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2022 (2) TMI 1357 - AT - Income TaxAddition u/s 36(1)(iii) - investments made in the shares is out of borrowed funds and the assessee has failed to prove commercial expediency - CIT-A deleted the addition - HELD THAT:- An investment in equity of another company is materially different in nature and character from an interest free advance or loan to another company. The question of diversion of funds for non-business purposes would only come into play in the case of the latter and not for in the case of investment in another company. The very foundation of the impugned disallowance therefore, is vitiated in law, as it proceed on the basis that investment in share capital of another company would amount to diversion of funds for non-business purpose. Whether such an investment yields returns in the present year or not does not make a difference. It is pertinent to bear in mind fact that in the present case interest disallowance has been made on the premise that investment in share capital of another company amounts to diverting the borrowed funds for the business of another company but then as we noted earlier an equity investment as inherently and materially different vis-a-vis an interest-free loan and advance. That distinction has been lost sight of. In our considered view, therefore, CIT(A) was indeed justified in deleting the disallowance of interest. We approve the conclusion arrived by the learned CIT(A) and decline to interfere in the matter. Decided against revenue.
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