2013 (4) TMI 89 - AT - Income Tax

Disallowance of interest claim u/s 36(1)(iii) - Held that - As decided in DCIT vs. Core Health Care Limited (2008 (2) TMI 8 - SUPREME COURT OF INDIA) interest paid for the purpose of business under section 36(1)(iii) though it may be for the purpose of expansion of the existing business. In the case under consideration, the case of the A.O. is that there is a loss on account of interest paid and received. The CIT(A) has also wrongly accepted the A.O. s view without considering the section 36(1)(iii). The loss in the interest account was on account of different rates charged from different parties on loans and advances taken and loans and advances given. In the case under consideration, the assessee has satisfied all the conditions that the borrowed fund was used for the purpose of business as prescribed under section 36(1)(iii). Also, it was not the case of the A.O. that the borrowed fund was not utilised for the purpose of business of the assessee. A.O. s view regarding loss in interest account on account of different rates charged by the assessee - Held that - Refering the case of CIT vs. Dhanrajgirji Raja Narasingirji (1973 (3) TMI 6 - SUPREME COURT) wherein held that it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. In the case under consideration, the A.O. and the CIT(A) put their legs to the shoes of the assessee and determined the rate of interest paid and charged reasonably in accordance with their view which is not correct. Since there is no violation of conditions laid down in section 36(1)(iii) by the assessee, interest claim of the assessee is fully allowable - in favour of assessee.

Summary

Issues Involved:
1. Appeal by Revenue against deletion of addition of Rs.21,93,477.
2. Cross Objection by assessee regarding confirmation of disallowance of Rs.2,83,302.

Analysis:
1. The Revenue's appeal challenged the deletion of an addition of Rs.21,93,477. The AO disallowed the claim of interest expenditure by the assessee under section 36(1)(iii) of the Act due to a difference in interest rates charged and paid. The CIT(A) calculated a proportionate loss amount of interest, resulting in the confirmation of Rs.2,83,302 disallowance and allowing relief of Rs.21,93,472. The Tribunal found that the borrowed fund was used for business purposes, satisfying conditions under section 36(1)(iii). The Tribunal set aside the orders of the AO and CIT(A) and deleted the additions made.

2. The Cross Objection by the assessee pertained to the Rs.2,83,302 disallowance sustained by the CIT(A). As the Tribunal set aside the CIT(A) order, the Cross Objection was allowed. Consequently, the appeal of the Revenue was dismissed, and the Cross Objection filed by the assessee was allowed. The Tribunal found that the interest claim of the assessee was fully allowable under section 36(1)(iii) of the Act, leading to the deletion of the additions made by the AO and sustained by the CIT(A).

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments, findings, and decisions made by the Tribunal regarding the appeal and cross-objection in the case.