2018 (5) TMI 743

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....t Year 2012-13. 2. The assessee is a Private Limited Company and is in the business of cold storage and trading in potatoes. The issue that arises for my adjudication is whether the disallowance made by the Assessing Officer of an amount of Rs. 5,64,480/-, being interest claimed u/s 36(1)(iii) of the Act is correct as the facts and circumstances of the case. 2.1. The assessee had taken loan from Allahabad Bank and paid interest @ 8.82% amounting to Rs. 38,35,069/-. The assessee had invested an amount of Rs. 64,00,000/- as share application money in a company M/s. Bhaktimoyee Cold Storage Pvt. Ltd. The Assessing Officer was of the view that the loan taken from Allahabad Bank was diverted for making investment by way of share applicatio....

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....ssment Year reads as follows:- "(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 capitalized 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. 4.1. This proviso was inserted w.e.f 01/04/2004. For the impugned Assessment Year, the wording that is crucial "acquisition of an asset for the extension of existing business o....

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....ontext of allow ability of claim of interest u/s 36(1)(iii) would equally be applicable to the claim of deduction u/s 37(1) of the Act in as much as the conditions precedent for deduction under the both the provisions is same, namely, an expenditure must have been incurred for the purposes of business." 5. The Hon'ble Delhi High Court in the case of CIT vs. Tulip Star Hotels Ltd. [2011] 338 ITR 482 (Delhi), has held as follows:- "....the assessee was in the business of owning, running and managing hotels. For the effective control of new hotels acquired by the assessee under its management it had invested in a wholly owned subsidiary company. The expenditure incurred was expenditure incurred for business purposes and was thus al....