DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(4), CHENNAI vs. SHRI. MOOLCHAND KIRAN KUMAR JAIN, CHENNAI

आयकर अपीलीय अिधकरण,‘सी’�यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी एबी टी वक�, �याियक सद�य एवं �ी एस. आर.रघुनाथा, लेखा सद�य के सम� BEFORE SHRI ABY T VARKEY, HON’BLE JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ITA Nos.: 5 & 6/Chny/2024 िनधा�रणवष� / Assessment Years: 2020-21 & 2021-22 The Dy. Commissioner of Shri. MoolchandKiran Kumar Income Tax, v. Jain, Central Circle -1(4), No. 123, Usman Road, T.Nagar, Chennai-34. Chennai – 600 017. [PAN:ACHPM-2247-E] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ�क�ओरसे/Appellant by : Shri. R. Clement Ramesh Kumar, CIT ��यथ�क�ओरसे/Respondent by : Shri. D. Anand, Advocate सुनवाई क� तारीख/Date of Hearing : 13.05.2024 घोषणा क� तारीख/Date of Pronouncement : 12.07.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, AM: These appeals are preferred by the Revenue against the common order of the Learned Commissioner of Income Tax (Appeals)-18, (hereinafter in short "the Ld.CIT(A)”), Chennai, dated 15.11.2022 against the assessment order U/s.153A/143(3) of the Income Tax Act, 1961 (hereinafter in short "the Act”) for

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the Assessment Year (hereinafter in short "AY”) 2020-21 and assessment order passed u/s.143(3) of the Act, for AY 2021-22.

Facts of the case: 3. A search and seizure operations U/s.132 of the Act was conducted in the group cases of Lalithaa Jewellery Mart Pvt ltd (LJMPL) on 04.03.2021 and the residential premises of Moolchand Kiran Kumar was also covered. The assessee is a proprietor of AK Exports and promoter of Lalithaa Jewellery Mart Pvt ltd (LJMPL) group. The assessee filed the return of Income for the A Y 2020- 21 declaring total Income of Rs.37,910/-. The assessee filed return Income for the A Y 2021-22 declaring total Income of Rs.1,87,79,210/-. The AO concluded the assessment as under: AY Order Particulars Addition/ disallowance u/s. 153A Addition on account of bad Rs.71,14,31,320/- 2020-21 /143(3) debt written of Disallowance u/s. 36(1)(iii) Rs.12,38,52,364/-

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2021-22 u/s. 143(3) Disallowance us. 36(1)(iii) Rs.15,37,46,880/-

Aggrieved by the action of the AO, the assessee preferred an appeal before the Ld.CIT(A).

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Manufacturer - D.Padmanaban Smith 3 B B Jewellers Firm Jewellery M. Kiran Kumar, and Manufacturer - D.Padmanavan, Manufacturers Smith Dinesh Soni 4 Bhavya Jewellers Firm Jewellery M. Kiran Kumar, Manufacturer - D.Padmanavan, Smith Dinesh Soni 5 Asita Jewellery Company Jewellery Kasirajan Kumaran, Manufacturing Manufacturer - Sundaresan Vasan Pvt Ltd Smith Ramesh 6 Bhakthi Castle Company Real Estate and M. Kiran Kumar, Pvt Ltd renting service D.Padmanaban 7 Bhavya Homes Company Real Estate and M. Kiran Kumar, Pvt Ltd renting service A. Palani 8 Centigrade Company Real Estate and M. Kiran Kumar, Apparels Pvt LTd renting service Sundaresan Vasan Ramesh 9 Krishkiran Mega Company Real Estate and M. Kiran Kumar, Mall Pvt Ltd renting service A. Palani 10 Lalitha Castle Company Real Estate and M. Kiran Kumar, Pvt Ltd renting service D.Padmanaban 11 Akshita Castle Company Real Estate and M. Kiran Kumar, Pvt Ltd renting service Mohamed Fazulla 12 Lalitha Motors Company Manufacture of body M. Kiran Kumar, Pvt Ltd of motor vehicle Ponnusamy Rajeswaran 13 Shree Ayyappa Company Wholesale dealer n Sundaresan Vasan Jewellery Pvt Ltd bullion, diamond and Ramesh, gold ornament Ravindra Kumar Bothra The flagship company of the group is M/s. Lalitha Jewellery Mart P Ltd (M/s. LIMPL) which runs 32 large format showrooms across south India. Sl.No Investment (FY 2019-20) AY 2020-21 Amount in Rs. 1 Max Life Insurance 1,200,000 2 SBI Life Insurance 11,090,963 3 Star Union 1,974,481 4 Shares Division 3,240,699 5 Global Capital 1,239,727 6 Magnum Trust 6,000,000 7 Raj TV 556,148,491 8 Shares in Akshitha Castle Pvt Ltd 99,990 9 Shares in Asita Jewellery Exporters Pvt Ltd 3,315,849 10 Shares in BB Jeweller Exporters Pvt LTd 41,000 11 Shares in Bhakthi Castle Pvt Ltd 99,990

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12 Shares in Bhavya Homes P Ltd 99,990 13 Shares in Dilip Chhabria Design Pvt Ltd 292,227,711 14 Shares in KrishKiran Mega Mall Pvt Ltd 346,130 15 Shares in Lalitha Jewellery Mart Pvt Ltd 1,281,975,000 16 Shares in Shree Ayyappa Jewellery P Ltd 11,910,000 17 Shares in Centegrade Apparels P Ltd 21,999,780 18 Vertiv Software Labs Pvt Ltd 46,000,000 19 Akshitha Jewellers 96,819 20 BB Jewellers & Manufacturers 9,283,899 21 Bhakthi Jewellers 130,514 22 Bhavya Jewellers 5,118,768 2,253,639,801

Sl.No Investment (FY 2020-21) AY 2021-22 Amount in Rs. 1 Max Life Insurance 1,400,000 2 SBI Life Insurance 11,090,963 3 Star Union 24,66,304 4 Shares Division 3,240,699 5 Global Capital 1,239,727 6 Magnum Trust 6,000,000 7 Raj TV 556,148,491 8 Shares in Akshitha Castle Pvt Ltd 99,990 9 Shares in Asita Jewellery Exporters Pvt Ltd 3,315,849 10 Shares in BB Jeweller Exporters Pvt LTd 41,000 11 Shares in Bhakthi Castle Pvt Ltd 99,990 12 Shares in Bhavya Homes P Ltd 99,990 13 Shares in Dilip Chhabria Design Pvt Ltd 292,227,711 14 Shares in KrishKiran Mega Mall Pvt Ltd 346,130 15 Shares in Lalitha Jewellery Mart Pvt Ltd 1,281,975,000 16 Shares in Shree Ayyappa Jewellery P Ltd 11,910,000 17 Shares in Centegrade Apparels P Ltd 21,999,780 18 Vertiv Software Labs Pvt Ltd 46,000,000 19 Akshitha Jewellers 256,833 20 BB Jewellers & Manufacturers 9,630,995 21 Bhakthi Jewellers 369,486 2,249,958,938 The interest debited in P&L for the respective FYs and the interest disallowed by the AO u/s 36(1)(iii] are as under: FY AY Interest Interest debited to P&L disallowed by AO 2019-20 2020-21 15,37,46,880 12,38,52,364 2020-21 2021-22 14,38,90,173 15,37,46,880

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Total 29,76,37,053 27,75,99,514

9.3.3.3 The issue is whether the disallowance made by the AO u/s. 36(1)(iii) is in order, section 36(1)(iii) of the Act is reopened as under: Other deductions. 36(1)The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i)….. (ii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of 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 acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation. - Recurring subscriptions paid periodically by shareholders or 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 clause; As per See 36(1(ii), deduction shall be allowed for the amount o interest paid in respect of capital borrowed for the purposes of business or protection. The Hon’ble Supreme Court in the case of S.A. Builders Ltd. vs. Commissioner of Income Tax (CASE NO. Appeal (civil) 5811 of 2006} dt:14 December, 2005 has settled the issue of disallowance of interest paid us 36(1)(iii) based on commercial expediency for the purpose of business. The relevant paras are reproduced as under: It has been repeatedly held by this Court that the expression "or the purpose of business" is wider in scope than the expression" for the purpose of earning profits" vide CIT Vs. Malayalam Plantations Ltd. (1964) 53 TR 140, CIT Vs Birla Coton Spinning & Weaving Mills 1td (197l) 82 ITR 166 etc. The High Court and the other authorities should have examined the purpose for 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 expediency, but that has not been done. It is true that the borrowed amount in question was rot utilized by the assessee in 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 whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. Leaned counsel for the Revenue relied on a Bombay High

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Court decision in Phaltan Sugar Works Lid. Vs. Commissioner of Wealth-Tax (1994) 208 1TR 989 in which it was held that deduction under Section 36(iii) car only be allowed on the interest if 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 advanced to a 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 whether the amount advanced to the subsidiary o associated company or any other 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 was deductible as the amount was advanced to the subsidiary company as a measure 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. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs Commissioner of Wealth-Tax (1995) 215 ITR 582 also does not appear to be correct. We agree with the view taken by the Delhi High Court in ITO VS. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessmen or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view pent but that of & prudent businessman. 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 whether the amount was advanced for earning profits. 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 concern, It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize these amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as 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 be enumerated here), However, where it is obvious that a holding company has a deep interest in its subsidiary, end hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for

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some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. The answer whether the particular expenditure has been commercially expended will depend on the facts and Circumstances of the case as well as the Act. What is to be seen is the purpose for which borrowed money is finally utilized. It the money is utilized in a way that makes commercial sense and helps in running the intended business of the assessee more efficiently, then it can be said that the interest paid in respect of borrowed money has been incurred for the purpose of commercial expediency. 9.3.3.4 In this case, the assessee has made investments in various group concerns as well as in private concerns as tabulated above. The assessee is into the business of purchase of bullion, gold and diamond ornaments and sells the same to M/s Lalithaa Jewellery Mart P Ltd concern: As per the sales registers produced by the assessee for the AYs 2020-21 and 2021-22, it is seen that most of the sales are made to M/s Lalitha Jewellery Mart P Ltd and sales to other parties are very less comparatively. Hence the assessee is mainly doing business with the M/s Lalithaa Jewellery Mart P Ld and therefore the assessee exists for this purpose only. 9.3.3.5 The assessee has invested Rs.128,19,75,000/- in shares of M/s. Lalitha Jewellery Mart Pvt. Ltd (LJMPL); he assessee is a brand ambassador of M/s. Lalitha Jewellery Mart Pvt. Ltd and has earned brand fee of Rs.25,30,00,000/- for the AY 2020-21 and Rs.30,36,00,000 for the AY 2021 22. The brand fee works out to 19.88% of the total value of the stake. The brand fee has been credited into Profit and Loss account and affected as professional income of the appellant. The assessee and M/s LIMPL are in same line of business and majority of the sales of the assessee is to LJMPL only; hence the investments of Rs.128,19,75,000/- in the shares of LJMPL satisfies the principle of commercial expediency. Therefore, the interest paid in respect of these investments is to be allowed as expenditure. 9.3.3.6 The assessee has stated that he is having sufficient own fund to meet out the investment which resulted into generation of exempt income; however, the segregation of borrowed fund and the appellant own funds are not possible due to holding of long period and therefore, the best option if deemed fit for disallowance of expenses is to invoke the provision of section 14A rather than invoking of

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provision of section 36(1)(iii) of the Act. The argument of the assessee is unacceptable. The investments are not only in share capital, but in debt capital (loans) also. The major investment in the shares of LJMPL has already been excluded on the basis of commercial expediency. As far as other investments are concerned, there also, the assessee claims business expediency. Therefore, section 36(1)(iii) comes into play more here and gains more primacy here to see whether there is business expediency in such investments. In view of the above reasons, section 14A gains no merit in this case and hence, this contention is rejected. 9.3.3.7 On the investments other than M/s LJMPL, the assessee has not established any commercial expediency, Assessee has not made out any case as to how they were helpful for the purpose of business of the assessee. No business relationship has been established by the assessee in respect of these investments. Many of the entities to whom the interest earning monies were advanced or invested are into real estate business, renting service, manufacture of body of moto vehicle, insurance business, media, software, etc and thus, it can be seen there is no business expediency in there. Even where some entities are in the sane jewellery business, he assessee has not established and business expediency with them, as the assessee has business relationship only with LJMPL alone. In view of the foregoing reasons, the interest paid in respect of these investments are not to be allowed as business expenditure of the assessee u/s 36(ii). 9.3.3.8 The argument that the investments would be helpful during the Covid pandemic in view of price fluctuation does not hold water, as the debt capital has been advanced to many entities interest free and had they been invested with bank would have some interest income to the assessee, Thus, there is no commercial expediency in this argument. 9.3.3.8 The assessee further claimed that it had sufficient own funds. This argument is also fallacious. Had there been sufficient own funds, the assessee need not have borrowed funds and paid huge interest. Own funds would have gone into the fixed assets and stock. The assessee has not furnished any one-to-one cash flow statement to show that own funds were invested in the impugned investments. Thus, this argument is also rejected. 9.3.3.9 In view of the above reasons, only proportionate interest

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expenses are calculated for disallowance on the non-business investments, other than the investment in LJMPL.

Aggrieved by the action of the Ld.CIT(A), wherein the disallowance was partially allowed U/s.36(1)(iii) of the Act, the revenue is before us.

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acquired about 1,17,12,806 shares in the Company LJMPL, amounting to Rs.128.19 Crores.

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company and its operations by holding the controlling stake (Shares) in the company. (i) SA builders Ltd Vs. CIT(A) [2007] 288 ITR 1, (SC) – Wherein their lordships decided the issue of allowability of interest, based on the investment or amount advanced on the measure of commercial expediency.

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vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140, CIT vs. Birla Cotton Spinning & Weaving Mills Ltd (1971) 82 ITR 166 etc. 30. The High Court and the other authorities should have examined the purpose for 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 expediency, but that has not been done. 31. 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 concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. 32. Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. Vs. Commissioner of Wealth-Tax (1994) 208 ITR 989 in which it was held that deduction under Section 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 borrowed amount could not be allowed if such amount had been advanced to a 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 whether the amount advanced to the subsidiary or associated company or any other 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 was deductible as the amount was advanced to the subsidiary company as a measure 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. 33. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs. Commissioner of Wealth-Tax (1995) 215 ITR 582 also does not appear to be correct. 34. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself),

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the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 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 whether the amount was advanced for earning profits. 35. 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 concern. It all 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 personal benefit, obviously it cannot be said that such money was advanced as 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 be enumerated here). However, where it is obvious that a holding company has a deep 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 assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. (ii) B Nanji & co., Vs. DCIT [2020] 194 DTR 390 – (Guj) “37 The appellant assessee had borrowed the capital to purchase the shares of the IHFC Ltd so as to have effective control of the IHFC Ltd in order to expand its real estate business. Thus, the investment in share was nothing but the expansion of business of the assessee. Therefore, all the conditions necessary for deduction under Section 36(1)(iii) were prima facie satisfied by the appellant assessee. The CIT(A) was, therefore, not justified to allow deduction under

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Section 57(iii) of the Act as the appellant assessee did not borrow the capital for earning dividend or for making profit and gains. The dominant purpose of the appellant assessee to borrow the capital was to acquire the shares to have effective control over the IHFC Ltd so as to expand the business of the assessee. In that view of the matter, the CIT(A) was not justified in granting deduction of interest paid by the assessee under Section 57(iii) of the Act. But the assessee is entitled to deduction of interest paid on capital borrowed for investment in the shares of IHFC for the purpose of expansion for its business under Section 36(1)(iii) of the Act.” (iii) Trimex Ind.Pvt Ltd Vs.ACIT – ITA No.13/Chny/2022 dated 15/02/2023 – Chennai Tribunal “12. Having heard both the sides and considered relevant material available on record, we find that the assessee has made investment in shares with subsidiary companies. We further noted that, subsidiary companies are also involved in similar kind of business that the assessee was carrying out. From the details filed by the assessee, we find that there is a business expediency in investment made with subsidiary companies for strategic business purpose. Therefore, we are of the considered view that, the AO cannot invoke provisions of section 36(1)(iii) of the Act and disallow interest paid on borrowed capital, merely for the reason that the assessee had used interest bearing funds to make investments in subsidiary companies. This view is fortified by the decision of Hon’ble Jurisdictional High Court of Madras in the case of CIT vs KEC International Ltd (Supra), where the Hon’ble Madras High Court held that, interest paid on borrowed funds utilized for investment in group companies for strategic business purpose cannot be disallowed u/s. 36(1)(iii) of the Act. A similar view has been taken by the co-ordinate bench of ITAT, Chennai in the case of G.E.T. Water Solutions Pvt Ltd vs ACIT (Supra), where the Tribunal after considering relevant facts held that, once the assessee establishes the business connection for commercial expediency, then the assessee is at liberty to deal with its finances, in accordance with its requirements and the AO cannot sit in arms chair of the businessman to decide its business affairs and direct how to deploy its funds. As long as

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the assessee establishes the business connection, then it is free to deal with its affairs in accordance with its requirements. In this case, there is no dispute with regard to the fact that investments made by the assessee with its subsidiary companies gives business advantage to the assessee, because the assessee company and subsidiary companies are in similar line of business. As regards, case laws relied upon by the CIT(A) in the case of Empee Holdings Ltd vs DCIT (Supra), we find that the ratio laid down by Hon’ble High Court of Madras in the said case is not applicable to facts of this case, because in the said case the question of law answered by the Hon’ble Madras High Court is on the issue on re-opening of assessment u/s. 147 of the Act, but not on the issue of disallowance on interest u/s. 36(1)(iii) of the Act, for interest free advances to group companies for non-business purpose. Therefore, we are of the considered view that the case laws relied upon by the Ld. CIT(A) has no application to the facts of the present case.” (iv) Gujarat Nippon enterprises Pvt Ltd Vs. ITO - ITA No.410/AHD/2017 dated 01/02/2022 – Ahmedabad Tribunal “10. We have heard the rival contention of both the parties and perused the materials available on record. Admittedly, the borrowed fund has been invested by the assessee by acquiring the shares of 5 different companies which are capable of generating only dividend income which is exempt from the tax. 10.1 The question that requires to be adjudicated whether the investment was made by the assessee to have controlling interest in the companies. In this regard ITA no.410/AHD/2017 A.Y. 2005-06 we find that the assessee during the assessment proceedings vide letter dated 04/12/2007 before the AO contended as under: “Regarding loans granted by the assessee, the assessee company has given advances to five tooth brush companies as a business strategy to have controlling stake in their business and so that interest has not been charged on the same.” 10.2 The above submission of the assessee has actually been translated in reality which is evident from the order of

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the Hon'ble Gujarat High Court. All the aforesaid companies were amalgamated with the assessee. The relevant extract of the judgment of Hon'ble Gujarat High Court is placed on pages 36 to 54 of the PB. 10.3 We note that the Hon'ble Bombay in the case of PCIT v/s E-City Investment and Holdings Company (P.) Ltd. reported in 117 taxmann.com 123 has held as under: '2. Respondent-assessee is a private limited company and is engaged in the business of financing. During the scrutiny assessment of the assessee's return for the assessment year 2008-09. Assessing Officer noticed that the assessee had claimed expenditure of interest paid on borrowed funds. The assessee had also funded its sister concern without charging interest. The Assessing Officer therefore disallowed the interest expenditure. The issue eventually reached the Tribunal. The Tribunal by the impugned judgment held in favour of the assessee. The Tribunal referred to and relied upon the decision of the Supreme Court in case of S.A. Builders Ltd. v.CIT 228 ITR 1 (SC) and concluded as under: -- "If the aforesaid ratio laid down by Hon'ble Apex Court is analyzed by keeping the same in juxtaposition with the facts of the present appeal, firstly, we find that there is no finding by the Assessing Officer that the funds were not utilized for business purposes and secondly, we note that advancing loan to the sister-concern was for the purposes of "Commercial Expediency", thus, we find merit in the contention of the ld. Counsel for the assessee. So far as, the issue of commercial expediency is concerned, the decision has to be taken by the assessee and the Assessing Officer is not expected to sit in the chair of the assessee and to decide the business interest. The assessee is to watch its business interest well. Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits."

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10.4 We also note that the SLP filed against the above observation of Hon'ble Bombay High court has been dismissed by the Hon'ble Supreme Court in case of PCIT v/s E-City Investment and Holdings Company (P.) Ltd. reported in 117 taxmann.com 124 ITA no.410/AHD/2017 A.Y. 2005- 06. 10.5 We also draw support and guidance from the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Phil Corpn. Ltd. reported in 14 taxmann.com 58 has held as under: “The reasoning of the Tribunal that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the sister/subsidiary company to have control over that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and, therefore, the assessee was entitled to the deduction under section 36(1)(iii). [Para 11] Thus, the Tribunal was right in deleting the addition of Rs.19,73,333. [Para 12]” 10.6 In view of the above, we note that the investments was made by the assessee in the companies in order to have controlling stake which is considered as for the purpose of the business. Therefore, there cannot be any disallowance of interest expenses. The facts of the present case are identical to the facts of the case as discussed above. Accordingly, we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of the appeal of the assessee is allowed.”

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assessee in acquiring the shares of the above company for strategic business purpose. Therefore, we are of the considered view that, the Ld.CIT(A) has rightly allowed the portion of interest paid as eligible expenditure by properly analyzing the commercial expediency of the investment. We do not countenance the action of the AO in disallowing the entire interest paid, merely for the reason that the assessee had used interest bearing funds to make investment in acquiring shares of the Company as per the provisions of Section 36(1)(iii) of the Act. This view is supported by the decisions of various courts (Supra), where the courts are held that, Interest paid on borrowed funds utilized for investment in group companies for strategic business purpose with commercial expediency cannot be disallowed U/s.36(1)(iii) of the Act.

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an expenditure U/s.36(1)(iii) of the Act, and thus we dismiss the appeal of the revenue.

Order pronounced in the open court on 12th July, 2024 at Chennai. Sd/- Sd/- (एस.आर.रघुनाथा) (एबी टी वक�) (S. R. RAGHUNATHA) (ABY T VARKEY) लेखा सद�/Accountant Member �ाियक सद�/Judicial Member चे�ई/Chennai, �दनांक/Dated, the 12th July, 2024 JPV आदेश की �ित िलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3.आयकर आयु�/CIT – Chennai 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF