The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that interest paid on borrowed funds used for business purposes cannot be disallowed.
The company, M/s. Chinsha Property Pvt. Ltd. was engaged in the business of real estate, property in Tulsiwadi was acquired for redevelopment. Hence, commercial expediency/business purpose assessee had invested Rs.11.25 Crores in the project.
The Assessing Officer disallowed the interest observing that the assessee had diverted its interest-bearing loans to M/s. Joyous Housing Ltd., for non-business purposes and without any commercial expediency, and therefore the same was disallowed under section 36(1)(iii) of the Act.
The CIT(A) followed the order of the Tribunal in the assessee’s own case for the earlier assessment years on identical issues and decided in favor of the assessee wherein the disallowance of interest expenditure was deleted.
The Coram consisting of C.N. Prasad upheld the order passed by the CIT(A) and held that interest paid in respect of capital borrowed for the purposes of the business or profession would be squarely allowable as the deduction under Section 36(1)(iii).
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