TaxTMI 
TaxTMI 
2014 (8) TMI 10
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....ment purposes in a sister concern of the Appellant/Assessee. He further submitted that the ITAT also erred in disallowing 10% of the foreign travel expenses incurred by the Appellant/Assessee. In his submission, therefore, this Appeal gives rise to the following substantial questions of law and read as under:- (A) Whether, on the facts and the circumstances of the case, and in law, the Tribunal erred in disallowing foreign travel expenses? (B) Whether, on the facts and the circumstances of the case, and in law, the Tribunal erred in disallowing interest expenses u/s.36 (1) (iii) of the Act? (C) Without prejudice to the above ground, whether, on the facts and the circumstances of the case, and in law, the Tribunal erred in not upholding the alternative submission of the Appellant and disallowing the interest expenses u/s.57 of the Act? 3. The brief facts of the case are that the Appellant/Assessee is a consignment agent, indenting agent and is also engaged in the business of trading in different types of chemicals. In the course of its business, the Appellant/Assessee had its indenting business with one "M/s. Sasol" in the Middle East, as their principle indenting agent.....
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....eld that the Appellant/Assessee had failed to prove and/or establish the " commercial expediency" in making the investment in shares of M/s Kemsol Ltd. He therefore disallowed the deduction claimed under section 36(1)(iii) on account of interest paid in the sum of Rs. 27,87,772/-. 5. Being aggrieved by the assessment order, the Appellant/Assessee preferred an Appeal to the Commissioner of Income Tax (Appeals) who confirmed both the aforesaid disallowances made by the Assessing Officer. Being aggrieved thereby, the Appellant/Assessee filed an Appeal before the ITAT. The ITAT, whilst dealing with the dis-allowance for foreign travel expenses, considered all the material on record as set out in paragraph Nos.11.1, 11.2, 11.3, & 11.4 (wrongly again numbered as 11.3) of the impugned order. After considering all the factual aspects, ITAT was of the opinion that the disallowances of foreign travel expenses ought to be restricted to 10% instead of 20% as held by the Assessing Officer. With reference to the disallowance of the deduction of Rs. 27,87,772/- claimed in relation to the interest paid, the ITAT held that the investment of Rs. 3,57,96,450/- in the share capital of Kemsol Ltd wa....
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....e mainly on account of travel to the Middle East. 7. On the other hand, Mr. Pinto, the learned counsel appearing on behalf of the Revenue relied upon the orders passed by the authorities below. He submitted that this Appeal does not give rise to any substantial question of law and the findings rendered by the authorities below are pure findings of fact which under no circumstances can be said to be perverse or vitiated by any error of law apparent on the face of the record. Mr. Pinto submitted that in the facts of the present case, the borrowed funds were diverted purely for investment purposes and the interest paid thereon was not entitled to be deducted under Section 36(1)(iii) of the Act. In view thereof, Mr. Pinto submitted that the Appeal does not raise any substantial questions of law and ought to be dismissed. 8. With the help of the learned counsel appearing on behalf of the Appellant/Assessee as well as the Revenue, we have perused the Memo of Appeal and the Annexures thereto as well as the orders passed by the Assessing Officer, Commissioner of Income Tax (Appeals) and the ITAT. 9. On going through the orders of the authorities below, we find that on both the afo....
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....n of capital assets. In the facts of that case there was no dispute that the interest paid on the capital borrowed was utilized for the Assessee's business. The question was therefore answered in favour of the Assessee. The fact situation before us is totally different. In the present case, the authorities below have come to a categorical finding that the funds borrowed were not utilized for the purposes of the business of the Appellant/Assessee but for acquiring 60% of the shares of a foreign company (M/s. Kemsol Ltd). From the findings of the Authorities below it is clear that acquiring the shares in Kemsol Ltd. was not for the purpose of the business of the Appellant/Assessee. In this view of the matter, the said judgment has no application to the facts of the present case and is clearly distinguishable on facts. 11. Similarly, the reliance placed on the judgment of this Court in the case of Commissioner of Income Tax v/s Phil Corporation Ltd and Anr reported in (2011) 244 CTR (Bom) 226, is also wholly misplaced. The facts in that case were that the Assessee company made investment in shares of its subsidiary company from the bank overdraft provided to the Assessee to hav....
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.... Section 43(1) of the Act, the assessee was not entitled to claim deduction of interest paid on borrowings, particularly, when the machines were not put to use during the assessment year under consideration. According to the department, the provisions of Section 36(1)(iii) of the Act, were required to be harmoniously construed along with the provisions of Explanation 8 to Section 43(1). It is this issue that was considered by the Hon'ble Supreme Court. In this scenario, the Supreme Court held that the interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. The Supreme Court held that for allowance of a claim for deduction of interest under the said section, all that was necessary was that: (i) the money i.e. capital must have been borrowed by the assessee; (ii) it must have been borrowed for the purpose of business; and (iii) the assessee must have paid interest on the borrowed amount. The Hon'ble Supreme Court held that all that is germane is whether the borrowing was, or was not, for the purpose of business. In fact to our mind, this judgment in the facts situation before us is directly against the Appellant. In the facts....