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2020 (2) TMI 1363 - HC - Income TaxInterest expenditure claimed allowed u/s 36(1)(iii) - interest paid on the borrowed fund - modus of the respondent assessee is to borrow the funds of the group companies and invest in share of the group companies - HELD THAT:- Funds borrowed by the respondent assessee were utilised for the purpose of its business. As found by both the authorities below that the transactions entered into by the assessee were the transactions entered by it in the normal course of business and it is not the case of the Revenue that the funds borrowed by the assessee company on interest was utilised for any purpose other than its business - it is not the case of the Revenue that the assessee utilised interest bearing funds for the purpose other than its business - interest expenditure claimed by the assessee has been rightly allowed under section 36(1)(iii) by the CIT(Appeals) as well as the Tribunal. In view of section 77 of the Companies Act, 1956, the assessee could not have invested in the shares of the group companies by utilising the borrowed funds, it would be necessary to refer to section 77 of the Companies Act which provides for restrictions on purchase by company or loans by company for purchase of its own or is holding company's shares. Sub-section(1) of section 77 is not applicable to the facts of the case as the assessee has not bought its own shares and sub-section(2) prohibits public company or private company which are subsidiaries giving financial assistance for purchasing the shares. Assessee has not given any financial assistance to any person for purchase of its shares.Section 77 cannot be made applicable in facts of the case because contravention, if any, may be in hands of the company who advanced money to the assessee company on interest. There is no infirmity in the impugned orders passed by both the authorities below as there is concurrent findings of fact so as to allow the interest expenditure claimed by the respondent assessee, as utilising the borrowed funds of the group companies for purchase of the shares of the groups companies are not fraudulent, sham and thereby not illegal - Decided in favour of assessee.
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