INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Interest on borrowed capital - Money borrowed by assessee stood advanced to sister concerns - Though assessee pleaded business expediency, however, at the same time offered suo moto disallowance partially

Assessee claimed deduction of interest expenses under section 36(1)(iii). AO disallowed deduction on the ground that assessee was in the business of real estate development and no business activity was carried out by the assessee during the year under consideration. Assessee simply borrowed money by way of debentures to the extent of Rs. 1,61,800 Lacs and advanced the same to group concerns at the same effective rate at which it was paying interest for debentures and it incurred losses only because assessee could not fully lend the money available with him. Therefore, the assessee, in the opinion of AO, could not establish business expediency or the business need for incurring such huge financial expenses. Assessee submitted that investment made by assessee in subsidiary companies had been used by them for the purpose of their business and, therefore, interest expenditure was allowable. To support this, financial statements of both the investee entities were placed on record. Held: Though assessee submitted that money advanced to subsidiaries had been used for there business purposes, however, at the same time, assessee also offered suo moto disallowance of part of the interest expenses. Accordingly, two different stands were taken by assessee and correct factual matrix could not be appreciated by AO, accordingly, matter was remanded and AO was directed to re-appreciate assessee's claim.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Rule 34(5)(c)

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