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TMI Blog2019 (10) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law in sustaining the disallowance to the extent of Rs. 14,48,731/- made by AO on account of expenditure claimed by the assessee under section 36(1 )(iii) 01the Act. (ii) That the above said disallowance has been confirmed despite the fact that the expenditure was incurred wholly and exclusively for the purpose of business and profession. (iii) That the above said disallowance has been confirmed rejecting the detailed explanation and evidences furnished by the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in holding that amount borrowed by the assessee was not utilized for the purpose of business or profession. 4(i) Without Prejudice to the above, in the altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the entire income received by way of interest has been set off towards the bank charges and loan taken from the bank without considering the fact that the assessee has shown the income of Rs. 6,38,869/- as income under the head other sources. AO further observed that the interest on loan and bank charges debited to P&L account do not have a direct relationship with the profession of the assessee and cannot be claimed as a business expenditure and also observed that since the this amount of loan was invested in FDR and interest was received on this investment, the assessee has not utilized the loan for which it was availed. Assessee submitted that as these loans were obtained for a business purpose, therefore the interest expenditure on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance has been confirmed rejecting the detailed explanation and evidences furnished by the assessee and authorities below have wrongly observed that the amount borrowed by the assessee was not utilized for the purpose of business or profession. It was further submitted that the lower authorities wrongly rejected the contention of the assessee that the expenditure incurred by the assessee is otherwise eligible for deduction under section 57(iii) of the Income Tax Act, 1961. He further submitted that the loan obtained by the assessee was to be used for the purpose of expanding the business by purchasing a bigger office premises. The assessee also submitted a declaration from the broker which clearly indicates that the assessee was on a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest on loan and bank charges have no direct nexus with the profession of the assessee. I find considerable cogency in the contention of the Ld. Counsel for the assessee that the loan obtained by the assessee was to be used for the purpose of expanding the business by purchasing a bigger office premise. The assessee also submitted a declaration from the broker which clearly indicates that the assessee was on a continuous lookout for a suitable office premise. It is also noted that nowhere in the section 36(1)(iii) of the Act it is specified that the loan obtained by the assessee has to be invested on the date of borrowing. The section only specifies that the purpose for which the funds are being used is business purpose only, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares is made with the intention of carrying on business and the receipt of dividend is only incidental or ancillary, then Section 36(1)(iii) is attracted." 4.1. Since the assessee intended to purchase a business premise from the funds borrowed, it can be very well concluded that the purpose for which these loans were obtained were business purpose only. It is noted that assessee could not find any suitable office, he invested these idle funds into FDRs to reduce the burden of interest cost to be borne on the borrowed funds and the funds are readily available to the assessee as when a suitable office is found for investment. 4.2 It is a well settled law that revenue cannot sit in the armchair of a businessman to decide the reasonableness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." 4.3 After reading the aforesaid judicial pronouncement it is clear that the AO has wrongly disallowed the expenditure claimed by the assessee u/s 36(1)(iii) of the Act, by alleging that the interest expenditure were not directly related to the business of the assessee. Even otherwise, if the said expenditure is not allowable as a business expenditure, then the interest expenditure is allowable as a deduction u/s 57(iii) of the Act. During the year under consideration, the assessee had earned interest on FDR amounting to Rs. 13,41,303/- and a total expenditure on interest on loan and bank interest amounting to Rs. 14,90,125/- As per the language of section 57(iii) of the Act, the expenditure which is wholly and exclusively incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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