2015 (3) TMI 761 - HC - Income Tax

Provisions of Section 43B - whether CIT (A) was warranted in ignoring the provisions of Section 43B and granting relief of ₹ 91,97,390/- which was not actually paid by the assessee to the government/financial institution/bank - Held that - Learned counsel for the appellant is unable to show as to how the decision of the Apex Court in the case of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT ) does not apply in the matter before us wherein held that interest on barrowed capital by the assessee is to be allowed even if assessee has not charged any interest on the advances given by it out of such borrowed funds if such advances are for business purpose. It was held by the Supreme Court that such interest on borrowed funds by the assessee ought to be allowed as deduction under Section 36 (1) (iii) of the Income Tax Act; only an enquiry should be made in such circumstances as to whether the loan was given by the assessee as a measure of commercial expediency. - Decided in favour of assessee.

Summary

Issues:
Appeal against ITAT order dismissing the appeal of Income Tax Department based on the application of Section 43B and relief granted to the assessee.

Analysis:
The High Court of Patna heard an appeal filed by the Income Tax Department against the order of the Income Tax Appellate Tribunal, Patna Bench, which dismissed the Department's appeal. The appeal raised the question of whether the CIT (A) was correct in granting relief of a specific amount to the assessee, which was not actually paid to the government/financial institution/bank, while ignoring the provisions of Section 43B. The Tribunal considered the fact that the assessee, an undertaking owned by the Government of Bihar, had received loans from the State Government for developing electronic-based industries and had further given loans to the Beltron Group of Companies for joint venture projects. The Tribunal relied on a previous decision of the ITAT and the Supreme Court's ruling in S.A. Builders Vs. ACIT regarding the allowance of interest on borrowed capital for business purposes. The Supreme Court emphasized that interest on borrowed funds should be allowed as a deduction under Section 36(1)(iii) if the loan was given as a measure of commercial expediency. The High Court noted that the appellant's counsel failed to demonstrate how the Supreme Court's decision did not apply in the present case.

The High Court, after considering the facts and legal precedents, found no reason to interfere with the Tribunal's order. Therefore, the appeal filed by the Income Tax Department was dismissed.