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TMI Blog2020 (4) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by the proviso to section 36(1)(iii) interest expenses on capital borrowed for purchase of asset cannot be allowed as deduction - interest expenditure has to be necesssarily capitalised - proviso to section 36(1)(iii) of the Act is applicable during the relevant assessment year, namely 2009-10 and since the asset (land) has not been put to use by the assessee, the interest expenditure for acquiring the same cannot be allowed as a deduction - Decided against assessee. - I.T.A. No.719/Coch/2019 - - - Dated:- 6-2-2020 - Shri George George K., Judicial Member For the Assessee : None (written submission) For the Revenue : Shri Mritunjaya Sharma, Sr. DR ORDER PER GEORGE GEORGE K.,JUDICIAL MEMBER: This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of a property in the firm s name, utilizing the firm s funds cannot be considered as diversion of funds. It was further submitted that the profit that is to be earned on investment of the property is going to be the firm s income on which the assessee is going to be liable for income tax. However, the Assessing Officer rejected the contentions of the assessee and held that the advance given for acquiring the land from the enhanced CC limit is nothing but diversion of funds and the same cannot be treated as wholly and exclusively for the purpose of business. It was concluded by the Assessing Officer that the proportionate interest expenditure for Rs. one crore which is utilized for purchase of land is to be disallowed and added ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 7.2 I have considered the submissions of the Appellant. The Appellant has not been able to prove with any evidence that the advance given for the asset or property purchase is for the purpose of running or augmenting the business of the firm. There is a direct nexus between the loan and the purchase of an asset which is not a business asset till today. After expiry of 10 years, the asset has not put to use but is standing as a dead investment in the name of the firm. Hon ble Punjab Haryana High Court in 286 ITR 1 came to a finding that any fund which was advanced without carrying any interest and without any business purpose the interest to the extent the advance had been made without carrying any interest is to be disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business purposes. 3. The intention of the partners of the Appellant firm is to earn income by exploiting the land. The funds have not been totally taken out from the firm s business, but have been used to invest in a land, which is now the firm s property. 4. As and when the investment yields income, such income will be the firm s income and therefore, the funds cannot be considered as having been diverted. 5. The case law cited in para 7.2 of the order of the CIT(Appeals) .. High Court of Punjab and Haryana Commissioner of Income-tax-I, Ludhiana vs. Abhishek Industries Ltd. Reported in 286 ITR 1 .. cannot be directly applied to the Appellant s case for the following reasons: i) This case has been overruled in 2008 168 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial expediency . 9. The High Court of Delhi, in the case of Punjab Stainless Steel Inds. vs. CIT 324 ITR 396, has further elaborated commercial expediency would include such purpose as is expected by the ass to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be . 10. In view of the above, it cannot be said that the investment in land from out of borrowed funds is for non business purposes or that the funds have been diverted from the business. Such a view is too narrow and does not consider the intention of the partners with regard to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. In the instant case, amounts borrowed have been diverted for purchase of an asset which belongs to the assessee s firm. Admittedly, the said asset was not put to use even as on date of hearing of this appeal. Therefore, going by the proviso to section 36(1)(iii) of the I.T. Act, interest expenses on capital borrowed for purchase of asset cannot be allowed as deduction. In other words, interest expenditure has to be necesssarily capitalised. The judicial pronouncements relied on by the Ld. AR relates to the case laws prior to the introduction of proviso to section 36(1)(iii) of the I.T. Act. Admittedly, the proviso to section 36(1)(iii) of the Act is applicable during the relevant assessment year, namely 2009-10 and since the asset ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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