“Section 133(3)(iii)”
The decision most relied on for Section 133(3)(iii) is CIT v. Abhishek Industries Ltd. (286 ITR 1), cited in 359 judgments on BharatTax.
Leading authorities on Section 133(3)(iii)
For interest on borrowed capital to be deductible under Section 36(1)(iii), there must be a nexus between the use of the borrowed funds and the purpose of the business. This decision has been overruled by the Supreme Court in Munjal Sales Corporation v. CIT (2008).
Interest on borrowed funds is deductible as a business expense under section 36(1)(iii) if incurred on grounds of commercial expediency, not for sentimental or personal reasons. The phrase 'for the purpose of business' is broader than 'for the purpose of earning income'.
The character of land as agricultural land or a capital asset is a question of fact determined by the cumulative effect of all circumstances. Classification in revenue records alone is not conclusive evidence of agricultural use; actual agricultural operations must be proven.
If share subscriptions are received through banking channels and the assessee provides complete shareholder details, no addition can be made under Section 68 unless there is positive material to show the shareholders are benamidars or fictitious, or the share capital is the company's own undisclosed income.
No disallowance of interest expenditure can be made under Section 36(1)(iii) merely on the presumption of diversion of borrowed funds, if the assessee possesses sufficient interest-free own funds to cover interest-free advances.
Notional income, such as notional interest on interest-free loans, cannot be brought to tax without a specific statutory provision in the Income Tax Act. Only real income that has accrued or been received by the assessee is subject to income tax.
Section 68 of the Income Tax Act can be invoked to make an addition only when the assessee offers no explanation for a cash credit or the explanation provided is unsatisfactory. An addition for share application money is not justified if the Revenue has no material to dispute the genuineness or creditworthiness of the investors or the source of money.
This case lays down 13 specific tests and factors for determining whether land qualifies as agricultural land under the Income-tax Act. It holds that obtaining permission to sell agricultural land for non-agricultural purposes shortly before the sale does not automatically alter its agricultural character.
