ACIT-32(1), Mumbai, Mumbai V. VKT Ventures LLP, Mumbai

ITA 2349/MUM/2024

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 5555 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2024
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 08-07-2024
• Assessment Year: misc
• Appeal Filed On: 01-05-2024
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESHWARI MENON
• Keywords: Notional interest; Commercial expediency; Set aside
• Section: 37; 28; 208; 119; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SUNIL KUMAR SINGH (JUDICIAL MEMBER) ITA Nos. 2322 & 2349/MUM/2024 Assessment Year: 2013-14 & 2014-15 ACIT 32(1), 202, 2 nd floor, Kautilya Bhavan, BKC, Bandra (East) Mumbai-400051. Vs. VKT Ventures LLP, 318 A to Z Industrial Estate, Delisle Road, S.O. Mumbai-400013. PAN NO. AAJFV 3533 G Appellant Respondent Assessee by : None Revenue by : Ms. Rajeshwari Menon, Sr. DR Date of Hearing : 09/07/2024 Date of pronouncement : 19/08/2024 ORDER PER OM PRAKASH KANT, AM These appeals by the Revenue are directed against two separate orders dated 06.03.2024 and 07.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 and 2014-15 respectively. 2. The sole ground involved in both these appeals is in respect of the disallowance of interest u/s 36(1)(iii) of the Income 1961 (in short ‘the Act’). Therefore, both these appeals were heard together and disposed off by convenience. For Brevity the ground raised by the assessee in assessment year 2013 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the u/s 36(1)(iii) of the Income Tax Act. 3. Briefly stated facts of the case are that the assessee firm is in the business of investment and finance activity along with trading in goods and commodities. The assessee electronically on 29.09.2013 declaring total income at Rs.35,99,660/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. During scrutiny proceeding Assessing Officer noted that partner’s capital in the firm was only to the extent of Rs.1,00,000/ bearing funds and advanceed of the loans given were interest free. At the yea the borrowed fund stood at Rs.832.74 crores and interest of Rs.107.24 crores. Against which the assessee has shown balance outstanding of the advances given at Rs.828.04 crores and shown interest received during the year at R Officer accordingly observed that assessee incurred losses in the ITA Nos. 2322 & 2349/MUM/2024 The sole ground involved in both these appeals is in respect of the disallowance of interest u/s 36(1)(iii) of the Income 1961 (in short ‘the Act’). Therefore, both these appeals were heard together and disposed off by way of this consolidated order . For Brevity the ground raised by the assessee in assessment year 2013-14 is reproduced as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of interest of Rs.123046063/ u/s 36(1)(iii) of the Income Tax Act. Briefly stated facts of the case are that the assessee firm is in the business of investment and finance activity along with trading in goods and commodities. The assessee filed return of income electronically on 29.09.2013 declaring total income at . The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. During scrutiny proceeding Assessing Officer noted that partner’s capital in the firm was only to the extent of Rs.1,00,000/- and the assessee borrowed int bearing funds and advanceed those funds on interest, however part of the loans given were interest free. At the year end i.e. 31.03.2013 the borrowed fund stood at Rs.832.74 crores and interest of Rs.107.24 crores. Against which the assessee has shown balance outstanding of the advances given at Rs.828.04 crores and shown interest received during the year at Rs.99.47 crores. The Assessing Officer accordingly observed that assessee incurred losses in the VKT Ventures LLP 2 ITA Nos. 2322 & 2349/MUM/2024 The sole ground involved in both these appeals is in respect of the disallowance of interest u/s 36(1)(iii) of the Income-tax Act, 1961 (in short ‘the Act’). Therefore, both these appeals were heard way of this consolidated order for . For Brevity the ground raised by the assessee in On the facts and in the circumstances of the case and in law, the Ld. disallowance of interest of Rs.123046063/- Briefly stated facts of the case are that the assessee firm is in the business of investment and finance activity along with trading filed return of income electronically on 29.09.2013 declaring total income at . The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. During scrutiny proceedings, the Assessing Officer noted that partner’s capital in the firm was only to and the assessee borrowed interest those funds on interest, however part end i.e. 31.03.2013 the borrowed fund stood at Rs.832.74 crores and interest paid was of Rs.107.24 crores. Against which the assessee has shown balance outstanding of the advances given at Rs.828.04 crores and shown s.99.47 crores. The Assessing Officer accordingly observed that assessee incurred losses in the business of advancing loans. The Assessing Officer analyzed party wise interest paid in respect of funds borrowed and interest earned in respect of loans advanc that assessee has paid interest on borrowed funds in 10.10% to 15.10%, wh but in some cases it was even lower and in also few cases interest free funds have been advanced by the assessee. Accordingly, the Assessing Officer issued show cause to the assessee as why the interest may not be disallowed out of the interest paid on the borrowed funds. It was submitted by the assessee that it had advanced interest free assessee himself had was worked out on notional basis. A chart of such disallowance by the assessee is reproduced as under: Sr. No. Name of the Party 1 Amish Infrastructure Pvt. Ltd. 2 Keystone Corporate Solutions Pvt. Lt 3 Moonscape Facility Pvt. Ltd. 4 Proprity Construction Pvt. Ltd. 5 Aplex Power Pvt. Ltd. 6 Piramal Texturising Pvt. Ltd. 7 PHL Holdings Pvt. Ltd. (interest free unsecured loan availed on which interest expense has been computed) Total 3.1 The Assessing Officer however rejected the contention of the assessee and restricted the interest payment up to the 11% and ITA Nos. 2322 & 2349/MUM/2024 business of advancing loans. The Assessing Officer analyzed party wise interest paid in respect of funds borrowed and interest earned in respect of loans advanced. The Assessing Officer has mentioned that assessee has paid interest on borrowed funds in 10.10% to 15.10%, whereas, the interest received was almost same but in some cases it was even lower and in also few cases interest en advanced by the assessee. Accordingly, the Assessing Officer issued show cause to the assessee as why the interest may not be disallowed out of the interest paid on the borrowed funds. It was submitted by the assessee that it had advanced interest free loans to six entities and there assessee himself had disallowed interest of Rs.7,70,05,688/ was worked out on notional basis. A chart of such disallowance by the assessee is reproduced as under: Name of the Party Balance as on 31" 03-2013 Interest income worked out at the rate recovered per month Amish Infrastructure Pvt. Ltd. 29,69,15,000 3,64,27,965 Keystone Corporate Solutions Pvt. Ltd. 12,50,00,000 1,53,74,417 Moonscape Facility Pvt. Ltd. 37,07,50,000 4,56,00,523 Proprity Construction Pvt. Ltd. 1,20,000 14,787 Aplex Power Pvt. Ltd. 3,00,000 26,463 Piramal Texturising Pvt. Ltd. 4,00,000 37,939 PHL Holdings Pvt. Ltd. -2,04,76,406 (interest free unsecured loan availed on which interest expense has been 79,34,85,000 7,70,05,688 The Assessing Officer however rejected the contention of the assessee and restricted the interest payment up to the 11% and VKT Ventures LLP 3 ITA Nos. 2322 & 2349/MUM/2024 business of advancing loans. The Assessing Officer analyzed party- wise interest paid in respect of funds borrowed and interest earned ed. The Assessing Officer has mentioned that assessee has paid interest on borrowed funds in the range of ereas, the interest received was almost same but in some cases it was even lower and in also few cases interest en advanced by the assessee. Accordingly, the Assessing Officer issued show cause to the assessee as why the interest may not be disallowed out of the interest paid on the borrowed funds. It was submitted by the assessee that it had loans to six entities and therefore, the disallowed interest of Rs.7,70,05,688/- which was worked out on notional basis. A chart of such disallowance by Interest income worked out at the rate recovered per month 3,64,27,965 1,53,74,417 4,56,00,523 14,787 26,463 37,939 2,04,76,406 7,70,05,688 The Assessing Officer however rejected the contention of the assessee and restricted the interest payment up to the 11% and excess amounting to Rs.12,30,46,063/ section 36(1)(iii) of the Act. 4. On further appeal, the Ld. CIT(A) deleted the addition observing as under: “7.1 During, the appellate proceedings, the appellant has given the details of unsecured loans availed and outstanding, rate of interest at which the loans were borrowed and rate of interest at which the loans were given to various parties. It was also pleaded that the appellant had given loans to some parties without charging any interes had suo-moto disallowed the interest to the tune of Rs.7,70,05,688/ was pleaded that the appellant had earned total income of Rs.35,99,663/ on which the appellant had paid the taxes. It was submitted that the claim of the AO that the appellant had incurred loss was incorrect as appellant had returned income in the return filed as per the computation of total income though there was loss as per the P&L a/c. 7.2 As regards, the finding of the AO that the cost of procuri should have been at lower rate for earning profits, it was pleaded that the appellant borrows funds from the market at the best available rates. However, sometimes the borrowed funds do not get deployed immediately which results in loss. It was fu genuineness of the loans taken and interest paid thereon. That being the case the rate of interest cannot be questioned by the AO especially when the interest is not paid to the persons specified in Section 40(2)(b Act. Reliance was placed on the decision of Hon'ble Supreme Court in the case of SA Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Hon'ble Supreme Court held that Revenue cannot justifiably claim to put itself in the arm chair of th reasonable expenditure having regard to the circumstances of the case and it was further held that no businessman can be compelled to maximise is profits. 7.3 I agree with the contention of the appellant that the AO can the interest on the basis of reasonableness when once the AO is satisfied that the loan has been taken by the appellant and interest as claimed has been paid on such loan. paying interest to the r the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the said case, it was held that the interest paid could n test of reasonableness and hence, the AO was held to be in error to determine as to what rate of interest should have been charged. 7.4 As regards, the loans given by the appellant to some of the entities without charging of interes ITA Nos. 2322 & 2349/MUM/2024 excess amounting to Rs.12,30,46,063/- was disallowed invoking section 36(1)(iii) of the Act. On further appeal, the Ld. CIT(A) deleted the addition 7.1 During, the appellate proceedings, the appellant has given the details ured loans availed and outstanding, rate of interest at which the loans were borrowed and rate of interest at which the loans were given to various parties. It was also pleaded that the appellant had given loans to some parties without charging any interest thereon for which the appellant moto disallowed the interest to the tune of Rs.7,70,05,688/ was pleaded that the appellant had earned total income of Rs.35,99,663/ on which the appellant had paid the taxes. It was submitted that the claim f the AO that the appellant had incurred loss was incorrect as appellant had returned income in the return filed as per the computation of total income though there was loss as per the P&L a/c. 7.2 As regards, the finding of the AO that the cost of procuri should have been at lower rate for earning profits, it was pleaded that the appellant borrows funds from the market at the best available rates. However, sometimes the borrowed funds do not get deployed immediately which results in loss. It was further argued that the AO has accepted the genuineness of the loans taken and interest paid thereon. That being the case the rate of interest cannot be questioned by the AO especially when the interest is not paid to the persons specified in Section 40(2)(b Reliance was placed on the decision of Hon'ble Supreme Court in the Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Hon'ble Supreme Court held that Revenue cannot justifiably claim to put itself in the arm chair of the businessman to decide how much is reasonable expenditure having regard to the circumstances of the case and it was further held that no businessman can be compelled to maximise is 7.3 I agree with the contention of the appellant that the AO can the interest on the basis of reasonableness when once the AO is satisfied that the loan has been taken by the appellant and interest as claimed has been paid on such loan. It is not the case that the appellant has been paying interest to the related parties as prescribed in Section 40A(2)(b) of the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the said case, it was held that the interest paid could not be subject matter of test of reasonableness and hence, the AO was held to be in error to determine as to what rate of interest should have been charged. 7.4 As regards, the loans given by the appellant to some of the entities without charging of interest is concerned, it is found that the appellant has VKT Ventures LLP 4 ITA Nos. 2322 & 2349/MUM/2024 was disallowed invoking On further appeal, the Ld. CIT(A) deleted the addition 7.1 During, the appellate proceedings, the appellant has given the details ured loans availed and outstanding, rate of interest at which the loans were borrowed and rate of interest at which the loans were given to various parties. It was also pleaded that the appellant had given loans to t thereon for which the appellant moto disallowed the interest to the tune of Rs.7,70,05,688/-. It was pleaded that the appellant had earned total income of Rs.35,99,663/- on which the appellant had paid the taxes. It was submitted that the claim f the AO that the appellant had incurred loss was incorrect as appellant had returned income in the return filed as per the computation of total 7.2 As regards, the finding of the AO that the cost of procuring funds should have been at lower rate for earning profits, it was pleaded that the appellant borrows funds from the market at the best available rates. However, sometimes the borrowed funds do not get deployed immediately rther argued that the AO has accepted the genuineness of the loans taken and interest paid thereon. That being the case the rate of interest cannot be questioned by the AO especially when the interest is not paid to the persons specified in Section 40(2)(b) of the Reliance was placed on the decision of Hon'ble Supreme Court in the Builder Ltd vs. CIT 158 taxman 74 (SC). In the said case, the Hon'ble Supreme Court held that Revenue cannot justifiably claim to put e businessman to decide how much is reasonable expenditure having regard to the circumstances of the case and it was further held that no businessman can be compelled to maximise is 7.3 I agree with the contention of the appellant that the AO cannot disallow the interest on the basis of reasonableness when once the AO is satisfied that the loan has been taken by the appellant and interest as claimed has It is not the case that the appellant has been elated parties as prescribed in Section 40A(2)(b) of the Act. Reliance is placed on decision of Hon'ble Delhi High Court in the case of CIT vs. Sahani Silk Mills Pvt. Ltd. 119 taxman 133 (Delhi). In the ot be subject matter of test of reasonableness and hence, the AO was held to be in error to determine as to what rate of interest should have been charged. 7.4 As regards, the loans given by the appellant to some of the entities t is concerned, it is found that the appellant has disallowed the interest claimed in the computation of income to the tune of Rs.7,70,05,688/ received. On page 5 of the assessment order, the AO himsel chart wherein notional interest on funds lent interest free has been worked out and the same has been disallowed in the computation of income. When the appellant has suo moto disallowed the said interest in the computation, again restrictin interest has amounted to double addition. 7.5 In view of the above, I agree with the contention of the appellant that in the facts and circumstances of the appellant's case there was no requirement to disallow the as per its requirements and at the rates prevailing in the market, which is an accepted fact. The interest paid on these loans is also not disputed. The appellant has disallowed the interest on loans given int parties in the computation of total income amounting to Rs.7,70,05,688/ In these facts and circumstances of the case, the disallowance made by the AO of Rs. 12,66,45,730/ accordingly deleted. Ground no 5. Despite notifying neither anyone attended assessee nor was any adjournment opinion that assessee and therefore, same arguments of the Ld. Departmental Representative (DR) and perusal of the records. 6. In the case assessee has filed list of the parties from whom it has borrowed funds at the rate specified available on paged 4 of the Ld. reference: Sr. No. Name of the party Balance per books as on 31.03.2013 1 Alpex Holdings Pvt. Ltd. — ITA Nos. 2322 & 2349/MUM/2024 disallowed the interest claimed in the computation of income to the tune of Rs.7,70,05,688/- to 6 entities after adjusting the interest free loans received. On page 5 of the assessment order, the AO himsel chart wherein notional interest on funds lent interest free has been worked out and the same has been disallowed in the computation of income. When the appellant has suo moto disallowed the said interest in the computation, again restricting the interest beyond 11% and disallowing interest has amounted to double addition. 7.5 In view of the above, I agree with the contention of the appellant that in the facts and circumstances of the appellant's case there was no requirement to disallow the interest. The appellant has borrowed the funds as per its requirements and at the rates prevailing in the market, which is an accepted fact. The interest paid on these loans is also not disputed. The appellant has disallowed the interest on loans given int parties in the computation of total income amounting to Rs.7,70,05,688/ In these facts and circumstances of the case, the disallowance made by the AO of Rs. 12,66,45,730/- cannot be sustained and the same is accordingly deleted. Ground no.1 is allowed.” Despite notifying neither anyone attended on behalf of the was any adjournment filed. Therefore, we opinion that assessee was not interested in prosecuting the appeal and therefore, same is being adjudicated afte arguments of the Ld. Departmental Representative (DR) and perusal In the case assessee has filed list of the parties from whom it has borrowed funds at the rate specified. The available on paged 4 of the Ld. CIT(A) is reproduced for ready Balance per books as on 31.03.2013 Cheque issued for repayment but not cleared as on 31.03.2013 Total O/s unsecured loans as on 31.03.2013 Interest paid — - — 4,59,24,859 VKT Ventures LLP 5 ITA Nos. 2322 & 2349/MUM/2024 disallowed the interest claimed in the computation of income to the tune of to 6 entities after adjusting the interest free loans received. On page 5 of the assessment order, the AO himself has given the chart wherein notional interest on funds lent interest free has been worked out and the same has been disallowed in the computation of income. When the appellant has suo moto disallowed the said interest in the g the interest beyond 11% and disallowing 7.5 In view of the above, I agree with the contention of the appellant that in the facts and circumstances of the appellant's case there was no interest. The appellant has borrowed the funds as per its requirements and at the rates prevailing in the market, which is an accepted fact. The interest paid on these loans is also not disputed. The appellant has disallowed the interest on loans given interest free to 6 parties in the computation of total income amounting to Rs.7,70,05,688/-. In these facts and circumstances of the case, the disallowance made by cannot be sustained and the same is on behalf of the Therefore, we were of the not interested in prosecuting the appeal after hearing the arguments of the Ld. Departmental Representative (DR) and perusal In the case assessee has filed list of the parties from whom it relevant table CIT(A) is reproduced for ready Interest paid Rate of interest 4,59,24,859 12.85% 2 Encore Natural Polymers Pvt. Ltd. - 3 Lucky Vyapar & Holdings Pvt. Ltd. 4 Navbharat Refrigeration & Ind. Ltd. 1,78,00,000 5 Propiedades Realties Pvt. Ltd. - 6 The Swastik Safe Dep. & Investment Ltd. -- 7 Piramal Glass Ltd. 8 PHL Fininvest Pvt. Ltd. _ 9 PHL Holdings Pvt. Ltd. Total 1,78,00,000 7. On the contrary, the assessee has reproduced list of the parties to whom funds stood advanced during the year under consideration along with interest charged. The relevant table is reproduced for ready “Loans and Advances given as at year end Sr. No. Name of the Party 1. Amish Infrastructure Pvt. Ltd. 2. Keystone Corporate Solutions Pvt. Ltd. 3. Moonscape Facility Mgmt 4. Akshat Fincorp Pvt. Ltd. 5. Alpex Holdings Pvt. Ltd. 6. Ansa Decoglass Pvt. Ltd. 7. Ansa Pack Pvt. Ltd. 8. Encore Natural Polymers Pvt. Ltd. 9. Encore Healthcare Pvt. Ltd. 10. India Venture Adv. P. Ltd. 11. Neptune Developers & Constructions Pvt. 12. PEL Mgmt Services Pvt. Ltd. 13. Piramal Corp Services Ltd. 14. Piramal Estates Pvt. Ltd. 15. Piramal Realty Pvt. Ltd. 16. Propiedades Realties Pvt. Ltd. 17. Proprity Consul P. Ltd. ITA Nos. 2322 & 2349/MUM/2024 _ - 5,42,465 _ 25,918 1,78,00,000 _ 4,67,786 _ 15,79,295 _ - 1,67,868 2,10,00,00,000 - 38,43,94,744 6,20,96,00,000 — 63,92,55,473 — — 4,59,24,859 1,78,00,000 8,30,96,00,000 8,32,74,00,000 1,07,23,58,408 On the contrary, the assessee has reproduced list of the parties to whom funds stood advanced during the year under consideration along with interest charged. The relevant table is reproduced for ready reference: Loans and Advances given as at year end and interest received Balance as on 31.03.2013 Interest earned Amish Infrastructure Pvt. Ltd. 29,69,15,000 - Keystone Corporate Solutions Pvt. Ltd. 12,50,00,000 Moonscape Facility Mgmt Pvt. Ltd. 37,07,50,000 Akshat Fincorp Pvt. Ltd. 7,38,03,628 67,59,662 Alpex Holdings Pvt. Ltd. - 2,51,765 Ansa Decoglass Pvt. Ltd. 39,13,23,480 4,10,77,714 Ansa Pack Pvt. Ltd. 6,00,04,219 62,02,770 Encore Natural Polymers Pvt. Ltd. 1,62,57,923 1,49,80,822 Encore Healthcare Pvt. Ltd. -12,67,301 India Venture Adv. P. Ltd. 1,15,68,231 1,16,54,474 Neptune Developers & Constructions 13,39,47,506 1,05,75,341 PEL Mgmt Services Pvt. Ltd. 20,30,52,068 59,46,742 Piramal Corp Services Ltd. 28,46,13,849 1,91,59,895 Piramal Estates Pvt. Ltd. 1,69,66,48,142 40,01,27,049 Piramal Realty Pvt. Ltd. 4,12,45,36,016 40,01,27,049 Propiedades Realties Pvt. Ltd. 55,04,015 Proprity Consul P. Ltd. 1,20,000 - VKT Ventures LLP 6 ITA Nos. 2322 & 2349/MUM/2024 5,42,465 11.00% 25,918 11.00% 4,67,786 11.00% 15,79,295 15.10% 1,67,868 10.10% 38,43,94,744 12.1 5% to 13.00% 63,92,55,473 12.35% 4,59,24,859 — 1,07,23,58,408 On the contrary, the assessee has reproduced list of the parties to whom funds stood advanced during the year under consideration along with interest charged. The relevant table is and interest received Interest earned Rate of interest Int. free Int. free Int. free 67,59,662 12.07% to 12.55% 2,51,765 12.07% to 12.55% 4,10,77,714 12.25% to 13.10% 62,02,770 12.25% to 13.10% 1,49,80,822 12.07 % to 12.55% 12,67,301 12.07 % to 12.55% 1,16,54,474 12.07 % to 12.55% 1,05,75,341 20% 59,46,742 12.07 % to 12.55% 1,91,59,895 12.07 % to 12.55% 40,01,27,049 12.07 % to 12.55% 40,01,27,049 12.07 % to 12.55% 12.07 % to 12.55% Int. Free 18. Ajay G. Piramal Foundation 19. Thoughtful Realtors Pvt. Ltd. 20. Topzone Mercantile Co. LLP. 21. Welpure Pharma Pvt. Ltd. 22. The Swastik Safe Dep. & Ltd. 23. Alpex Power Pvt. Ltd. 24. Halcyon Labs Pvt. Ltd. 25. Piramal Texturising Pvt. Ltd. 26. Thaler Developers Pvt. Ltd. 27. Vulcan Investments Pvt. Ltd. 28. Other Receivables (Vulcan Interest) Total 7.1 In view of the above, disallowance made by the assessee of Rs.7,70,05,688/ enough to cover the disallowance u/s 36(1)(iii) of the Act and separate disallowance made by the AO of Rs.12,30,46,063/ reproduced above is required. The section 36(1)(iii) of the Act reproduced for ready reference: “Section 36(1) allowed in respect of matters dealt with therein , in computing the income reffred to in section 28 (i) ............................ (ia) ............................. (ib) ............................. (ii) ............................ (iia) .................................. (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: [Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of for any period beginning from the date on which the capital was borrowed for ITA Nos. 2322 & 2349/MUM/2024 Ajay G. Piramal Foundation 7,28,37,059 48,33,091 Thoughtful Realtors Pvt. Ltd. 19,41,360 2,07,899 Topzone Mercantile Co. LLP. 38,09,33,199 4,30,37,976 Welpure Pharma Pvt. Ltd. 1,31,33,826 13,23,480 The Swastik Safe Dep. & Investment - 17,882 Alpex Power Pvt. Ltd. 3,00,000 - Halcyon Labs Pvt. Ltd. 1,08,12,730 8,18,789 Piramal Texturising Pvt. Ltd. 4,00,000 Thaler Developers Pvt. Ltd. 31,88,440 1,89,845 Vulcan Investments Pvt. Ltd. 25,50,000 2,08,097 Other Receivables (Vulcan Interest) 2,22,651 - 8,28,03,63,342 99,47,45,229 In view of the above, the question is whether the disallowance made by the assessee of Rs.7,70,05,688/ enough to cover the disallowance u/s 36(1)(iii) of the Act and separate disallowance made by the AO of Rs.12,30,46,063/ reproduced above is required. The section 36(1)(iii) of the Act reproduced for ready reference: “Section 36(1)- The deduction provided for in the following clauses shall be allowed in respect of matters dealt with therein , in computing the income reffred to in section 28 – ............................ ............................. ............................. ............................ (iia) .................................. the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: [Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for VKT Ventures LLP 7 ITA Nos. 2322 & 2349/MUM/2024 48,33,091 12.07 % to 12.55% 2,07,899 12.07 % to 12.55% 4,30,37,976 13% 13,23,480 12.07 % to 12.55% 12.07 % to 12.55% Int. Free 8,18,789 12.07 % to 12.55% *Int. Free 1,89,845 12.07 % to 12.55% 2,08,097 12.07 % to 12.55% Int. Free 99,47,45,229” the question is whether the suo-motu disallowance made by the assessee of Rs.7,70,05,688/- is sufficient enough to cover the disallowance u/s 36(1)(iii) of the Act and separate disallowance made by the AO of Rs.12,30,46,063/- as reproduced above is required. The section 36(1)(iii) of the Act is The deduction provided for in the following clauses shall be allowed in respect of matters dealt with therein , in computing the income the amount of the interest paid in respect of capital borrowed for the [Provided that any amount of the interest paid, in respect of capital borrowed an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation. - subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; (iv) to (xviii)................................................. 7.2 The Hon’ble Supreme Court in the case of SA Builders v. CIT (2007) 288 ITR 1 (SC) u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle Supreme Court is reproduced as 16. We have considered the submissions of the respective parties. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of well as the authorities below on the aforesaid question was not correct. 17. In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred to as the ‘Act’) which states that "the amount of the interest paid in borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the income 18. In Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, Court held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains", and this has been the consistent view of this Court. 19. In our opinion, the High C and the IT authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister-concern (a subsidiary) on is really whether this was done as a measure of commercial expediency. 20. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. 36(1)(iii) because in s. 37 als has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial ITA Nos. 2322 & 2349/MUM/2024 acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this iii).................................................” The Hon’ble Supreme Court in the case of SA Builders v. CIT (2007) 288 ITR 1 (SC) discussed the issue of interest disallowance u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle Supreme Court is reproduced as under: We have considered the submissions of the respective parties. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of well as the authorities below on the aforesaid question was not correct. In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred to as the ‘Act’) which states that "the amount of the interest paid in borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the income-tax under s. 28 of the Act. Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains", and this has been the consistent view of this Court. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the IT authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its concern (a subsidiary) on interest-free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. 36(1)(iii) because in s. 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. VKT Ventures LLP 8 ITA Nos. 2322 & 2349/MUM/2024 acquisition of the asset till the date on which such asset was first put to use, Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this The Hon’ble Supreme Court in the case of SA Builders v. CIT discussed the issue of interest disallowance u/s 36(1)(iii) of the Act at length. The relevant finding of Hon’bvle We have considered the submissions of the respective parties. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of the High Court as well as the authorities below on the aforesaid question was not correct. In this connection we may refer to s. 36(1)(iii) of the IT Act, 1961 (hereinafter referred to as the ‘Act’) which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375 : AIR 1979 SC 1291, this that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, ourt in the impugned judgment, as well as the Tribunal and the IT authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. In our opinion, the decisions relating to s. 37 of the Act will also be applicable to s. o the expression used is "for the purpose of business". It has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial if a third party also benefits thereby. 21. Thus in Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases 155 (HL), it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, no and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The above test in case (supra) has been approved by this Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), 22. In our opinion, the High Court as well as the Tribunal and other IT authorities should have approached from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. 23. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of busi 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. 24. No doubt, as held in 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 s. 36(1)(iii) of the Act. In Madhav Prasad’s 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 that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. Thus, the ratio of Madhav Prasad Jatia’s advanced to a third party should be for commercial expediency if it is sought to be allowed under s. 36(1)(iii) of the Act. 25. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister commercial expediency. 26. It has been repeatedly held by this Court that the expression "for the purpose business" is wider in scope than the expression "for the purpose of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 (SC), 27. The High Court and which the assessee advanced the money to its sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done ITA Nos. 2322 & 2349/MUM/2024 Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The above test in case (supra) has been approved by this Court in several decisions e.g. Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), etc. In our opinion, the High Court as well as the Tribunal and other IT authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest-free loan was given to the sister company (which is a he assessee) as a measure of commercial expediency, and if it was, it should have been allowed. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of busi 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 No doubt, as held in Madhav Prasad Jatia vs. CIT (supra), if the borr 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 s. Madhav Prasad’s case (supra), the borrowed amount was donat 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 that the interest on the borrowed fund in such a case could not be allowed, as it could not be hat it was for commercial expediency. Madhav Prasad Jatia’s case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under s. 36(1)(iii) of the Act. sent case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister-concern was by way of It has been repeatedly held by this Court that the expression "for the purpose business" is wider in scope than the expression "for the purpose of earning profits" vide CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton Spinning & Weaving Mills Ltd. (1971) 82 ITR 166 (SC), etc. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister-concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. VKT Ventures LLP 9 ITA Nos. 2322 & 2349/MUM/2024 Atherton vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases it was held by the House of Lords that in order to claim a deduction, it is t of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The above test in Atherton’s Court in several decisions e.g. Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), CIT vs. Chandulal Keshavlal & Co. In our opinion, the High Court as well as the Tribunal and other IT authorities the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have free loan was given to the sister company (which is a he assessee) as a measure of commercial expediency, and if it was, it The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman 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 (supra), 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 s. case (supra), 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 that the interest on the borrowed fund in such a case could not be allowed, as it could not be case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be sent case, neither the High Court nor the Tribunal nor other authorities concern was by way of 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 vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC), CIT vs. Birla Cotton the other authorities should have examined the purpose for concern, and what the sister- concern did with this money, in order to decide whether it was for commercial 28. It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest However, in our opinion, that fact is not really relevant. What is relevant is wh assessee advanced such amount to its sister expediency. 29. Learned counsel for the Revenue relied on a Bombay High Court decision in Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 98 which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or an party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in was deductible as the amount was advanced to the subsidiary company as a of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. 30. Similarly, the view taken by the Bombay High Court in vs. CIT (1994) 122 CTR (Bom) 344 : (1995) 215 ITR 582 (Bom) be correct. 31. We agree with the view taken by the Delhi High Court in (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee an must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee adv depends on the facts and circumstances of the respective case. For instance, if the directors of the sister-concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be sa measure of commercial expediency. However, money can be said to be advanced to a sister-concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious tha interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitle borrowed loans. ITA Nos. 2322 & 2349/MUM/2024 It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest-free loan to its sister However, in our opinion, that fact is not really relevant. What is relevant is wh assessee advanced such amount to its sister-concern as a measure of commercial Learned counsel for the Revenue relied on a Bombay High Court decision in Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 98 which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or an party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd. (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. TR (Bom) 344 : (1995) 215 ITR 582 (Bom) also does not appear to We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in ard of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT 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 viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister depends on the facts and circumstances of the respective case. For instance, if the concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its VKT Ventures LLP 10 ITA Nos. 2322 & 2349/MUM/2024 It is true that the borrowed amount in question was not utilized by the assessee in free loan to its sister-concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the concern as a measure of commercial Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom) in which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Phaltan Sugar Works Ltd. also does not appear to CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in ard of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the d see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister- of view of commercial expediency and not from the point of view We wish to make it clear that it is not our opinion that in every case interest on ances it to a sister-concern. It all depends on the facts and circumstances of the respective case. For instance, if the concern utilize the amount advanced to it by the assessee for their id that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a concern for commercial expediency in many other circumstances (which need not t a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the d to deduction of interest on its 7.3 Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, the condition should be satisfied that borrowed fund on which interest is claimed are utilised for the purpose of business of the assessee, , secondly, if such funds have been advanced to sister concern interest free , then assessee should show that same were advanced for commercial expediency. in the case of CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH 0830 (Del HC) has held that expenditure needs to be incurred for business purpose and reasonableness of the expenditure has to be judged from the point of view of the businessman and not from the view of the Department. Further, the assessee has relied on the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in the case of CIT v. Padukottai Company Pvt. Ltd. 84 ITR 788 (Mad) wherein it is held that once it is accepted that capital was borrowed for the purpose of business, payment of interes borrowed capital could not be disallowed on the ground that interest charged on lending was at lower rate than interest paid on borrowing and that lending was in favour of the persons who were connected with the assessee. 7.4 In view of the capital, onus lies on borrowed funds have been utilized for the purpose of the business or commercial expediency. In the instant case the issue in dispute whether loans advanced, may ITA Nos. 2322 & 2349/MUM/2024 Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, the condition should be satisfied that borrowed fund on which interest is claimed are utilised for the purpose of business of the essee, , secondly, if such funds have been advanced to sister concern interest free , then assessee should show that same were advanced for commercial expediency. The Hon’ble Delhi High Court CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH has held that expenditure needs to be incurred for business purpose and reasonableness of the expenditure has to be judged from the point of view of the businessman and not from the view of the Department. Further, the assessee has relied on the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in Padukottai Company Pvt. Ltd. 84 ITR 788 wherein it is held that once it is accepted that capital was borrowed for the purpose of business, payment of interes borrowed capital could not be disallowed on the ground that interest charged on lending was at lower rate than interest paid on that lending was in favour of the persons who were connected with the assessee. In view of the above, for deduction of interest lies on the assessee to demonstrate whether the borrowed funds have been utilized for the purpose of the business or commercial expediency. In the instant case the issue in dispute vanced, may be at the lower rate of the interest or VKT Ventures LLP 11 ITA Nos. 2322 & 2349/MUM/2024 Thus, for deduction of interest u/s 36(1)(iii) of the Act, firstly, the condition should be satisfied that borrowed fund on which interest is claimed are utilised for the purpose of business of the essee, , secondly, if such funds have been advanced to sister concern interest free , then assessee should show that same were The Hon’ble Delhi High Court CIT v. Dalmia Cement (Bharat) Ltd. [2001] 69 CCH has held that expenditure needs to be incurred for business purpose and reasonableness of the expenditure has to be judged from the point of view of the businessman and not from the view of the Department. Further, the assessee has relied on before the Ld. CIT(A) on the decision of the Hon’ble Madras High Court in Padukottai Company Pvt. Ltd. 84 ITR 788 wherein it is held that once it is accepted that capital was borrowed for the purpose of business, payment of interest on such borrowed capital could not be disallowed on the ground that interest charged on lending was at lower rate than interest paid on that lending was in favour of the persons who were interest on borrowed demonstrate whether the borrowed funds have been utilized for the purpose of the business or commercial expediency. In the instant case the issue in dispute be at the lower rate of the interest or without charging any interest, for the purpose of the business of the assessee has suo-motu made di filed detailed justification of calculation of such disallowance. perusal of the above table assessee has mainly worked out outstanding balance not specified on what disallowance. Once, the assessee has then, it is established business purpose and be disallowed invoking section thus left is examining the correctness of the calculation of the motu disallowance made by the assessee. analysis has been done either assessee and therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for identify funds which have been deployed towards the loans or advances which are not for the purpose of bu expediency and the corresponding interest on the borrowed f liable to be disallowed, need to calculated on the basis of number of days those funds remained view of the discussion, w back to the file of the Assessing Officer for deciding afresh. ITA Nos. 2322 & 2349/MUM/2024 without charging any interest, but those loans have been advanced for the purpose of the business of the assessee or not. made disallowance of Rs.7,70,05,688/ led detailed justification of calculation of such disallowance. perusal of the above table of suo-motu disallowance, w assessee has mainly worked out interest disallowance outstanding balance of parties at the year end. The assessee has what rate it has worked out the notional disallowance. Once, the assessee has suo-moto made established that those loans were not and the corresponding interest therefore invoking section 36(1)(iii) of the Act. thus left is examining the correctness of the calculation of the disallowance made by the assessee. Since, no such rational analysis has been done either by the Assessing Officer or by the assessee and therefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer for identifying the borrowed been deployed towards the loans or advances which are not for the purpose of business or for the commercial expediency and the corresponding interest on the borrowed f liable to be disallowed, need to calculated on the basis of number of days those funds remained advanced for non business purpose. view of the discussion, we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding afresh. VKT Ventures LLP 12 ITA Nos. 2322 & 2349/MUM/2024 those loans have been advanced or not. The assessee sallowance of Rs.7,70,05,688/- but it has not led detailed justification of calculation of such disallowance. On disallowance, we find that disallowance on at the year end. The assessee has rate it has worked out the notional made disallowance not deployed for therefore need to 36(1)(iii) of the Act. The only issue thus left is examining the correctness of the calculation of the suo- Since, no such rational g Officer or by the assessee and therefore, we feel it appropriate to restore this issue ing the borrowed been deployed towards the loans or advances siness or for the commercial expediency and the corresponding interest on the borrowed funds is liable to be disallowed, need to calculated on the basis of number of advanced for non business purpose. In e feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding afresh. 8. In assessment year Revenue are identical Rs.23,24,27,834/-. The in the assessment year 2013 AY 2013-14, the ground accordingly allowed for statistical purposes. 9. In the result, both the appeals of the Reven statistical purposes. Order pronounced in the open Court on Sd/- (SUNIL KUMAR SINGH JUDICIAL MEMBER Mumbai; Dated: 19/08/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ITA Nos. 2322 & 2349/MUM/2024 In assessment year 2014-15 , the grounds raised by the are identical except change of amount The issue in dispute being identical to the issue in the assessment year 2013-14, therefore following our finding the grounds of the Revenue for AY 2014 accordingly allowed for statistical purposes. In the result, both the appeals of the Revenue are allowed for statistical purposes. nounced in the open Court on 19/08/2024. Sd/ (SUNIL KUMAR SINGH) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai VKT Ventures LLP 13 ITA Nos. 2322 & 2349/MUM/2024 grounds raised by the amount, which is dispute being identical to the issue therefore following our finding in for AY 2014-15 are ue are allowed for /08/2024. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai