TMI Blog2014 (4) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness purposes for the period for which the interest is being claimed as a business expense - the disallowance at Rs.140950/- only, is allowed for allowance for the balance – Decided partly in favour of Assessee. - I.T.A. No. 66/Mum/2012 - - - Dated:- 2-4-2014 - Shri Sanjay Arora, AM And Shri Vijay Pal Rao, JM,JJ. For the Appellant : Shri Nitesh Joshi Shri Dhiren K. Rathore For the Respondent : Shri Deepak Sutariya ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-25, Mumbai ( CIT(A) for short) dated 02.11.2011, dismissing the assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of the business. Further, this condition is to continue till the borrowing is repaid; the interest only representing the cost to the business of such capital. As such, if the borrowed capital is subsequently diverted for non-business or personal purposes, interest could not be claimed as a business expense. Any other view would be contrary to the object of the provision (s. 36(1)(iii)) as well as the purpose for which borrowing stands made. An assessee may, while using or employing the borrowing for personal purposes, claim deduction for interest paid thereon. The assessee, however, has the right to replace capital, so that it can withdraw it by borrowing funds, which would thus be construed as applied for business purposes, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire capital of the firm, so that there is in fact a deficit, which was financed by borrowed capital. There was clearly a diversion of borrowed capital toward interest-free loans and advances to friends and relatives by the assessee. Furthermore, no part of the borrowing cost could even otherwise be said to be utilized for business purposes in-as-much as the assessee only earned commission income, not entailing user of any capital, much less borrowed capital. The assessee was, by adverting only to para 9.10 of its order, invoking the tribunal s order dated 15/12/2008 (supra) selectively, failing to take note of its observations at paras 9.1 to 9.5 of its order (refer para 12 of the assessment order and para 5 of the impugned order). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans and advances stands furnished or specified at any stage. The partner s capital is, by definition, the capital introduced in or retained by the partners in the partnership, which is constituted for business purposes. Accordingly, their entire capital is to be considered as the capital of the firm and, thus, toward the business assets of the partnership. Likewise for the current liabilities and provisions for Rs.5.15 lacs, which are only unpaid business liabilities, represented by corresponding business assets. Clearly, therefore, the unsecured loans finance loans and advances to the extent of Rs.70.52 lacs and the business assets for the balance of Rs.43.53 lacs. Interest would thus stand to be allowed on unsecured loans at Rs.43.53 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess assets. That the same may not either be liquid or generate income would be by itself not relevant, even as clarified by the hon ble jurisdictional high court in Calico Dyeing Printing Works v. CIT [1958] 34 ITR 265 (Bom). The decision by the hon ble apex court in Veecumsees v. CIT [1996] 220 ITR 185 (SC), relied upon by the ld. AR before us in this regard, though not squarely on the point, is also apposite. We may before parting also clarify that the assessee s reliance on the allowance of interest for earlier years is only indicative and not determinative of the matter. The borrowed capital, as explained by the tribunal, must continue to be utilized for business purposes for the period for which the interest is being claimed as a bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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