ITAT allows interest expenses on unsecured loans for business purposes

The ITAT allowed the appeal for A.Y. 2007-08 and 2008-09, overturning the disallowance of interest expenses on unsecured loans used for the purchase of Tenancy Development Rights. The loans were found to be used for business-related purposes, specifically to repay earlier borrowings, as accepted by the ITAT based on CBDT Circular No. 28. As a result, interest expenses totaling Rs. 85,17,298 were allowed for both assessment years.

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Issues:
Disallowed interest expenses on unsecured loans for A.Y. 2007-08 and 2008-09.

Analysis:
For A.Y. 2007-08, the AO disallowed interest expenses of Rs. 85,17,298 on unsecured loans for the purchase of Tenancy Development Rights (TDR) as no TDR transactions occurred during the year. The assessee argued that the loans were used for TDR purchase and repayment in earlier years. The AO rejected this, leading to the Ld. CIT(A) confirming the disallowance, stating funds were used for non-business purposes. The ITAT found the loans were used to repay earlier borrowings accepted as business-related, reversing the disallowance citing CBDT Circular No. 28. Interest of Rs. 85,17,298 was allowed.

Regarding A.Y. 2008-09, a similar issue arose, leading to the ITAT allowing the appeal based on the same reasoning as the previous year. Both appeals were allowed, overturning the disallowance of interest expenses on unsecured loans for both assessment years.

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