TaxTMI 
TaxTMI 
2019 (2) TMI 1912
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....vestments made as on 31.03.2011 and 31.03.2012 amounting to Rs. 1655.62 lakhs and Rs. 3210.00 lakhs respectively. From the details furnished by the assessee, the Assessing Officer noted that the average investment worked out to Rs. 2,432.81 lakhs. However, no income was generated on these investments although the assessee has incurred expenses on account of administration and other costs and paid substantial interest on the funds raised as loans. He noted that the assessee company is into the business of transmission of power and investment is not the business of the company, the company had raised substantial loans which remained unpaid during the year and huge interest was paid or accrued on such loans. He analysed the details of loans and interest expenditure which are as under:- Opening balance of loans as on 01.04.2011 Rs. 63240.10 lakhs Closing balance of loans as on 31.03.2012 Rs. 55830.11 lakhs Average of loans for the year 2010-11 Rs. 59535.105 lakhs Total interest paid on loans Rs. 6170.49 lakhs From the balance sheet as at 31.03.2012 following investments are taken to note: Opening balance Rs. 1655.62 lakhs Closing investments Rs. 3210.00 lakhs Average inve....
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....o disallowance u/s 36(1)(iii) of the IT Act is called for. The assessee, relying on various decisions, further argued that as per the provisions of section 36(1)(iii) of the Act, when the capital is borrowed by the assessee for the purpose of business or profession and interest on such borrowed capital has to be paid by the assessee, then, no disallowance u/s 36(1)(iii) of the IT Act can be made. Relying on various decisions, it was argued that the Assessing Officer is not justified in making disallowance u/s 36(1)(iii) of the Act. 4.1 Based on the arguments advanced by the assessee and following his order for assessment year 2010-11, the ld.CIT(A) deleted the addition by observing as under:- 3.3. I have carefully considered the facts of the case, order of the AO and submissions made by the AR of the appellant company. I find that an identical issue has been decided by my predecessor in favour of the appellant for A. Y. 2010-11 vide order dated 09.04.2014 in Appeal No. 98/12-13. The CIT(Appeals) had held as under: "6. Ground No. 2 is in respect of disallowance under section 36 (1)(iii). 6.1. The AO held that the appellant company used substantial amount of funds which were ....
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....bility. Borrowing money and payment or interest is a mere commercial transaction. Where the appellant, a public limited company, carrying on the business in manufacture of sugar, owning about 2000 acres of land on which it grew sugarcane, borrowed a certain sum which was credited to the agricultural section of the appellant, it was held that the interest payable on the borrowings credited to the agricultural section was an admissible deduction. The borrowing must be a genuine borrowing and not a bogus one. The borrowing may be on a permanent footing such as by way of debenture loan or a spasmodic one such as from year to year, or for short term such as by way of overdrafts from banks, or loans from time to time. 6.7 The amount should be borrowed for the purposes of the business. The moneys should be borrowed by the appellant for purposes of the appellant's business. Further, the expression for the purpose of the business' may take into account not only the day to day running of a business but several other matters. A borrowing diverted from business would cease to be a borrowing for purpose of business, so that the interest proportionate to such diverted funds is liable f....
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....is ruled in favour of the appellant. " 3.4. Since the facts are similar in the present appeal, following the above decision, disallowance of Rs. 9,07,57,000/- u/s 36(1 )(iii) of the Act made by the AO is ordered to be deleted. The ground of appeal is ruled in favour of the appellant." 5. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:- "1. On the facts and under the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of Rs. 9,07,57,000/- made by the A.O. u/s 36(1)(iii) of the Act on account of disallowance of interest expenditure, by not appreciating the fact that the assessee company has used the borrowed funds for non-business purpose. 2. On the facts and under the circumstances of the case, the ld.CIT(A) has erred in deleting the above addition u/s 36(1)(iii) of the Act by not appreciating the fact that the A.O. has mentioned detailed reasons of disallowances in the assessment order itself." 6. We have heard the rival arguments made by both the sides and perused the orders of the authorities below. We have also considered various decisions relied on by both the sides. We fin....