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TMI Blog2020 (2) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to proportionate disallowance of interest expenses claimed by the assessee. The Assessing Officer noticed that the assessee had purchased land for a sum of Rs. 1 crore out of the OD account of the assessee. The Assessing Officer issued a show cause notice to the assessee proposing to disallow proportionate interest on the amount of Rs. 1 crore used for the purchase of land. The assessee filed its objections vide letter dated 03/12/2010 wherein it was stated that the amounts were advanced for purchase of land which is intended to be assessee's asset. It was submitted that purchase of a property in the firm's name, utilizing the firm's funds cannot be considered as diversion of funds. It was further submitted that the profit that is to be earned on investment of the property is going to be the firm's income on which the assessee is going to be liable for income tax. However, the Assessing Officer rejected the contentions of the assessee and held that the advance given for acquiring the land from the enhanced CC limit is nothing but diversion of funds and the same cannot be treated as wholly and exclusively for the purpose of business. It was concluded by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Tribunal, raising the following grounds: 1. The Learned CIT(Appeals) erred in upholding the addition of Rs. 12,00,000/- made by the AO. The addition was made on the ground that the sum of Rs. 1 crore invested in land (by availing of a limit from the bank) is not for business purpose. 2. The sum of Rs. 1 crore availed from bank was utilized by the Appellant for investing in a land which is now an asset of the firm. The income to be derived from the said asset is going to be declared as the firm's income and as such, the amount invested cannot be considered as diversion of funds for non business purposes. 3. The intention of the partners of the Appellant firm is to earn income by exploiting the land. The funds have not been totally taken out from the firm's business, but have been used to invest in a land, which is now the firm's property. 4. As and when the investment yields income, such income will be the firm's income and therefore, the funds cannot be considered as having been diverted. 5. The case law cited in para 7.2 of the order of the CIT(Appeals) .. High Court of Punjab and Haryana Commissioner of Income-tax-I, Ludhiana vs. Abhishek Industries Ltd. Reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and could be exploited for business of the firm. For these and other grounds that may be urged at the time of hearing of the appeal, it is prayed that the disallowance of Rs. 12,00,000/- may be deleted. 6. The Ld. AR has produced the documents to prove that the property purchased was now the asset of the assessee firm. The Ld. AR has filed a brief written submission which reads as follows: "The phrase "for the purpose of business" occurring in Section 36(1)(iii) is the most important yardstick for determining allowability of deduction under Section 36(1)(iii) of Income Tax Act, 1961. A similar expression with different wording also occurs in Section 57(iii) which reads as "for the purpose of making or earning income". The expression occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii). 2) The Hon'ble Supreme Court in the case of S. A. Builders Ltd. Vs. CIT(A), Chandigarh reported in 288 ITR 1 has given a new dimension to expression "commercial expediency" and clarified the concept of "for purpose of business". In the said judgment, the Hon'ble Supreme Court has defined commercial expediency as an expression of wide import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land. Though the sum of Rs. 1 crore was appearing as advance for property in the balance sheet as at 31st March 2008 the same was capitalized as a fixed asset during 2017-18 assessment after getting the purchase of the property registered vide documents dated 10-06-2016. 3) It is incorrect to equate the purchase of this land with a case where a new unit is set up as part of a business expansion. The land has been purchased by the Appellant in the ordinary course of business. This purchase cannot be considered as "diversion" of funds for non-business purposes. Merriam Webster Dictionary defines "Diversion" as "the act or instance of straying from an activity or course or use". The act of purchasing land cannot by any means be considered as a "diversion" of funds. 4) In this scenario, it is unjust to disallow the proportionate interest paid to bank on the ground that funds have been diverted from the business. Funds have not been diverted but retained in the business. The act of investing in land ought to be treated as an activity in the ordinary course of business of the Appellant. 5) The learned First Appellate Authority has remarked in para 7.2 on page 6 of his order - "... ..... X X X X Extracts X X X X X X X X Extracts X X X X
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