TaxTMI 
TaxTMI 
2017 (11) TMI 855
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....ed and savings achieved and therefore, no disallowed was warranted. 3. That the interest on capital borrowed for the purpose of business or profession is allowable U/s 36(1)(iii)." 2. In all the grounds of appeal, there is only one issue involved, which is against confirmation of disallowance of interest of Rs. 2,37,675/-. 3. The brief facts of the case are that the assessee is engaged as a trader/commission agent of Khal. During the year under consideration, the assessee has purchased plot No. 15-16 in Mohit Nagar Vistar, Sarana Doongri, Jaipur admeasuring 611.11+850.82= 1461-53 sq. yards for Rs. 31,68,995/-. The Assessing Officer disallowed the interest on the borrowed capital on Rs. 31,68,995/- for six months totaling to R....
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....means the interest bearing funds were effectively utilized by it in the promotion of business. It was further stated that the go-down rent has increased to Rs. 4,38,478/- from Rs. 3,46,797/- in the previous year and buying the land for expansion of business and future savings in go-down rent was ultimately having direct nexus with the business expenditure and it is expeditious and directly incidental to the business so the same should be allowed. It was another contention that the AO has not established that the borrowed funds have been used for purchase of these plots. (iii) It was also submitted that as per section 36(1) (iii) of the Act, the deduction of interest paid in respect of capital borrowed for the purpose of business sh....
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.... (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." (v) It is clear from the proviso to section 36(1)(iii) of the Act as reproduced above that interest paid in respect of an asset required for extension of existing business cannot be allowed till the date such a....
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....expenditure involved be allowed to be capitalized, the same is acceptable. Hence, the disallowed expenditure be allowed to be capitalized. [Para 7.4]" (vi) It is also observed from the material placed on record that as on 31.03.2012, the partner's capital was to the tune of Rs. 2,60,742/- only and the unsecured loans were to the tune of Rs. 3,72,38,259/- which has increased from Rs. 2,48,69,710/- as on 31.03.2011. In view of these facts, it can be concluded that the investment in the plots to the tune of Rs. 31,68,995/- was made out of the borrowed funds i.e. there is a direct nexus between the borrowed funds and investment in plots. The expenditure may be required as a commercial expediency is of no relevance here as a capital....