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2019 (7) TMI 1708 - AT - Income TaxDisallowance u/s 36(1)(iii) interest paid on loan - Interest on loans taken from director wholly and exclusively for the purpose of business activities - HELD THAT:- Dichotomy between the borrowing of the loan and actual application thereof in the purchase of a capital asset, seems to proceed on the basis that a mere transaction of borrowing does not, by itself, bring any new asset of an enduring nature into existence, and that it is the transaction of investment of the borrowed capital for the purchase of a new asset which brings that asset into existence; the transaction of borrowing is not the same as the transaction of investment and if this dichotomy is kept in mind, it becomes clear that the transaction of borrowing attracts the provisions of section 36(1)(iii). Assessee filed before the AO the confirmation of loan from the directors in response to the written query dated 29.09.2014 issued by the AO u/s 142(1) - Assessee-company had effected purchase of land in the first year of operation i.e. from 07.05.2010 to 31.03.2011 for an amount which was financed out of unsecured loan obtained from the directors amounting outstanding as at 31.03.2011. Interest was paid on the above loan @ 10%. The borrowing had been effected for the purpose of business activities of the company. The assessee has rightly claimed u/s 36(1)(iii) interest paid on the above loan during the impugned assessment year - Decided in favour of assessee.
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