2009 (2) TMI 7 - HC - Income Tax

Interest claimed by the assessee as deduction u/s 36(1)(iii) - no fault can be found with the impugned judgment of Tribunal having confirmed finding of fact that assessee was genuinely in the business of trading in shares - Revenue had not produced any material to discharge its onus that the borrowed funds on which interest has been claimed as deduction u/s 36(1)(iii) was utilized for the purposes of investment in shares - No substantial question of law arises revenue s appeal is dismissed

Summary

Issues:
1. Disallowance of interest claimed as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 against share trading business.

Analysis:
The judgment pertains to an appeal filed by the Revenue against a decision of the Income Tax Appellate Tribunal regarding the disallowance of interest claimed by the assessee as a deduction under Section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer had disallowed the deduction on the grounds that the assessee was not in the business of trading in shares and had utilized loans raised for purchasing shares. The Tribunal examined whether the Commissioner of Income Tax (Appeals) had erred in deleting the disallowance. The assessee argued that it was engaged in share trading, citing profit and loss accounts from previous years. The CIT(A) accepted the assessee's explanation, noting profits earned from trading in shares and funds generated from trading activities.

The Revenue contested the CIT(A)'s decision, claiming that the borrowed funds were used for investing in shares. However, the Tribunal held that the Revenue failed to prove this assertion. The Tribunal found that the assessee had used funds received from other sources for share investments, not the borrowed funds claimed as a deduction. It upheld the CIT(A)'s findings that the assessee was actively trading in shares. The High Court, after considering the arguments, concluded that the Tribunal's decision was correct. It noted that the Revenue did not provide evidence to show that the borrowed funds were used for share investments. Therefore, the Court dismissed the appeal, stating that no substantial question of law arose for consideration.

In summary, the judgment revolves around the disallowance of interest claimed as a deduction under Section 36(1)(iii) of the Income Tax Act against share trading business. The courts analyzed whether the assessee was genuinely engaged in share trading and if the borrowed funds were used for share investments. The Tribunal and subsequently the High Court found in favor of the assessee, as the Revenue failed to prove that the borrowed funds were utilized for share investments, leading to the dismissal of the appeal.