TaxTMI 
TaxTMI 
2016 (9) TMI 1322
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....Before the Ld.CIT(A) the assessee took additional grounds and also moved an application under Rule 46A for admission of additional evidence. The assessee made a claim for deduction of the interest u/s 36(1)(iii) of the Act or in the alternative u/s 57(iii) of the Act. Remand reports were called for by the Ld.CIT(A) from the A.O. Thereafter he noted down the facts at page 12 of his order. At page 13 the Ld.CIT(A) at para 2 of his order disallowed the claim of the assessee by observing as follows. "The claim of the appellant is thus to be considered on the following accounts: (1) As interest income against income from house property: It is clear that the loan taken from HDFC bank has not been used for either purchase or construction of the property at Safdarjung Enclave. The appellant's ground that interest on loan should be allowed as an expense against income from house property can therefore not be accepted. (2) As interest income against business income: This is not admissible as - * The loan has been partly used for repayment of advance taken from M/s Shiv Shakti Apartments against sale of property at Sardarjang Enclave and for repayment of other outstanding creditors....
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....since appellant has no business income or appellant is not in the business of purchasing hotel or purchasing share and as such interest paid is not an eligible deduction is based on fundamental misconception of facts and law and as such unsustainable. 3 That without prejudice to the aforesaid and in the alternative, interest paid and claimed is eligible for deduction U/S 24(b) of the Act. 4 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest of Rs. 5,66,9031- under section 234B and Rs. 19,565/- under section 234D of the Act which are not leviable on the facts and circumstances of the case of the appellant. It is therefore prayed that, it be held that, disallowance made by learned Assessing Officer and, sustained by the learned Commissioner of Income Tax (Appeals) along with interest levied may kindly be deleted and appeal of the appellant be allowed." 4. The Ld.Counsel for the assessee Mr.Gautam Jain made threefold submissions which are as follows. (a) Rule of consistency should be applied as in the succeeding Assessment Years 2011-12 and 2012-13, the claim of the assessee was allowed by the A.O. He ....
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....e interest income cannot be allowed. He submitted that the assessee purchased shares of this company mainly to acquire ownership of the property. He prayed that the order of the First Appellate Authority be upheld. 6. After hearing rival contentions and considering of papers on record, orders of the authorities below, case laws cited, we hold as follows. 7. The sole issue argued before us is whether interest income in question paid on a loan taken from HDFC Bank, for acquisition of controlling interest in M/s Galabon Hotels P.Ltd. is allowable as a deduction u/s 57(1)(iii) of the Act or in the alternative u/s 36(1)(iii) of the Act. The Ld.CIT(A) has recorded the facts at page 12 of his order that the assessee took loan of Rs. 5,50,00,000/- under non residential premises equity loan scheme against the property from HDFC bank. This loan was utilized for acquiring controlling interest in M/s Galabon Hotels Pvt.Ltd. Rs. 2,52,50,000/- was paid to M/s Galabon Hotels Pvt.Ltd. for purchase of shares and M/s Galabon Hotels Pvt.Ltd. in turn returned the advance taken by it from M/s Shivashakthi Apartments. Further the assessee purchased 9990 shares of M/s Galabon Hotels Pvt.Ltd. of Rs. 2,2....
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....d as per provisions of s.361(1)(iii) - India Cements Ltd. vs. CIT (1966) 60 ITR 52 (S.C.); State of Madras vs. GJ Coelbo (1964) 53 ITR 186 (SC), Nabadwip Chandra Roy vs. CIT (1962) 44 ITR 591 (Assam), CIT vs. Indian Bank Ltd. (1965) 56 ITR 77 (SC) and P.Krishna Menon vs. CIT 35 ITR 48 (SC) relied on; CIT vs. Model Mfg. Co. P.Ltd. (1980) 122 ITR 767 (Cal.) distinguished." 7.2. The Hon'ble Bombay High Court in the case of CIT vs. Panaji Goa vs. Phil Corpn. Ltd. 244 CTR 526 (Bom.) held as follows : "Section 36(1)(iii) of the Act - Interest on borrowed capital - assessee took loan from overdraft account and invested it into sister/subsidiary concern and claimed deduction u/s 36(1)(iii) in respect of interest payable to bank which was disallowed by revenue authorities - Tribunal found that overdraft was not used for mere investment in shares of sister/subsidiary company to earn dividend but was used to have control over that company and further that such an investment was integral part of business of assessee - Whether assessee was entitled to deduction of interest paid on overdraft u/s 36(1)(iii) of the Act." 7.3. The Hon'ble Calcutta High Court in the case of CIT vs. Jardine Hen....
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.... that, according to the Revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs. 1000/-, if there is income of even Re. 1/-, the expenditure would be deductible and there would be resulting loss of Rs. 999/- under the head 'Income From Other Sources'. But if there is no income, then, on the argument of the Revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the Legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whateve....