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M/s Padam & Co. Versus Income Tax Officer, Ward-3 (2) , Jaipur

2017 (11) TMI 855 - ITAT JAIPUR

Disallowance of interest on borrowed money - proof of money unitized for business purposes - purchase of plots - Held that:- The assessee has achieved the turnover of ₹ 10,08,23,511/- and the declared the gross profit rate @ 5.96%, which is higher than the immediate preceding year when it was 3.15% only. The purchase of the plot was to expand the business of the assessee to make go-down as the assessee was paying rent on the go-downs. Thus, there was a direct nexus of this expenditure with .....

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from page No. 13 and 15 of the paper book respectively. Further the fixed assets schedule also shows that the assessee has spent on construction ₹ 16,01,000/- on these plots during the year under consideration. These plots are being utilized for the business purposes. The disallowance of interest on borrowed money was not justified as the money was utilized for business purposes only. - Decided in favour of assessee. - ITA No. 252/JP/2017 - Dated:- 10-11-2017 - SHRI BHAGCHAND, ACCOUNTANT .....

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llowed was warranted. 3. That the interest on capital borrowed for the purpose of business or profession is allowable U/s 36(1)(iii). 2. In all the grounds of appeal, there is only one issue involved, which is against confirmation of disallowance of interest of ₹ 2,37,675/-. 3. The brief facts of the case are that the assessee is engaged as a trader/commission agent of Khal. During the year under consideration, the assessee has purchased plot No. 15-16 in Mohit Nagar Vistar, Sarana Doongri .....

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star, Sarana Doongri, Jaipur admeasuring (611.11+ 850.42) 1461.53 sq yards for ₹ 31,68,995/-. During the assessment proceedings, it was observed by the AO that the appellant has obtained net fresh deposit of ₹ 1,28,23,673/-and has paid net interest of ₹ 34,67,957/-. It was concluded by the AO that the capital borrowed to the extent of ₹ 31,68,995/- were used for acquiring the capital assets which were not put to use during the year under consideration and hence the AO has .....

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trading results were better and Net profit for the year was ₹ 4,82,205/- ( ₹ 4,00,269 in PY) despite of increase in interest cost to ₹ 34,67,957/- in comparison to ₹ 22,91,794 in PY, which means the interest bearing funds were effectively utilized by it in the promotion of business. It was further stated that the go-down rent has increased to ₹ 4,38,478/- from ₹ 3,46,797/- in the previous year and buying the land for expansion of business and future savings i .....

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come of the assessee. Here the relevant wording of the Act is for the purpose of business and the entire funds on which interest were paid is directly and incidentally infused for business purpose. It is well established proposition that when the revenue fails to establish any nexus between the borrowed funds and the funds diverted/lent, any denial of allowances of interest under Section 36[ 1 ] (iii) is not permissible. It was the contention of the appellant that the proviso to section 36(1) (i .....

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o considered the judicial pronouncements relied upon by the appellant and found them to be distinguishable on facts. It is noted that the appellant was engaged as a trader/commission agent of Khal for which its required go-downs and looking to the increase in godown rents, it purchased two plots for the purposes of extension of its business. It would be appropriate to reproduce the provisions of section 36( 1) (iii) of the Act as under: 36(1) (iii) the amount of the interest paid in respect of c .....

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to section 36(1)(iii) of the Act as reproduced above that interest paid in respect of an asset required for extension of existing business cannot be allowed till the date such asset was put to use. It is evident from the depreciation chart filed by the appellant that there was no addition to these plots in terms of boundary wall etc. and the appellant has incurred a sum of ₹ 16,01,000/- thereof in the FY 2012-13 i.e. the plots purchased by the appellant could not be used for the purposes o .....

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asset till the date on which such asset was first put to use, shall not be allowed as deduction. By implication this proviso is also applicable when assets are acquired for new business. If the proviso is interpreted to signify that the same will not be applicable to such acquisition of assets, it will defeat the whole purpose of the proviso. Thus, the assessee's plea that proviso is not applicable, is not sustainable. In the background of the aforesaid discussion, the Commissioner (Appeals .....

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e to the tune of ₹ 3,72,38,259/- which has increased from ₹ 2,48,69,710/- as on 31.03.2011. In view of these facts, it can be concluded that the investment in the plots to the tune of ₹ 31,68,995/- was made out of the borrowed funds i.e. there is a direct nexus between the borrowed funds and investment in plots. The expenditure may be required as a commercial expediency is of no relevance here as a capital asset was acquired by the appellant, which was not put to use during the .....

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