TaxTMI 
TaxTMI 
2019 (4) TMI 570
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....nces made under Section 36 (1) (iii) of the Income Tax Act,1961, especially when the Assessee had advanced interest bearing fund without charging any interest to its associate concerns ? 3. Mr.T.Ravikumar, learned Senior Standing Counsel for the Revenue, urged before us that the Assessing Authority as well as the Commissioner of Income Tax (Appeals) had rightly disallowed the claim of interest by the Assessee under Section 36 (1) of the Act, but the Tribunal has erred in deleting the said addition, as the Assessee had also borrowed sums from its Group Concerns and on the basis of 'Matching Principles', since lesser interest paid to the Group Concerns, it was contrary to the Agreement Clause (10) of one of the Deeds of Partnership, from whom such finance was taken, which provided for interest rate up to 12% per annum and, accordingly, the difference of interest paid and received by the Assessee should be added back under Section 36 (1) (iii) of the Act. 4. The learned Senior Standing Counsel, however, submitted that for the previous Assessment Years 1992-1993 and 1994-1995, similar appeal filed by the Revenue has been dismissed by a Co-ordinate Bench of this Court on 1....
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....is obvious that disparity between interest received and interest payment arose not on account of any selective charging of interest, but on account of cash basis system followed by the assessee. There is nothing in the statute which stopped the assessee from following the cash system of accounting. In assessee's own case for assessment year 2009-2010 on Revenue appeal (ITA No.1690/Mds/2013, dated 27.11.2013), this Tribunal had held as under :- '6. The Commissioner of Income Tax (Appeals) held that the assessee is an investment company made investments in group concerns as part of its business of the assessee i.e. advancing loans to group concerns. The Commissioner of Income Tax (Appeals) also gave a finding that monies are borrowed from group concerns only and these monies are utilized by the investee concerns for their trade purposes. Since the investments in shares of group concerns amounting to Rs. 4,38,00.000/- are within the course of trading activities and out of commercial expediency and the decision of the Hon'ble Hon'ble Supreme Court in the case of S.A.Builders (288 ITR 1) is applicable to the assessee. The Commissioner of Income Tax (App....
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....s first three questions are concerned, in our opinion, a co-ordinate Bench of this court in CIT v. Lokhandwala Construction Inds.Ltd. (2003) 260 ITR 579 (Bom.), had addressed itself to this issue. Reliance was placed on India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) which was under Section 10 (2) (iii) of the Income-Tax Act,1922 which corresponds to Section 36 (1) (iii) of the present Act. This Court answered the issue in the following manner (page 581) : 'That, while adjudicating the claim for deduction under section 36 (1) (iii) of the Act, the nature of the expense-whether the expense was on capital account or revenue accountwas irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was irrelevant for the purpose of adjudicating the claim for deduction under section 36 (1) (iii) of the Act. (see the judgment of the Bombay High Court in the case of Calico Dyeing & Printing Works v. CIT (1958) 34 ITR 265. In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to sho....
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....specifically bars any deduction of expenditure of capital nature. But section 36 is differently worded. There is no bar in section 36 (1) (iii) to allowance of interest paid in respect of capital borrowed which has been utilised for purchase of a capital asset. The position of law in this regard was explained by the Supreme Court in the cases of India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) and State of Madras v. G.J.Coelho (1964) 53 ITR 186 (SC)'' (emphasis supplied). 8. We have considered the reasoning given in the decisions referred to supra and are in respectful agreement with the view expressed in the said decisions, for the reason already given by us that there is nothing in Section 36 (1) (iii) of the Act that would dis-entitle the assessee to claim deduction in respect of interest paid on the capital borrowed for the purposes of business. 9. For the foregoing reasons, we uphold the concurrent findings rendered by the Commissioner of Income Tax (Appeals) and the Tribunal and answer substantial question of law against the Revenue and in favour of the assessee. These appeals are dismissed. No costs." 8. The Hon'ble Supreme Court, in the case ....