2016 (5) TMI 399

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....der dated 31.10.2008, Annexure A.4 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, "the Tribunal") in ITA No.724/2008, for the assessment year 2004-05, claiming following substantial question of law:- Whether in the facts and circumstances of the case, the ITAT was right in law in upholding the disallowance on account of interest claimed under Section 36(1)(iii) of the Income Tax Act, 1961 in view of the ratio of the Hon'ble Supreme Court in the case of S.A.Builders vs. CIT, (2007) 288 ITR 1?" 3. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee filed its return for the assessment year 2004-05 declaring a loss of Rs. ....

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.... 5. The issue involved in the present appeal is with regard to the disallowance of interest of Rs.  45,14,373/- claimed by the assessee under section 36(1)(iii) of the Act. In the light of the judgment of the Apex Court in Hero Cycles (P) Limited vs. CIT, Ludhiana, (2015) 281 CTR 481 and judgment of this Court in Commissioner of Income Tax vs. Kapsons Associates, (2016) 381 ITR 204, the matter is remanded to the Tribunal to decide afresh in accordance with law. In Hero Cycles (P) Limited's case (supra), the Apex Court was considering the issue with regard to interest on borrowed capital (interest free loans). It was held that once it is established that there is nexus between the expenditure and purpose of business, revenue cannot....

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.... the Act. 29. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the High Court had held that once it is established that there i....