TMI Blog2010 (2) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively are treated as the interests paid for the financial loans availed by the assessee and that the assessee is entitled to claim the same as allowable deduction for the respective assessment years under dispute. Unexplained cash credit - addition u/s 68 - held that:- the assessing officer had not discharged the onus cast upon him "to look into the cash credit and make necessary enquiry and come to a finding on such an enquiry in a proper and fair manner" and, therefore, we are of the firm view that without causing any inquiry, treating 10% of total advances as unexplained cash credits is contrary to the spirit of judicial precedents. AO was not justified in treating Rs.7,16,30,000/- as unexplained cash credits u/s 68 of the Act. Payment of conversion charges - disallowance of Rs.345925/- by invoking the provisions of s.40A(2)(b) - Held that:- this issue is remitted back on the file of the AO for fresh consideration. Interest on borrowed funds - The assessee was in the process of expansion of ISP for which a considerable power was necessitated for smooth running of the said plant. Since SNPL - a sister concern - had inclined to generate the required power for the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequential. In the remaining grounds, the cruxes of the issues are that- (i) the CIT(A) had erred in allowing the expenditure of Rs.5.44 crores of financial charges and Rs.2.31 crores of up front fee payments for the new plant under execution; and (ii) the CIT(A) had erred in directing the AO to examine lease rent paid which was disallowed by the AO and to find out the interest portion in it and to allow the same as finance charges. 3. Assessment year 1998-99: (i) ITA No. 711/B/2003- By the assessee: In this appeal, the assessee has raised five exhaustive grounds, out of which, ground No.5 being general and no specific issue was raised. In the remaining grounds, the essences of the issues are reformulated in concise manner as under: (i) the CIT(A) erred in upholding the disallowance made by the AO in respect of lease rent holding that there was no asset and the transactions were only financial transactions and the amount paid was only financial charge; (ii) sustaining the addition of Rs.71630000/- made u/s 68 of the Act; and (iii) sustaining the disallowance of Rs.345925/- by invoking the provisions of s.40A(2)(b) of the Act in respect of payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. A.Y 1997-1998: To familiarize with the issues, let us have a look at the facts which are as under: The assessee company (the assessee - in short) was the manufacturers of steel products. There was a survey operation u/s133A of the Act on the business premises of the assessee and on the basis of the materials found and subsequent inquiries, the Revenue had formed an opinion that the assessee was claiming bogus lease rentals and accommodating the other financial institutions in claiming depreciation in respect of non-existing assets. A Notice u/s 148 was served on the assessee after recording the reasons for re-opening of the assessment. (i) The assessee manufactures sponge iron and it had steel smelting shop and rolling mills. The allegation of the revenue was that the assessee had inflated the number of Special Grade Cast Iron Rolls [SGCI] claimed to have been taken on lease. SGCI Rolls were heavy solid cast alloy steel/iron cylindrical objects used to roll iron billets into rods of various sizes. The pre-heated iron billets were rolled through a series of rolls mounted on stands. The life of a roll was 3 - 5 years, but depreciation was claimed and allowed at 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had indirectly helped the IDBI to claim 100% depreciation again on the asset so claimed to have been transferred by way of sale through book entries and claimed lease rent as a revenue expenditure in its books of account. Regarding the lease rent claimed to have been paid by RPG Telecom Ltd., Mysore, it was established that the said company had never leased any machinery to the assessee. No details were forth-coming in respect of the machinery rent to others amounting to Rs.9,32,000/-. In the absence of any details, the payment of lease rent amounting to Rs.1,38,65,266/- was disallowed. (ii) With regard to setting up of a new steel plant - Integral Steel Plant [ISP], on verification of details furnished and also the audit report, the AO was of the view that the said project was a new project but was not an expansion of already existing unit. Though, the new project was not completed during the accounting period, the assessee claimed interest and financial charges on term loan amounting to Rs.5,44,42,584 and up-front fee payments to financial institution and banks amounting to Rs.2,31,00,000/- as deduction. For the reasons set-out in the assessment order for the AY 99-00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion physically, it was a paper transaction entered into by the assessee with a sole aim of creating a colourable device. Taking cue from the decision of the Hon'ble ITAT, Special Bench, Mumbai in the case of M/s Mid East Portfolio Management Ltd. and ICICI Ltd in which it was held that 'the transactions which have been styled as sale and lease back transactions were in reality pure finance transactions and the intention of the parties were not that the property in the equipment allegedly sold should pass to the assessee by way of sale and concluded that MEPML and ICICI Ltd were not entitled to 100% depreciation allowance claimed in respect of assets/equipments leased out', the CIT(A) observed that "the sale and lease back transaction entered into by the appellant are nothing but mere subterfuges and the series of transactions executed on paper are indeed colourable devices and, hence, the lease rent claimed by the appellant cannot be allowed." (iii) Financial charges and upfront fees: It has been observed by the CIT (A) that- "The arguments put-forth by the learned counsel of the appellant are seen to be quite merit-worthy. The AO in Para 5 of the asst. order merely stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deleting the concerned disallowances effected." A.Y. 1998-1999: (i) As in last year, for the reasons deliberated in the impugned order, the AO had observed that, "8.......it is clear that the lease rentals paid by the assessee company and debited to P and L account would need to be disallowed in view of the fact that there are no assets with reference to which the lease rental can become an allowable expenditure. Although, it was argued by the authorized representative that the lease rental in any case is allowable expenditure, if not as lease rental, then as financial charges.' I am not impressed by the arguments of the AR for the simple reason that the assessee company neither under IT Act nor in equity is entitled to reap the fruits of its own misdeeds. During the year under consideration, a total payment of lease rental to the tune of Rs.23,99,48,270/- was made. However, out of this, an amount of Rs.16310230/- only is debited to P and L account and the balance amount of Rs.223638040/- has been taken as closing work-in-progress - integrated steel plant. In view of foregoing discussion, I make disallowance of Rs.16310230/-." (ii) The assessee had claimed the 'advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that no one should be allowed to take advantage of his own wrong. As such, the, disallowance is confirmed............." (ii) Unexplained cash credits: The cryptic observation of the Ld.CIT(A) was that- "I have duly considered the submissions of the authorized representative vis-a-vis findings of the assessing officer. The assessing officer has stated that no confirmations were filed before him. Even before the undersigned no confirmations were filed to substantiate the genuineness of the cash credits. As such, I hold that the disallowance of part of the cash credit u/s 68 is justified..." (iii) Disallowance u/s 40A(2)(b): The Ld.CIT(A) was of the view that - "The authorized representative contested this addition without giving any evidence or argument against the addition. Since the assessing officer has given a clear finding and no contrary evidence was furnished either before the assessing officer or before the undersigned, the disallowance is confirmed........." A.Y. 1999-2000: (i) With regard to lease (machinery) rent, for the reasons set-out in the assessment order for the AY 1998-99, the AO had disallowed a sum of Rs.4463063/-. (ii) the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) was that- "I do not agree with the submission of the authorized representative. The assessing officer has rightly held that the interest free advance given by the appellant is not for the business of the assessee. The business of the, assessee is production of steel whereas the business of S.N.Project Ltd. is production of electricity. Although as per the Memorandum of Understanding signed by the parties the electricity generated has to be used by the appellant even then it cannot be said that S.N.Project Ltd. is working for the appellant exclusively. In legal parlance both the companies are separate entities. As such S.N.Project Ltd. has to find finance for its projects separately. The amount advanced by M/s. Bellary Steel and Alloys Ltd. cannot be regarded for purpose of business of the appellant. As such, the assessing officer is justified in treating this transaction as diversion of funds for non-business purposes. The disallowance of interest of Rs.49165609/- is sustained............" 9. Aggrieved by the findings of the Ld. CIT(A), the assessee has come up with the present appeals before us for the AY 1997-98, 1998-99 and 1999-2000. The gist of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons. 7. The Supreme Court in the case of GKN Driveshafts (India) Ltd., referred to supra, has made certain observations, which read thus: "We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." So also we will refer to decision of the Bombay High Court in the case of Allana Cold Storage Ltd., at para 7, the Court held that: "... The law as laid down by the apex court is binding on this court as well as on the authorities functioning under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of discussions, the assessee feels that reopening of assessment u/s 147 is not proper in the circumstances prevailing." The above narration reveals that the assessee had responded to the Notice u/s 148 by furnishing of the required information. However, it had neither protested the reopening of the assessment nor sought the reasons recorded for such reopening of the assessment, but, had rather made a passing remark which, in our view, of no consequence; (b) Subsequently, the AO vide his letter dt. 12/3/2003, had called for certain details requiring the assessee to furnish the same by 21/3/2003 and also to file its objections, if any, on the proposals set-out in the said communication. The assessee was told in certain terms that "the assessment involved is time-barring one, which has to be completed on or before 31/3/2003." However, the assessee had maintained a steady silence till 20/3/2003 and perhaps woke up from the slumber and came up with a letter dt.20/3/2003 which was filed during the course of hearing on 21/3/2003 that- "Before submitting the details as called for in the above referred letter, we would like to request your kind-self to submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments are made on the loans taken for setting up a new Integral Steel Plant and also Captive Power Plant which was not completed during the year. Therefore, the claim made by as deduction in the computation of Income is not correct and accordingly proposed to be disallowed. You are requested to file your objections if any for the above proposition. 3) Please refer to the Assessment order passed for the Asst. years 1999-2000. The issue regarding sham lease transactions in respect of SGCI Rolls, continues for this Assessment year also. In view of the detailed reasons stated in the Assessment order passed for the Asst. year 1998-99, and 1999-2000, it is proposed to disallow the lease rent of Rs.1,38,65,266/-. Please file your objections if any for the above proposition. 4) You are also requested to file the details of capital work in progress, addition to Plant and Machinery, along with supporting evidence such as purchase Invoices, etc., and also the details of depreciation claimed on these asset details of total lease rentals debited and paid. These details to be filed on the date of hearing. Notices u/s. 143(2)/142(1) is enclosed herewith for your compliance. Ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guess, as the assessment was to be completed by 31/3/2003, otherwise, it would have been hit by limitation. In an overall consideration of the facts and circumstances of the issue on hand, we are of the considered view that the AO had discharged the onus by disclosing the reasons for reopening of assessment and on the basis of which, he sought certain clarifications from the assessee. With respects, we have also perused the order of the jurisdictional High Court referred supra. The finding of the Hon'ble Court is on the different footing since in those cases, the assessing officer had not complied with the statutory requirements of s. 148(2) of the Act whereas in the case on hand, the AO, had, in fact, recorded the reasons before issuing of Notice u/s 148 of the Act. With due respects, we are of the considered view that the finding of the Hon'ble High Court on which the Ld. A.R placed on strong reliance is distinguishable. 10.1.4. Moreover, on a perusal of the assessment order, we find that the ld. AO had made it clear in para 1 that notice u/s. 148 was issued and served on the assessee after recording the reasons for reopening of the assessment. In such a situation, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that the AR did not press the said claim which is contrary to the fact that the AR had in fact vehemently urged during the course of appellate proceedings and also written submissions made on 26/2/03. thus, CIT(A) was not justified in dismissing the claim without adverting to the merits of the contentions made; (vi) the lease transactions of the assessee was in the nature of a financial lease for purchase of assets and consequently, the lease rentals paid by the assessee was only an expenditure liable to be allowed; - the disallowance made was purely on suspicion, surmise, assumption and presumption which were in fact liable to be allowed; - without prejudice, if for an reason, lease rents were required to be disallowed as they were financial leases, then, the finance charges relating to these financial lease transactions were required to be allowed as the same was undoubtedly laid out wholly and exclusively for the business as the transactions in question relate to the provisions of finance to the assessee; (vii) Reliance was placed on the following case laws: (a) CIT vs. Punjab State Electricity Board (2009) 30 DTR (P and H) 153 (b) ICICI Ltd vs. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the details of lease rentals paid during the assessment years under dispute which have not been controverted by the authorities below with any documentary evidence. Their thrusts, in our view, were solely on the survey report only. However, the survey report cannot be a final say in the assessment itself. A survey report can be an indicator or at best be a guiding factor for the assessing officer to probe into the issue at depth. For example, on a perusal of the assessment order for the assessment year 1997-98 reveals that the AO had not examined the various aspects to come to a discreet conclusion that the so called sundry creditors did not have any independent source to advance money to the assessee. In stead, he had followed the details appear to have been set-out in the assessment order for the AY 98-99 which amply imply that the AO had, in fact, not applied his mind at all. 11.2.3. The stand of the Revenue is that the lease rentals paid by the assessee and debited to P and L account would need to be disallowed in view of the fact that there were no assets with reference to which the lease rental can become an allowable expenditure. 11.2.4. On the other hand, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 98-99, the following machinery rent paid during the year is disallowed,...." 11.2.9. As could be seen from the finding of the AO for the AY 98-99 that a total payment of lease rent to the tune of Rs.239948270/- was claimed, out of which, only Rs.16310230/- was debited to P and L account and the balance amount was taken as closing work-in-progress i.e., to say that the assets remained with the assessee, for which, the assessee had claimed as lease rentals which has been turned down by the AO. However, the AO had not recorded the specific reasons for not having acceded to the assessee's request, but made sweeping remarks that"/ am not impressed by the arguments of the authorized representative for the simple reason that the assessee company neither under I. T.Act nor in equity is entitled to reap the fruits of its own misdeeds." 11.2.10 We have duly considered the case laws, on which the assessee had placed reliance, as under: (i) CIT vs. Punjab State Electricity Board (2009) 30 DTR (P and H) 153: The issue before the Hon'ble High Court was the sale and lease back transaction vis-a-vis and the only contention raised by the Revenue was that the machinery wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions were entered into for claiming higher depreciation was not justified......" Applying the same ratio, we are of the considered view that the AO in the present was not justified to disallow the claim on mere suspicion and conjectures. (iii) ICDS Ltd. vs. CIT (2007) 291 ITR 18 (Kar) In this case, the issue before the Hon'ble Court that depreciation was claimed on lease of equipment to educational institution. After considering the issue in depth, the Hon'ble Court had ruled that the assessee was not entitled to depreciation on leased equipment on the ground that the educational institutions and the assessee controlled by the same persons. With respects, we would like to point out that in the case on hand the assessee had taken the machinery on lease from various entities, and, thus, the ratio laid down by the Hon'ble Court is distinguishable and not applicable to the issue before us. CASE LAWS RELIED BY THE REVENUE (i) Avasarala Automation ltd, vs. JCIT (2004) 266 ITR 178 (Kar): The issue before the Hon'ble Court was the assessee had claimed that it had purchased machinery/equipment from APSEB by virtue of an agreement of sale deed for a consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not written off the entire lease charges to PandL account but had written off only to the extent of the financial charge. Considering all these facts, we are of the view that this case law is distinguishable and not directly applicable to the issue on hand. (ii) ICDS Ltd. vs. CIT (2007) 291 ITR 18 (Kar) In this case, the issue before the Hon'ble Court that depreciation was claimed on lease of equipment to educational institution. After considering the issue in depth, the Hon'ble Court had ruled that the assessee was not entitled to depreciation on leased equipment on the ground that the educational institutions and the assessee controlled by the same persons. With respects, we would like to point out that in the case on hand the assessee had taken the machinery on lease from various entities, and, thus, the ratio laid down by the Hon'ble Court is distinguishable and not applicable to the issue before us. (iii) Industrial Cables (I.) Ltd. vs. CIT and Another - 272 ITR 159 (P and H): The issue before the Hon'ble Court was that the assets belonging to the assessee were sold to a sister concern and on the same day these assets were taken on lease from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e laws on which the assessee has placed reliance are more or less similar to that of the issue before us. Unless the Revenue has disputed the assessee's claim with documentary evidence, it cannot be termed as sham or a device. In fact, the Revenue has placed more stress on the survey report rather than making discreet inquiries to pin point where the assessee was at fault. The assessee had, in fact, claimed only Rs.1.38 crores, Rs.1.63 crores and Rs.44.63 lakhs and debited to its P and L accounts for the AYs 97.98, 98-99 and 1999-2000 respectively as 'lease rentals' or 'financial charges' as the case may be, whereas substantial amounts paid under this head have been taken as closing work-in-progress as conceded by the AO for the AY 98-99 under dispute. 11.2.12. In an overall consideration of the facts and circumstances of the case as discussed above and also the crucial fact that the assessee for having entered into lease agreements with various financial institutions and also made financial transactions with them cannot merely be brushed aside. If the lease rentals as claimed by the assessee cannot be allowed, the excess amounts claimed more than the amounts which have been ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the total credits without making proper inquiry was unsustainable and, thus, the impugned addition was liable to be deleted. 12.1.3. Let us have a glimpse of what s.68 says? "68. Where any sum is found credited in the books of an assessee maintained for any previous year; and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 12.1.4. As could be seen from the impugned order of the AO that on a query from the AO, the assessee had furnished the names and addresses of the parties for outstanding amounts exceeding Rs.50 lakhs. After procuring the details of the so called creditors, it could not be gauged from the assessment order as to whether the AO made any inquiries with the alleged creditors to ascertain the genuineness of the assessee's claim. In stead, he went on to observe that "after considering the facts and circumstances and the fact that the assessee company through the Managing Director Sri S.Madhava, by way of an affidavit admitted financial l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence." 12.1.6. Thus, it is clear from the above that the assessing officer had not discharged the onus cast upon him "to look into the cash credit and make necessary enquiry and come to a finding on such an enquiry in a proper and fair manner" and, therefore, we are of the firm view that without causing any inquiry, treating 10% of total advances as unexplained cash credits is contrary to the spirit of judicial precedents. Even the Ld. CIT(A) did not make an effort to find out the cause of such action of the AO. In stead, he had justified the stand of the AO in toto. 12.1.7. In view of the above, we are of the firm view that the AO was not justified in treating Rs.7,16,30,000/- as unexplained cash credits u/s 68 of the Act. 13. (ii) Conversion charges: The AO had brought to tax u/s 40A(2)(b) of the Act a sum of Rs.344925/- on the ground that the assessee had made payment of conversion ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. However, it had lent a sum of Rs.25 crores to S.N.Securities Limited as unsecured loans which in turn invested the same with the assessee towards the purchase of shares. Considering the sequence of events, the AO termed the investments towards the generation of electricity was a sham transaction as a via media for diversion of funds. 15.1. Before the Ld. CIT(A), it was contended that the amount advanced to SNPL. was for the purpose of business and there was no diversion of funds towards non-business purposes. It was pleaded that the assessee had undertaken expansion of unit by putting up an Integrated Steel Plant (ISP) with Chinese technology. Instead of putting up the power plant itself, the assessee had engaged SNPL and a MOU were entered into to implement this project. According to MOU, the assessee shall allow the entire waste gas for generation of electricity to SNPL which would be used by the assessee. For this purpose the assessee had to provide necessary funds to the extent of Rs.60 crores and the said amounts were advanced out of commercial expediency and, therefore, there was no question of diversion of funds as alleged by the AO. 15.1.1. Brushin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively." 15.1.4. Even the Revenue had admitted the very fact in the assessment order of SNPL for the AY 99-00 wherein the AO had acknowledged that "The assessee company was incorporated on 26.8.1996. The main objective of the company as per its Memorandum of Association is generation of electricity....." 15.1.5. SNPL in its communication dated 5.3.2001 to the DCIT, Company Circle 4(6), Bangalore [Source: P 184 of PB] had submitted that - "Our company started with the main idea of putting up the power plant of 60MW capacity to fee major electricity i.e., produced to M/s. Bellary Steels and Alloys Ltd., along with supplying entire steam to the same' company. Due to technical reasons and the problems faced by M/s.Bellary Steels and alloys Ltd., implementation of the project got delayed. Since the management of our company thought it fit to invest surplus funds in a remunerative manner, it was decided to invest towards share capital in one of our connected Company, namely M/s. S.N. Securities Limited. With this idea, our company invested Rs.25 crores towards share application money with M/s. S.N. Securities Ltd....." 15.1.6. An inference can be drawn from the above narrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.4550 lakhs. This clearly goes to justify the assessee's claim that it was financially on sound footing and that out of its shareholders funds, it had advanced a sum of Rs.4550 lakhs to SNPL and not out of the loans availed from financial institutions. The loan amounts received from the financial institutions have been invested for different purposes and NOT for advancing to SNPL as alleged by the Revenue. The sole intention of the assessee was, perhaps, out of its commercial expediency and for its own advantage, it must have entered into an agreement with SNPL and advanced the required funds as per the MOU with an intention to buy the power which was to be generated by the SNPL. As per clause 7 of MOU, it has further been stated that "BSAL has to provide the funds to the extent of Rs.60 crores until SNPL is able to achieve financial closure. The above advances shall be interest free. BSAL shall also obtain permission from its lending institutions and banks to convert a part of the above assistance into equity." Thus, the completion of the project was depending upon the providing of funds by the assessee. Had the assessee not honored in sourcing the funds as agreed upon in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Plant [ISP] was that the assessee was in this line of business over a decade and the said programme was conceived with an object of increasing the total production with improvised technology. The end products in the new unit will be 'rods and bars' which would ease out the different phases and several intermediary processes. In the unit - ISP - the entire processes were streamlined. Once the raw materials were fed, the end products like 'rods and bars' would be manufactured automatically. Thus, the unit which was under implementation was nothing but an expansion of the present activity with improvised technology. Thus, the AO had failed to see the rationale behind the extension programme of the ISP. However, the Ld. CsIT (A) were rather magnanimous in their Endeavour for the AYs 1997-98 and 99-00 in conceding to the assessee's claim in respect of interest and financial charges paid on term loans and upfront fee payments, the expenditure being revenue in nature and allowed the same. 16.1.2. The Ld. A.R has placed strong reliance on the following case laws to drive home his point, notably: (i) Gujarat State Fertilizer and Chemicals Ltd. ACIT (2008) 15 DTR (Guj) 108; (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT reported in (1979) 120 ITR 240, the Hon'ble Court had observed that the money borrowed for the purpose of acquiring leasehold right in the theatre and the capital borrowed was for the purposes of business and as such there was no scope for treating interest paid for capital for existing business as separate from that paid for acquisition of another business asset. There was a clear nexus between the capital borrowed and the acquisition of business asset and, thus, the interest paid was an allowable deduction u/s 36(1)(iii)of the Act. 16.1.5. As rightly highlighted by the Ld. CIT(A) that three conditions are to be fulfilled to avail deduction u/s 36(1)(iii) of the Act, namely; (i) the capital must have been borrowed by the assessee; (ii) the borrowed capital essentially be for the purpose of business; and (iii) the assessee should have paid the interest for the borrowed capital. 16.1.6. Since the above conditions have been fulfilled by the assessee, the assessing officer was not justified in disallowing the financial charges and upfront syndicate fees as claimed by the assessee for the AYs 1997-98 and 1999-00 in question. In other words, we uphold the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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