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2018 (8) TMI 50 - AT - Income TaxDisallowance of interest expenditure u/s 36(1)(iii) - borrowed funds utilized for installation of captive power plant which has not been put to use during the assessment years in question - Held that:- The condition that borrowing must have been made for the purpose of business being carried on by the assessee in the previous year is implicit or inbuilt in Section 36(1)(iii) of the Act itself. The captive power plant was intended for pharmaceutical business as per the consistent stand of the assessee since inception. There is no rebuttal on this account. It is a matter of record that the assessee has entered into Sale & Lease Back Agreement of captive power plant with the lenders with a view to reduce financial costs. Notwithstanding, the assessee throughout is engaged in the business of pharmaceutical and therefore, interest incurred on power plant incidental to pharma unit is allowable deduction on revenue account. The power plant ultimately taken back on lease is nothing but the expansion/incidence of existing business. Thus, dis-investment and gaining control over the asset by way of lease would not, in our view, change the character of claim. Thus, we do not find any infirmity in the order of the CIT(A) in adjudicating the issue in favour of the assessee. We also take note of significant plea raised on behalf of the assessee that the assessee executed sale & lease back – equipment lease agreement with Industrial Development Bank of India on 26.09.1996 relevant to AY 1997-98. We thus also find merit in the alternative plea raised in this regard that where the equipment was sold and company is not the owner of the asset at all, the interest on subsisting loans/borrowing cannot be attributed any longer to the assets so divested. While the power generation asset has been sold, the subsisting loans/borrowings has remained and continued in the books of accounts and used for the purpose of existing and ongoing business of the assessee company in revenue account. Thus, interest on loan amount presently used in ongoing pharma business is allowable otherwise also. - Decided against revenue
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