TMI Blog2015 (11) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court has simply quoted from its own judgment in the case of 'Commissioner of Income Tax-I, Ludhiana v. M/s. Abhishek Industries Limited, Ludhiana' [2006 (8) TMI 123 - PUNJAB AND HARYANA High Court ]. On that basis, it has held that when loans were taken from the banks at which interest was paid for the purposes of business, the interest thereon could not be claimed as business expenditure.We are of the opinion that such an approach is clearly faulty in law and cannot be countenanced. It is manifest that the advance to M/s. Hero Fibres Limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assessee to the effect that it would provide additional margin to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid Assessment year, the assessee, inter alia, claimed deduction of interest paid on borrowed sums from Bank under the provisions of Section 36(1)(iii) of the Income Tax Act (hereinafter referred to as 'Act'). The aforesaid deduction was disallowed by the Assessing Officer vide his Assesssment Order dated 26.03.1991 on the following two points:- (1) The assessee had advanced a sum of ₹ 1,16,26,128/- to its subsidiary company known as M/s. Hero Fibers Limited and this advance did not carry any interest. According to the Assessing Officer, the assessee had borrowed the money from the banks and paid interest thereupon. Deduction was claimed as business expenditure but substantial money out of the loans taken from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the entire interest paid by the assessee should have been allowed as business expenditure. It would be pertinent to mention that insofar as the advance given to M/s. Hero Fibres Limited is concerned, the case put up by the assessee even before the Assessing Officer was that it had given an undertaking to the financial institutions to provide M/s. Hero Fibres Limited the additional margin to meet the working capital for meeting any cash loses. It was further explained that the assessee company was promotor of M/s. Hero Fibres Limited and since it had the controlling share in the said company that necessitated giving of such an undertaking to the financial institutions. The amount was, thus, advanced in compliance of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise, the assessee had sufficient funds of its own which the assessee could have advanced and it was for the Assessing Officer to establish the nexus between the borrowings and advancing to prove that expenditure was for non-business purposes which the Assessing Officer failed to do. The Department/ Revenue challenged the order of the CIT(Appeal) before the Income Tax Appellate Tribunal (hereinafter referred to as 'ITAT'). The ITAT upheld the aforesaid view of the CIT(Appeal) and thus, dismissed the appeal preferred by the Revenue. Further appeal of the Revenue before the High Court filed under Section 260A of the Income Tax Act, however, has been allowed by the High Court vide impugned judgment dated 06.12.2006. Challengi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC)], if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Applying the aforesaid ratio to the facts of this case as already noted above, it is manifest that the advance to M/s. Hero Fibres Limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assessee to the effect that it would provide additional margin to M/s. Hero Fibres Limited to meet the working capital for meeting any cash loses. It would also be significant to mention at this stage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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