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2016 (5) TMI 399 - PUNJAB AND HARYANA HIGH COURT

2016 (5) TMI 399 - PUNJAB AND HARYANA HIGH COURT - [2016] 385 ITR 335 - Disallowance of interest under section 36(1)(iii) - Held that:- In the light of the judgment of the Apex Court in Hero Cycles (P) Limited vs. CIT, Ludhiana, (2015 (11) TMI 1314 - SUPREME COURT OF INDIA ) and judgment of this Court in Commissioner of Income Tax vs. Kapsons Associates, (2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT ) the matter is remanded to the Tribunal to decide afresh in accordance with law. In Hero Cy .....

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Dated:- 27-4-2016 - MR. JUSTICE AJAY KUMAR MITTAL AND MRS. JUSTICE RAJ RAHUL GARG, JJ. FOR THE APPELLANT : Ms. Radhika Suri, Sr. Advocate with Ms. Rinku Dahiya, Advocate FOR THE Revenue : Mr. Rajesh Katoch, Advocate Ajay Kumar Mittal,J. 1. The delay in re-filing the appeal is condoned. 2. This appeal has been filed by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 31.10.2008, Annexure A.4 passed by the Income Tax Appellate Tribu .....

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ion of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee filed its return for the assessment year 2004-05 declaring a loss of Rs. 38,28,164/-. The return was selected for scrutiny. The Assessing Officer disallowed the amount of Rs. 45,14,373/- on account of interest claimed under section 36(1)(iii) of the Act vide order dated 28.11.2006, Annexure A.1 by holding that the assessee had given interest free advances of an amount of Rs. 6,94,51,894/- to its sist .....

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filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] claiming that the advances made to the sister concern were not out of interest bearing funds and the same could not be disallowed. The CIT(A) rejected the contention of the assessee following the judgment of this Court in CIT vs. Abhishek Industries, (2006) 286 ITR 1 and dismissed the appeal vide order dated 9.6.2008, Annexure A.3. Still not satisfied, the assessee filed appeal before the Tribunal. The Tribunal dismissed the .....

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ates, (2016) 381 ITR 204, the matter is remanded to the Tribunal to decide afresh in accordance with law. In Hero Cycles (P) Limited's case (supra), the Apex Court was considering the issue with regard to interest on borrowed capital (interest free loans). It was held that once it is established that there is nexus between the expenditure and purpose of business, revenue cannot justifiably claim to put itself in arm chair of businessman or in position of Board of Directors and assume role to .....

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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 thi .....

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t advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in ' .....

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e. It further held that 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. 6. Further, in Kapson Associates's case (supra), while considering disallowance of interest under section 36(1)(iii) of the Act, it was recorded by this Court as under:- The Commissi .....

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