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| The Tax Publishers2020 TaxPub(DT) 3135 (Jp-Trib) : (2020) 207 TTJ 0001 INCOME TAX ACT, 1961
Section 36(1)(iii)
Since assessee established nexus of interest paid with interest received, i.e., utilisation of interest bearing borrowed funds into interest earning advances. There was no justification for disallowing interest expenditure so incurred. Even if it was presumed that assessee did not commence its business operation and was under pre-commencement period, then still interest expenses was to be allowed interest earned in pre-commencement period. If interest received by assessee was treated as taxable under the head 'Income from other Sources', then still deduction of interest paid was to be allowed under section 57(iii).
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Business deduction under section 36(1)(iii) - Interest on borrowed capital - Disallowance on the ground of assessee not having commenced business operation -
Assessee claimed deduction of interest expenses. AO disallowed deduction on the ground of assessee not having commenced business operation. Assessee's case was that in assessment year 2008-09 in which company was incorporated, share capital was entirely utilized in investment of fixed assets and thereafter subsequent borrowing were made either for purchase of more assets or in intervening period for advancing loans to other entities on which interest was earned investment in interest earning advances was out of interest bearing funds borrowed by assessee. Held: Assessee established nexus of interest paid with interest received, i.e., utilisation of interest bearing borrowed funds into interest earning advances. Hence, there was no justification for disallowing interest expenditure so incurred. Even if it was presumed that assessee did not commence its business operation and was under pre-commencement period then still interest expenses was to be allowed interest earned in pre-commencement period. Even if the interest received by assessee was treated as taxable under the head 'Income from other sources', then still deduction of interest paid by assessee to parties from whom assessee had taken loan and utilized to advance money to persons from whom interest was received was to be allowed to assessee as per section 57(iii).
Relied:CIT v. VGR Foundations (2008) 298 ITR 132 (Mad) : 2008 TaxPub(DT) 0743 (Mad-HC), Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC), Vodafone South Ltd. v. CIT (2015) 236 ITR 315 (Del) : (2015) 61 taxmann.com 415 (Delhi) : 2015 TaxPub(DT) 3807 (Del-HC), Income Tax Officer v. Beam Estates (P.) Ltd. (2011) 236 ITR 315 (Del) : (2011) 15 taxnaann.com 386 (Delhi) : 2011 TaxPub(DT) 1714 (Del-Trib)
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2011-12
IN THE ITAT, JAIPUR BENCH
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