Court that the husband after whom the college was to be named. It was held by this Court that the husband after whom the college was to be named. It was held by this Court that the interest on the borrowed fund in such a case could not be allowed, as it could not be interest on the borrowed fund in such a case could not be allowed, as it could not be interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. hat it was for commercial expediency.
Thus, the ratio of Madhav Prasad Jatia’s Madhav Prasad Jatia’s case (supra) is that the borrowed fund case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be advanced to a third party should be for commercial expediency if it is sought to be advanced to a third party should be for commercial expediency if it is sought to be allowed under s. 36(1)(iii) of the Act. allowed under s. 36(1)(iii) of the Act. 25. In the present case, neither the High Court nor the Tribunal nor other authorities sent case, neither the High Court nor the Tribunal nor other authorities sent case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister-concern was by way of have examined whether the amount advanced to the sister concern was by way of commercial expediency. 26. It has been repeatedly held by this Court that the expression "for the purpose It has been repeatedly held by this Court that the expression "for the purpose It has been repeatedly held by this Court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide business" is wider in scope than the expression "for the purpose of earning profits" vide business" is wider in scope than the expression "for the purpose of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 (SC), etc. Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 (SC), 27. The High Court and The High Court and the other authorities should have examined the purpose for the other authorities should have examined the purpose for which the assessee advanced the money to its sister-concern, and what the sister which the assessee advanced the money to its sister concern, and what the sister- concern did with this money, in order to decide whether it was for commercial concern did with this money, in order to decide whether it was for commercial concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. expediency, but that has not been done
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It is true that the borrowed amount in question was not utilized by the assessee in It is true that the borrowed amount in question was not utilized by the assessee in It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest-free loan to its sister its own business, but had been advanced as interest free loan to its sister-concern. However, in our opinion, that fact is not really relevant. What is relevant is wh However, in our opinion, that fact is not really relevant. What is relevant is whether the However, in our opinion, that fact is not really relevant. What is relevant is wh assessee advanced such amount to its sister-concern as a measure of commercial assessee advanced such amount to its sister concern as a measure of commercial expediency. 29. Learned counsel for the Revenue relied on a Bombay High Court decision in Learned counsel for the Revenue relied on a Bombay High Court decision in Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 98 Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom) in Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 98 which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the assessee borrows capital for its own business. Hence, it was held that interest on the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been a the borrowed amount could not be allowed if such amount had been advanced to a the borrowed amount could not be allowed if such amount had been a subsidiary company of the assessee. With respect, we are of the opinion that the view subsidiary company of the assessee. With respect, we are of the opinion that the view subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was taken by the Bombay High Court was not correct. The correct view in our opinion was taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or an whether the amount advanced to the subsidiary or associated company or any other whether the amount advanced to the subsidiary or associated company or an party was advanced as a measure of commercial expediency. We are of the opinion that party was advanced as a measure of commercial expediency. We are of the opinion that party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. (supra) that the interest the view taken by the Tribunal in (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a was deductible as the amount was advanced to the subsidiary company as a measure was deductible as the amount was advanced to the subsidiary company as a of commercial expediency is the correct view, and the view taken by the Bombay High of commercial expediency is the correct view, and the view taken by the Bombay High of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. Court which set aside the aforesaid decision is not correct. 30. Similarly, the view taken by the Bombay High Court in Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. Phaltan Sugar Works Ltd. vs. CIT (1994) 122 CTR (Bom) 344 : (1995) 215 ITR 582 (Bom) TR (Bom) 344 : (1995) 215 ITR 582 (Bom) also does not appear to also does not appear to be correct. 31. We agree with the view taken by the Delhi High Court in We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) established that there was nexus between the expenditure and the purpose of the there was nexus between the expenditure and the purpose of the there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the business (which need not necessarily be the business of the assessee itself), the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in Revenue cannot justifiably claim to put itself in the armchair of the businessman or in Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is ard of directors and assume the role to decide how much is ard of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman reasonable expenditure having regard to the circumstances of the case. No businessman reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the can be compelled to maximize its profit. The IT authorities must put themselves in the can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities shoes of the assessee an d see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. must not look at the matter from their own viewpoint but that of a prudent businessman. must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister As already stated above, we have to see the transfer of the borrowed funds to a sister- As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view of view of commercial expediency and not from the point of view of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on We wish to make it clear that it is not our opinion that in every case interest on We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister borrowed loan has to be allowed if the assessee adv ances it to a sister-concern. It all depends on the facts and circumstances of the respective case. For instance, if the depends on the facts and circumstances of the respective case. For instance, if the depends on the facts and circumstances of the respective case. For instance, if the directors of the sister-concern utilize the amount advanced to it by the assessee for their concern utilize the amount advanced to it by the assessee for their concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a personal benefit, obviously it cannot be sa id that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a measure of commercial expediency. However, money can be said to be advanced to a measure of commercial expediency. However, money can be said to be advanced to a sister-concern for commercial expediency in many other circumstances (which need not concern for commercial expediency in many other circumstances (which need not concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep be enumerated here). However, where it is obvious tha t a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money interest in its subsidiary, and hence if the holding company advances borrowed money interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the to a subsidiary and the same is used by the subsidiary for some business purposes, the to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its assessee would, in our opinion, ordinarily be entitle d to deduction of interest on its borrowed loans.
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7.3 Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, the condition should be satisfied that borrowed fund on which the condition should be satisfied that borrowed fund on which the condition should be satisfied that borrowed fund on which interest is claimed are utilised for the purpose of business of the interest is claimed are utilised for the purpose of business of the interest is claimed are utilised for the purpose of business of the assessee, , secondly, if such funds have been advanced to sister essee, , secondly, if such funds have been advanced to sister essee, , secondly, if such funds have been advanced to sister concern interest free , then assessee should show that same were concern interest free , then assessee should show that same were concern interest free , then assessee should show that same were advanced for commercial expediency. advanced for commercial expediency. The Hon’ble Delhi High Court The Hon’ble Delhi High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH 0830 (Del HC) has held that expenditure needs to be incurred for has held that expenditure needs to be incurred for has held that expenditure needs to be incurred for business purpose and reasonableness of the expenditure has to be business purpose and reasonableness of the expenditure has to be business purpose and reasonableness of the expenditure has to be judged from the point of view of the businessman and not from the judged from the point of view of the businessman and not from the judged from the point of view of the businessman and not from the view of the Department. Further, the assessee has relied on before view of the Department. Further, the assessee has relied on view of the Department. Further, the assessee has relied on the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in the case of CIT v. Padukottai Company Pvt. Ltd. 84 ITR 788 Padukottai Company Pvt. Ltd. 84 ITR 788 Padukottai Company Pvt. Ltd. 84 ITR 788 (Mad) wherein it is held that once it is accepted that capital was wherein it is held that once it is accepted that capital was wherein it is held that once it is accepted that capital was borrowed for the purpose of business, payment of interest on such borrowed for the purpose of business, payment of interes borrowed for the purpose of business, payment of interes borrowed capital could not be disallowed on the ground that borrowed capital could not be disallowed on the ground that borrowed capital could not be disallowed on the ground that interest charged on lending was at lower rate than interest paid on interest charged on lending was at lower rate than interest paid on interest charged on lending was at lower rate than interest paid on borrowing and that lending was in favour of the persons who were that lending was in favour of the persons who were that lending was in favour of the persons who were connected with the assessee. connected with the assessee.
7.4 In view of the In view of the above, for deduction of interest interest on borrowed capital, onus lies on lies on the assessee to demonstrate whether the demonstrate whether the borrowed funds have been utilized for the purpose of the business borrowed funds have been utilized for the purpose of the business borrowed funds have been utilized for the purpose of the business or commercial expediency. In the instant case the issue in dispute or commercial expediency. In the instant case the issue in dispute or commercial expediency. In the instant case the issue in dispute whether loans advanced, may vanced, may be at the lower rate of the interest or be at the lower rate of the interest or
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without charging any interest, without charging any interest, but those loans have been advanced those loans have been advanced for the purpose of the business of the assessee for the purpose of the business of the assessee or not. or not. The assessee has suo-motu made di made disallowance of Rs.7,70,05,688/ sallowance of Rs.7,70,05,688/- but it has not filed detailed justification of calculation of such disallowance. led detailed justification of calculation of such disallowance. On led detailed justification of calculation of such disallowance. perusal of the above table perusal of the above table of suo-motu disallowance, w disallowance, we find that assessee has mainly assessee has mainly worked worked out out interest disallowance disallowance on outstanding balance outstanding balance of parties at the year end. The assessee has at the year end. The assessee has not specified on what what rate it has worked out the notional rate it has worked out the notional disallowance. Once, the assessee has disallowance. Once, the assessee has suo-moto made made disallowance then, it is established established that those loans were not not deployed for business purpose and and the corresponding interest therefore therefore need to be disallowed invoking section invoking section 36(1)(iii) of the Act. 36(1)(iii) of the Act. The only issue thus left is examining the correctness of the calculation of the suo- thus left is examining the correctness of the calculation of the thus left is examining the correctness of the calculation of the motu disallowance made by the assessee. disallowance made by the assessee. Since, no such rational Since, no such rational analysis has been done either analysis has been done either by the Assessing Officer or by the g Officer or by the assessee and therefore, we feel it appropriate to restore this issue assessee and therefore, we feel it appropriate to restore this issue assessee and therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for identify back to the file of the Assessing Officer for identifying the borrowed ing the borrowed funds which have been deployed towards the loans or advances been deployed towards the loans or advances been deployed towards the loans or advances which are not for the purpose of bu which are not for the purpose of business or for the commercial siness or for the commercial expediency and the corresponding interest on the borrowed funds is expediency and the corresponding interest on the borrowed f expediency and the corresponding interest on the borrowed f liable to be disallowed, need to calculated on the basis of number of liable to be disallowed, need to calculated on the basis of number of liable to be disallowed, need to calculated on the basis of number of days those funds remained days those funds remained advanced for non business purpose. advanced for non business purpose. In view of the discussion, w view of the discussion, we feel it appropriate to restore this issue e feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding afresh. back to the file of the Assessing Officer for deciding afresh. back to the file of the Assessing Officer for deciding afresh.
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In assessment year In assessment year 2014-15 , the grounds raised by the grounds raised by the Revenue are identical are identical except change of amount amount, which is Rs.23,24,27,834/-. The The issue in dispute being identical to the issue dispute being identical to the issue in the assessment year 2013 in the assessment year 2013-14, therefore following our finding therefore following our finding in AY 2013-14, the ground the grounds of the Revenue for AY 2014 for AY 2014-15 are accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.
In the result, both the appeals of the Reven In the result, both the appeals of the Revenue are allowed for ue are allowed for statistical purposes. statistical purposes.
Order pronounced in the open Court on nounced in the open Court on 19/08/2024. /08/2024. Sd/- Sd/ Sd/- (SUNIL KUMAR SINGH) (SUNIL KUMAR SINGH (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 19/08/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai