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2019 (1) TMI 992 - AT - Income TaxAddition u/s 36(1)(iii) - disallowance of interest expenditure - assessee company has used the borrowed funds for non-business purposes - Held that:- It is not in dispute that the investments in mutual funds had not started till the time, the assessee started earning operating income from transmission of electricity. Not in dispute that the borrowed funds were entirely used by the assessee for investment in fixed assets for the purposes of business. In dispute that the assessee had adequate interest free funds of its own for making investments in mutual funds. Not in dispute that there were contractual restrictions imposed on assessee in respect of utilization of borrowed funds; and also, the assessee was liable for payment of substantial amounts of liquidation damages/pre-payment charges in case the assessee made pre-payment of loan repayments. Thus, it is also not in dispute that due to contractual restrictions and liquidation damages/pre-payment charges, as aforesaid; it was neither prudent for the assessee to divert any part of borrowed funds for non-business purposes; nor was it prudent to make pre-payment of loan repayments even if the assessee had its own interest free funds. In these specific and peculiar facts and circumstances, there is no case for any disallowance of interest u/s 36(1)(iii) of I.T. Act. Disallowance of interest U/s 36(1)(iii) on merits. Accordingly, both the appeals filed by the Revenue are dismissed.
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