INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Allegation that assessee had advanced interest bearing funds without charging any interest - Allowability -

Issue arose for consideration as to whether Tribunal was right in not considering the fact that matching principle in terms of income and expenditure was not applicable when cash method of accounting is followed as the sine qua non for allowability of expenditure is the nexus between the income and expenditure reported for the year in question as applicable in terms of sections 36 and 37. Held: Tribunal rightly held that when cash system of accounting was adopted by assessee, an Investment Company, whose business was only to borrow and lend or invest, the same cannot be said to be not in business interest or commercially expedient for the purpose of business and the concept of 'Matching Principle', which was applied by AO and CIT(A) was not really applicable. It was not for revenue authorities to substitute their own wisdom or notion about the rate of interest agreed to between the parties, including the group companies and, as such, the finding of fact about commercial expediency or absence thereof was a finding of fact, out of which, no substantial question of law can be said to be arising.

Relied:SA Builders Ltd. v. CIT 2007 TaxPub(DT) 834 (SC), India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) : 1966 TaxPub(DT) 278 (SC), State of Madras v. G.J. Coelho (1964) 53 ITR 186 (SC) : 1964 TaxPub(DT) 341 (SC), CITv. Shriram Investments 2019 TaxPub(DT) 2277 (Mad-HC), CIT v. Shriram Investments (Firm) [T.C.(A).Nos.2657 of 2006 and 1017 and 1018 of 2007, dt. 17-9-2014], CIT v. Rajeeva Lochan Kanoria (1994) 208 ITR 616 (Cal) : 1994 TaxPub(DT) 1040 (Cal-HC), Calico Dyeing & Printing Works v. CIT (1958) 34 ITR 265 (Bom) : 1958 TaxPub(DT) 155 (Bom-HC) and Dy. CIT v. Shriram Investments [ITA No.2895/Chny/2018, dt. 20-6-2019].

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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