RAJENDRA H SALOT,MUMBAI vs. ITO 15(1)(4), MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 19/03/2013 of Ld. First Appellate Authority, Mumbai. 2. During hearing of this appeal, the ld. counsel for the assessee did not press ground number 3, confirming the disallowance made of loss on sale of motor car, claim in the profit & loss account of proprietary concern M/s Rajendra Salot, amounting to Rs.1,72,481/-, therefore, this ground is dismissed as not pressed. 3. The only remaining ground agitated by the ld. counsel is ground no. 1 & 2, which pertains to confirming the addition of Rs.19,61,649/-, on account of interest, claimed by the assessee in his capital account. The crux of argument advanced on behalf of the assessee is that the entire amount of loan, to which interest pertains, was used for business purposes. Reliance was placed upon the decision in 117 ITR 569 (SC). It was pleaded that before section 40(A)(2) is invoked, it has to established that either interest is excessive or unreasonable. It was explained that these were business advances. Reliance was placed upon the decision in S.A. Builders Ltd. vs CIT (2007) 288 ITR 1(Sc) and in Hero Cycles (Pvt.) Ltd. vs CIT (379 ITR 347)(SC). On the other hand, the ld. DR, defended the conclusion arrived at in the impugned order. 3.1. We have considered the rival submissions and perused the material available on record. The facts in brief, are that the assessee, an individual running his business as proprietor of R.P. Computech, declared total income of Rs.6,51,346/- in his return filed on 30/09/2009. The accounts of the assessee are audited one. On verification of the working of the net profit, it was found that the assessee claimed bank interest on loan of Rs.19,61,649/-, which was not debited to the profit & loss account. It was mentioned in the assessment order that the assessee did not furnish the necessary details in support of his claim, thus, the impugned was added to the total income of the assessee. On appeal, the stand taken in the assessment order was affirmed, against which the assessee is in further appeal before this Tribunal. Before the Ld. Commissioner of Income Tax (Appeal) and also before us, it was claimed that the identical claim of the assessee was allowed by the Assessing Officer in earlier year. Before us, it was empathetically claimed by the assessee that the loan taken by the assessee was utilized and disbursed for payments of various business related activities of the assessee and the outstanding amount of M/s Rajpoly Products Ltd. is because of transactions of sales and purchases etc. and relates to the business. The crux of the argument is that the loans were utilized for business purposes only. Considering the totality of facts, admittedly any and every payment, in the garb of interest, in excess of what can be really termed as interest, is not allowable. At the same time the deduction is not dependent on whether resulting profit is taxable or not. The word “borrowed” and “paid” in section 36(1)(iii) clearly postulate two different entities, one which lends capital and the other which borrows and pays interest. What section 36(1)(iii) emphasizes on its user of capital and not user of asset, which comes into existence as a result of borrowed capital, unlike section 37(1), which expressly exclude and expense of a capital nature. Legislature has, therefore, made no distinction in section 36(1)(iii) between “capital borrowed for revenue purposes” and “capital borrowed for capital purposes” and an assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purposes irrespective of what may be result of using such borrowed capital. Our view find support from the ratio laid down in DCIT vs Core Health Care Ltd. (2008) 167 taxman 206 (SC), CIT vs Monnet Industries ltd. (2012) 210 taxman 264 (SC), Vardhman Polytex Ltd. vs CIT 210 taxman 261 (Sc), CIT vs Anand Technology Resources Park P. Ltd. (2011) 202 taxman 654. Hon’ble M.P. High Court in Birla Gwalior Pvt. Ltd. 44 ITR 847 (M.P.) held that it is not necessary to show for the purposes of deduction under clause (iii) that the money borrowed was utilized for a particular branch of assessee’s business. Identical ratio was laid down by Hon’ble jurisdictional High Court in CIT vs Bombay Samachar Lted 74 ITR 723 (Bom.) and Amma Bai Hajee Issa vs CIT 51 ITR 835 (Mad.) 3.2. The expression “for the purposes on business” is wider in scope than “for the purposes of earning income” (Madhav Prasad Jatia vs CIT (118 ITR 200)(SC) and L.M. Thappar vs CIT 173 ITR 577 (Cal.). Interest on borrowal is allowable as deduction only when the borrowals are used for the purpose of business. In S.A. Builders Ltd. vs CIT (supra), where holding company had a deep interest in its subsidiary and the holding company advances borrowed money to its subsidiary and the same is used by the subsidiary for business purposes, the holding company was held to be entitled to deduction of interest on its borrowed loans. The only condition is that it should be used for business purposes. The ratio laid down in CIT vs Motor General Finance Ltd. 272 ITR 550 (Del.) supports the case of the assessee. Even otherwise, section 40A(2)(a) cannot have any application unless it is first held that expenditure was excessive and unreasonable as was held by Hon’ble Apex Court in Upper India Publishing House Pvt. Ltd. vs CIT (1979) 117 ITR 569 (SC) and Corronation Flour Mills vs ACIT (2009) 314 ITR (Guj.). Considering the totality of facts and the judicial pronouncements, discussed hereinabove, and more specifically that it was a business advance, we find merit in the contention of the assessee, therefore, this ground is allowed, Finally, the appeal of the assessee is partly allowed. This order was pronounced in the open court in the presence of Ld. representative from both sides at the conclusion of the hearing on 28/06/2016.