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TMI Blog2014 (2) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... d capital - The AO was not justified in disallowing the interest debited to P&L A/c by 15% on adhoc basis - Decided against Revenue. - ITA No. 281/Bang/2012 - - - Dated:- 30-1-2014 - Shri George George K. And Shri Jason P. Boaz,JJ. For the Petitioner : Ms. Priscilla Singsit, (DR) For the Respondent : Shri S. Sukumar, CA ORDER Per George George K. J. M. 1. This appeal filed by the Revenue is directed against the order of the CIT (A)-I, Bangalore, dated 30.11.2011. The relevant assessment year is 2008-09. 2. The Revenue has, in its Memorandum of appeal, raised a solitary issue, namely, "that the CIT (A) was not justified in deleting the addition made u/s 36(1)(iii) of the Act, amounting to Rs.23,72,716/- being disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the AO is that interest paid had been spent on acquisition of capital assets and, therefore, has to be disallowed. The A.R on the other hand argued that the machineries etc., were utilized ultimately for the purpose of business of manufacture of liquor and, therefore, the interest paid has to be allowed u/s 36(1)(iii) of I.T. Act even if spent on acquisition of machineries. I find strength and merit in the argument of the A R. For such allowance, three conditions must get fulfilled - (i) Firstly, the money or capital must has been borrowed by the assessee (ii) Secondly, it must have been borrowed for the purpose of business; and (iii) The assessee must have paid interest on the borrowed fund. The provisions of sec. 36(1)(iii) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the AO had erroneously presumed that the advances were made during the year and advanced out of borrowed funds. It was, further, submitted that as could be seen from the details of payments made [date-wise as well as year-wise], most of the advances were made in the earlier year itself and that the major advance of Rs.61.97 lakhs paid to M/s. Anjaneya Sagar was towards purchase of land for Sugar Mill. Likewise, it was submitted, an advance paid to Asian Steel was for purchase of steel and advance paid to Paharpur Cooling was for installation of Cooling Tower. It was, therefore, submitted that all the advances made were for the purpose of business which were made in the earlier year. Drawing the attention of this Bench, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed for the purpose of the business of the assessee and, thus, interest paid on such borrowed funds had to be allowed u/s 36(1)(iii) of the Act even though the funds were spent on acquisition of machineries etc. We find substantial force and merit in the argument of the learned A.R. To avail deduction u/s 36(1)(iii) of the Act in respect of interest on borrowed capital, as rightly highlighted by the CIT (A) in his findings, the assessee has to fulfill three conditions prescribed, namely: (a) That money (capital) must have been borrowed by the assessee; (b) That it must have been borrowed for the purpose of business; (c) That the assessee must have paid interest on the said amount and claimed it as a deduction. 6.1. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable under s. 12(2).--CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) relied on. (ii) The Hon'ble Madhya Pradesh High Court in the case of D H Secheron Electrodes Pvt. Ltd v. CIT - (1983) 142 ITR 528 (MP) has ruled as under: "Under s. 36(1)(iii), to sustain a claim for deduction of the amount of interest, all that is necessary is that the capital must have been borrowed by the assessee; secondly, it must have been borrowed for the purpose of the business or profession of the assessee and, thirdly, that the assessee should have paid that amount by way of interest. In the instant case, the Tribunal has not given any finding holding that the conditions required to be satisfied under s. 36(1)(iii) were not fulfilled. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdictional High Court in C.T.Desai v. CIT (1979) 120 ITR 240 (Kar) ruled that - "12. Sec. 36(1)(iii) of the Act is analogous to s. 5(e) of the Madras Act and s. 10(2)(iii) and (iv) of the Indian IT Act, 1922. Hence, the above principle equally applies to the present case. There can be no distinction between interest paid on capital if borrowed by the assessee for his film distribution business and the interest on the capital for the acquisition of the lease of theatre for carrying on the business of exhibition. Both are for purposes his film business, and deductible under s. 36(1)(iii) of the Act while computing his profits and gains of business." 6.3. Taking into account the facts and circumstances of the issue as deliberated upo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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