TaxTMI 
TaxTMI 
2014 (2) TMI 369
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....of the Act, amounting to Rs.23,72,716/- being disallowance of interest on the amount borrowed and utilized to made advance for the purchase of capital assets." 3. Briefly stated, the facts of the issue are as under: The assessee company is in the business of manufacture and trading of IML, Glass, paper and engineering activities, trading of computers, software development, embedded software solutions and call centre. During the course of assessment proceedings, the AO noticed that the assessee had advanced for purchase of capital assets amounts to the tune of Rs.1,58,18,107/- . After having considered the details furnished by the assessee, the AO was of the view that substantial amounts have been paid to various enterprises for the pu....
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....st on the borrowed fund. The provisions of sec. 36(1)(iii) does not make any distinction between capital borrowed for revenue purpose or capital purpose. Here the AO has stopped short of the ultimate utilization of borrowed fund and, therefore, has failed to see that the river of loan funds had intermingled with the sea of distillery business. 11.4. In view of the above discussion, the addition is deleted.................." 5. Aggrieved, the Revenue has come up before us with the present appeal. During the course of hearing, the learned D.R submitted that the CIT (A) had erred in allowing the relief without appreciating that as per the proviso to s. 36(1)(iii) of the Act, interest paid in respect of the capital borrowed for acquisi....
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....in the earlier year. Drawing the attention of this Bench, the learned AR submitted that without establishing any nexus that the above advances were made out of the borrowed funds, the AO went ahead in disallowing a part of interest claimed on the presumption that those advances were made out of the borrowed funds. It was urged that since the advances were paid for purchase of assets in the course of business and for the purpose of business, no disallowance of interest on the same was called for. To substantiate his argument, the learned A R had placed reliance on the following case laws, namely: (i) Rakit & Coleman of India Ltd v. CIT (1982) 135 ITR 698 (Cal); (ii) British Paints (India) Ltd v. CIT (1991) 190 ITR 196 (Cal); (iii) E....
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....st on the said amount and claimed it as a deduction. 6.1. In the present case, all the above three conditions prescribed in s. 36(1)(iii) of the Act have since been fulfilled, the AO was not justified in disallowing the interest debited to P&L A/c by 15% on adhoc basis. A disallowance cannot be resorted to for the sake of disallowing a portion of the claim of an assessee without adducing a credible documentary proof justifying for such a disallowance. The AO had not brought on record any documentary evidence to contradict that the assessee had fulfilled the conditions contained in s. 36(1)(iii) of the Act. 6.2. We shall now analyse the judicial view on a similar issue as under: (i) In the case of Madhav Prasad Jatia v. CIT (1979) 1....
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....ditions required to be satisfied under s. 36(1)(iii) were not fulfilled. The only ground, for disallowing a part of the interest, given by the Tribunal was that the assessee had not chosen to charge interest on advances made to the three concerns. The contention urged on behalf of the Department, in the instant case, that a part of the capital borrowed by the assessee was not for the purpose of the business, cannot be considered because that is not the finding of the Tribunal. All that the Tribunal has found is that the assessee was not entitled to claim deduction in respect of a part of the interest, as the assessee had not charged interest to the three sister concerns, to whom advances were made. This ground cannot justify disallowance of....