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2019 (12) TMI 759 - AT - Income TaxDisallowance of interest u/s.36(1)(iii) - interest paid on borrowed capital - HELD THAT:- Assets acquired by the assessee were only stock in trade and not any plant and machinery warranting installation of the same and correspondingly putting use of the same would require some time. From the list of assets taken over by the assessee as tabulated above, we find that even the fixed assets taken over by the assessee company comprised predominantly of Goodwill to the tune of ₹ 582.25 Crores and very miniscule operation of fixed assets of ₹ 1.27 Crores were taken over by the assessee which admittedly was paid out of equity funds and the borrowed funds were not utilized at all for the same. This fact is not controverted by the revenue before us. Hence, it could be safely concluded that the borrowed funds were used for acquiring only stock in trade by the assessee and hence, the same were meant only for the purpose of business of the assessee. Accordingly, the proviso to Section 36(1)(iii) of the Act would not come into operation at all. Once, the borrowing has been made for the purpose of business, interest paid thereon would become eligible for deduction u/s.36(1)(iii) Merely because the assessee company had not claimed any depreciation on Goodwill during the year under consideration, it would not make any difference or alternatively it would not change the character of the assets taken over by the assessee company which are purely in the form of liquid assets such as finance receivables, trade receivables and claims receivables thereby forming part of stock in trade of the assessee. We direct the ld. AO to grant deduction of interest paid on borrowed capital in the sum u/s.36(1)(iii) of the Act in the A.Y.2015-16. Accordingly, the ground raised by the assessee is allowed. Disallowance of expenses being the cost of arranger fees, credit rating fees and loan processing fees to obtain loan funds - HELD THAT:- There is no dispute that the entire payments were made by the assessee company in connection with raising loan funds for the purpose of business. As rightly observed by the assessee, the allowability of the expenses incurred for raising loan funds would not depend on the utilisation of the loan funds for the purpose of procured assets. What is to be seen is whether the loans have been borrowed for the purpose of business by the assessee. In the instant case, there is absolutely no dispute that the loans have been borrowed by the assessee for the purpose of its business. The expenses payments of ₹ 15.35 Crores are only payments made to various parties who had assisted in procuring those loans and loan processing fees paid to banks. Hence, this is linked with the liabilities i.e. loans borrowed by the assessee. We also find that the ld. CIT(A) has also placed reliance on the CBDT Circular No.56 dated 09/03/1971. Accordingly, the said expenses are squarely allowable as deduction - Grounds raised by the revenue are dismissed.
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