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2018 (9) TMI 527 - AT - Income TaxInterest expenditure disallowance - liability towards long term borrowings is ₹ 9,09,56,368/- as on 31/03/2012 and the corresponding figure as on 31/03/2011 was ₹ 8,25,10,213/- - contention of the assessee was that it had used the agricultural land for the purpose of business - Held that:-Contention of assessee itself shows that investment in agricultural land cannot be held to be business asset because it should have been shown as agricultural land only. Being so, interest incurred on borrowings used for purchase of agricultural land cannot be allowed a deduction in terms of section 36(1)(iii)as the condition laid down under section 36(1)(iii) has not been fulfilled. There is direct nexus between the interest bearing loans taken by the assessee and the investment made in agricultural land. The income generated from such land acquired by way of borrowings is exempt from tax u/s. 10(1) of the Act. The assessee incurred expenditure on such borrowings and therefore is not entitled for deduction of interest u/s. 36(1)(iii) of the Act which was rightly disallowed by the Assessing Officer. AR made an alternative claim that the assessee earned agricultural income on the said land to the tune of ₹ 1,93,540/- and therefore, interest should be disallowed to that extent only and the total interest cannot be disallowed - Held that:- Merely because the assessee did not earn agricultural income to the extent of disallowance of interest, disallowance cannot be reduced. It is not hard and fast rule that on each and every investment in exempted yielding asset, the assessee would earn income equivalent to the interest income. Earning of exempted income is not certain because it depends on various factors. The established facts are that the assessee used the borrowed funds for the purpose of acquisition of agricultural land and not for the purpose of business. Therefore, once the income is exempted u/s. 10(1) of the I.T. Act, the said income is directly related to the investment made in the agricultural land, it is not possible to accept the alternative contention of the Ld. AR that part of the interest may be disallowed out of the total disallowance made by the Assessing Officer. This contention of the Ld. AR is also rejected. Also there is no merit in the findings of the CIT(A) that the provisions of section 36(1)(iii) of the Act does not have clause of “put to use”. As per this section, interest expenditure could be allowed only if the loan was borrowed for the purpose of the business of the assessee and if it is used for the purchase of an asset which yielded exempted income, that interest expenditure cannot be allowed u/s. 36(1)(iii) of the Act. Accordingly, we reject all the contentions of the assessee. - Decided in favour of revenue
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