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2021 (9) TMI 282 - AT - Income TaxInterest disallowance u/s 36(1)(iii) - nexus between the borrowed funds and advances granted by the assessee - proof of commercial expediency - advances were made at lower rate of interest and in the absence of any commercial / business expediency, the interest disallowance as made by Ld.AO - assessee submitted that there was sufficient interest free own funds with the assessee and the advances were out of commercial expediency - CIT - A deleted the addition - HELD THAT:- As could be seen that there was commercial expediency for the assessee to grant the loan to M/s RHSL since the success of RHSL would impact the business interest as well as profitability of the group as a whole. The main objective was not to earn the interest but to further the business interest of the group as a whole. Hence, no infirmity could be found in the conclusion of Ld. CIT(A) that the funds were advanced out of commercial expediency / business exigencies. The case law of CIT V/s United Breweries [1972 (1) TMI 6 - MYSORE HIGH COURT]as referred to by Ld. CIT(A), duly support the said proposition. The same is also supported by case of S.A. Builders V/s CIT [2006 (12) TMI 82 - SUPREME COURT] wherein it was held that it was enough to show that the money was expanded not out of necessity and with a view to direct and immediate benefit but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The expression commercial expediency was of wide import and would include such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet is allowable as business expenditure if it was incurred on grounds of commercial expediency. Therefore, we concur with the conclusions drawn by Ld. CIT(A), in this regard. Only requirement to claim interest expenditure u/s 36(1)(iii) is that the borrowed funds should have been expanded wholly and exclusively for business purposes - As undisputed fact that there is one-to-one correlation between the borrowed funds and the advances granted by the assessee. The funds have been lent for business purposes since the main objective was to develop the SEZ. Therefore, in our considered opinion, the primary requirement to claim deduction u/s 36(1)(iii) was duly fulfilled by the assessee. CIT(A) has computed average borrowing rate @2.99% which would further support the case of the assessee only. - Decided against revenue. Disallowance u/s 14A - suo-moto disallowance made by assessee - CIT-A deleted the addition - HELD THAT:- It is undisputed fact that the assessee has claimed expenditure of ₹ 11 Lacs only out of which it has already offered suo-moto disallowance of ₹ 2.13 Lacs u/s 14A and another disallowance of ₹ 5.77 Lacs as ‘Balances written off’. It could be seen that the assessee is a corporate entity and it would necessarily be required to incur routine expenditure to maintain its corporate personality. Therefore, no further disallowance would be warranted on the given facts. By confirming the stand of Ld. CIT(A) on this issue, Dismiss ground of Reveue.
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