M/s R.N. Gupta & Co. Ltd., Ludhiana V. Addl. CIT, Ludhiana

ITA 848/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0113 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 17-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 19-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Depreciation; Additional depreciation; Proportionate interest; Commercial expediency; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.848/CHD/2015 (ASSESSMENT YEAR : 2008-09) M/S R.N.GUPTA & CO. LTD. VS. THE ADDL.C.I.T., C-55, FOCAL POINT, RANGE-1, LUDHIANA. LUDHIANA. PAN: AABCR9636F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 17.03.2016 DATE OF PRONOUNCEMENT : 12.04.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 21.9.2015 FOR ASSESSMEN T YEAR 2008-09. 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDER : 1. THAT THE LEARNED CIT HAS ERRED IN CONFIRMING T HE ORDER OF AO IN DISALLOWING ADDITIONAL DEPRECIATION OF RS. 80.465/- ON TOOLING COST 2 OF RS. 4,02,325/- RECOVERED FROM THE CUSTOMERS BY I GNORING THE FACTS OF THE CASE. 3. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E WAS CLAIMING ADDITIONAL DEPRECIATION ON TOOLS AND D YES. SOME OF THE EXPENSES WERE REIMBURSED FROM THE BUYER S. THE ASSESSEE DEBITED THE EXPENSES OF SUCH TOOLS AND DYES AS CAPITAL EXPENDITURE IN THE BOOKS OF ACCOUNT AND AS AND WHEN IT RECEIVED THE REIMBURSEMENT, THE SAME IS RED UCED FROM THE OPENING BALANCE. DURING THE YEAR, THE ASS ESSEE HAD SHOWN SALE/TRANSFER OF TOOLS AND DYES FOR AN AM OUNT OF RS.4,02,325/-. SINCE THE DEBITING OF SALE/TRANSF ER CONSIDERATION FROM OPENING BALANCE WAS NOT JUSTIFIA BLE AND THE ASSESSEE HAD CLAIMED THE AMOUNT OF RS.4,02, 305/- AND HAD CLAIMED DEPRECIATION OF RS.1,40,813/- AND N OW BY REDUCING IT FROM OPENING BALANCE IT WAS MERELY REDU CING DEPRECIATION CLAIMED ONLY UPTO AN AMOUNT OF RS.60,3 48/-. IN VIEW OF THIS, THE ASSESSING OFFICER DISALLOWED A N AMOUNT OF ADDITIONAL DEPRECIATION ON TOOLS AND DYES OF RS.4,02,325/- @ 20% AMOUNTING TO RS.80,465/-. 4. BEFORE THE LEARNED CIT (APPEALS), IT WAS STATED THAT THE AMOUNT RECEIVED BACK ON ACCOUNT OF TOOLS A ND DYES WAS REDUCED FROM THE OPENING BALANCE OF TOOLS AND DYES ACCOUNT STANDING IN THE BALANCE SHEET. THE ASSESSING OFFICER REDUCED THIS AMOUNT FROM THE ADDI TION MADE IN THE TOOLS AND DYES ACCOUNT DURING THE YE AR AND 3 ALSO DISALLOWED THE ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE ON THE ADDITIONS MADE DURING THE YEAR. TH IS ACTION OF THE ASSESSING OFFICER IS ILLEGAL AND THE ASSESSEE IS RIGHTLY ENTITLED TO ADDITIONAL DEPRECIATION ON T HE ADDITIONS MADE DURING THE YEAR, WHICH HAS NO CONNEC TION WITH THE OLD CLAIMS RECOVERED FROM THE BUYERS ON OL D SUPPLIES. REJECTING THE CONTENTION OF THE ASSESSEE THE LEARNED COMMISSIONER OF INCOME TAX CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASS ESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW, WHILE THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE FINDINGS OF THE LEARNED CIT (APPEALS) RECORDED AT PAGE 12, PARA 4.3 OF HIS ORDER, WHICH READ AS UNDER : 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE BA SIS OF ADDITION MADE BY THE ASSESSING OFFICER THE ARGUMENTS OF THE AR DURING THE COURSE OF APPELLATE PROCEEDINGS. THE AR HAS CONTENDED THAT THE APPELLANT IS RIGHTLY ENTITLED TO T HE ADDITIONAL DEPRECIATION ON THE ADDITIONS MADE DURIN G THE YEAR, WHICH HAVE NO CONNECTION WITH THE OLD CLAIMS RECOVERED FROM THE BUYERS ON OLD SUPPLIES. HOWEVER, THE APPELLANT IS CLAIMING DEPRECIATION ON TOOLS AND DIE S. AT THE 4 SAME TIME, IT IS ALSO GETTING REIMBURSEMENT OF THE AMOUNT EXPENDED ON TOOLS AND DIES FROM BUYERS. THE APPELLA NT HAS BEEN DEBITING THE EXPENSES ON TOOLS AND DIES AS A CAP ITAL EXPENDITURE IN ITS BOOKS OF ACCOUNTS WHEREAS THE REIMBURSEMENT FROM THE BUYERS IS REDUCED FROM THE OPENING BALANCE ON RECEIPTS MEANWHILE, THE APPELLAN T CLAIMS ADDITIONAL DEPRECIATION ON THE SAID TOOLS AN D DIES WHICH IS ULTIMATELY REIMBURSED TO IT. WITH THIS MOD US OPERANDI, THE APPELLANT HAS BEEN CLAIMING ADDITIONA L DEPRECIATION ON THE TOOLS AND DIES WHEREAS THE AMOU NT IS SUBSEQUENTLY REIMBURSED TO IT BY THE BUYERS. THE APPELLANT HAS SHOWN SALE/TRANSFER OF TOOLS AND DIES AMOUNTING TO RS.4,02,325/- ADDITIONAL DEPRECIATION HAS BEEN CLAIMED IN THE DEPRECIATION CHART IN THE YEAR OF DEBITING THE SAID EXPENDITURE WHEREAS THE SAME HAS BEEN REDUCED FROM THE OPENING BALANCE. THE APPELLANT IS NO T ADDING BACK THE ACTUAL AMOUNT OF DEPRECIATION CLAIME D BY IT AS IS EVIDENT FROM THE FACT THAT WHILE DEBITING THE AMOUNT OF RS.4,02,325/- , THE APPELLANT HAS CLAIMED DEPREC IATION OF RS.1,40,813/- WHEREAS BY REDUCING IT FROM THE OPE NING BALANCE IT HAS REDUCED THE DEPRECIATION CLAIMED ONL Y BY RS.60,348/-. LOOKING AT THE OVERALL FACTS AND CIRCU MSTANCES, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING 20 % ADDITIONAL DEPRECIATION ON TOOLS AND DIES OF RS.4,02, 325/- @ 20% AMOUNTING TO RS.80,465/- AND ADDING IT BACK TO TH E INCOME OF THE APPELLANT ON ACCOUNT OF EXCESS CLAIM O F DEPRECIATION U/S 32(1(2A) OF THE IT ACT. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 7. ON PERUSAL OF THE SAME WE DO NOT FIND ANY INFIRMITY IN THE FINDING GIVEN BY THE LEARNED CIT ( APPEALS). FROM THE FACTS IT IS QUITE CLEAR THAT THE ASSESSEE FIRST ADDS THE AMOUNT OF TOOLS AND DYES TO ITS CAPITAL AS SETS AND CLAIMS THE DEPRECIATION ON THE SAME. AT THE TI ME WHEN IT GETS REIMBURSED FOR THE SAME, THE SAME IS R EDUCED 5 FROM THE OPENING BALANCE. THIS WAY, THE ASSESSEE I S GETTING ADDITIONAL BENEFIT ON ACCOUNT OF DEPRECIATI ON CLAIMED ON THE TOOLS AND DYES WHICH HAVE BEEN REIMB URSED BY THE CLIENTS TO IT BY CLAIMING ADDITIONAL DEPRECI ATION ON THE SAME. THE GROUND NO.1 RAISED BY THE ASSESSEE I S DISMISSED. 8. THE GROUND NO.2 RAISED BY THE ASSESSEE READS AS UNDER : 2. THAT THE LEARNED CIT - I HAS ERRED IN CONFIRMIN G THE DISALLOWANCE OF INTEREST OF RS.1,72,376/- U/S 36(1) (III) ON LOANS RAISED FOR BUSINESS PURPOSES. 9. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE INCOME TAX ACT, 1961 (IN SHORT TH E ACT) ON THE INTEREST PAID TO RELATIVES BY THE ASSESSEE O N UNSECURED LOANS RESTRICTING THE SAME TO 12%, AS AGA INST 15% CHARGED BY THE ASSESSEE, MADE THE ADDITION. 10. BEFORE THE LEARNED CIT (APPEALS), BESIDES RAIS ING THE ISSUE ON MERITS, THE ASSESSEE SUBMITTED THAT FO R THE ASSESSMENT YEAR 2007-08 IN ITA NO.967/CHD/2012 IN ASSESSEES OWN CASE UNDER SIMILAR FACTS, 15% RATE O F INTEREST WAS CONSIDERED TO BE REASONABLE. FOLLOWIN G THE DECISION OF THE I.T.A.T., THE LEARNED CIT (APPEALS) HELD THE INTEREST AT THE RATE OF 15% AS REASONABLE RATE OF I NTEREST TO BE PAID TO THE PERSONS SPECIFIED UNDER SECTION 4 0A(2)(B) OF THE ACT. THEREBY, THE LEARNED CIT (APPEALS) RES TRICTED 6 THE RATE OF INTEREST TO 15% AS AGAINST 18% CLAIMED BY THE ASSESSEE AND 12% ALLOWED BY THE ASSESSING OFFICER. 11. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN AP PEAL BEFORE US AND REITERATED THE SUBMISSIONS MADE BEFOR E THE LOWER AUTHORITIES. IT WAS ALSO STATED AT THE BAR THAT TH E BANK INTEREST DURING THE RELEVANT ASSESSMENT YEAR WAS TO THE TUNE OF 15.7%. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS) AND FURTHER STATED THAT THE RATE OF INTEREST AT 15% IS QUITE REASONABLE. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BE LOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE F INDINGS OF THE LEARNED CIT (APPEALS) WITH RESPECT TO THIS GROUND A RE RECORDED AT PAGE 15, PARA 5.2, WHICH READS AS UNDER : 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE, THE BAS IS OF ADDITION MADE BY THE ASSESSING OFFICER THE ARGUMENTS OF THE AR DURING THE COURSE OF APPELLATE PROCEEDINGS. THE AS SESSING OFFICER HAS APPLIED THE PROVISIONS OF 40A(2)(A) ON T HE INTEREST PAID TO RELATIVES BY THE APPELLANT ON UNSECURED LOA NS AND HAS RESTRICTED THE SAME TO 12%. THEREBY ADDING EXCES S INTEREST PAID AMOUNTING TO RS 3,44,752/-TO THE INCOME OF THE APPELLANT AGAINST 18% BEING PAID BY THE APPELLANT. T HE HON'BLE ITAT CHANDIGARH BENCH IN THE CASE OF THE APP ELLANT FOR THE A.Y 2007-08 IN ITA NO. 967/CHD/2012 HAS HEL D, ON THIS ISSUE, ON SIMILAR FACTS THAT THE DISALLOWANCE U /S 40A(2)(A) OF THE ACT IS TO BE COMPUTED IN LINE WITH THE MARKET CONDITIONS AND ADMITTEDLY THERE WAS LOWERING OF INTER EST RATE FROM YEAR TO YEAR. ACCORDINGLY THE HON'BLE ITAT CH ANDIGARH BENCH CONFIRMED THE ORDER OF THE CIT APPEAL IN THE APPELLANT'S CASE IN ALLOWING THE INTEREST PAID TO THE SPECIFIED PERSONS U/S 40A(2)(B) OF THE ACT @ 15%. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE I.T.A.T., C HANDIGARH 7 BENCH IN THE APPELLANT'S CASE FOR THE A.Y 07-08, ON SIMILAR FACTS, THE INTEREST PAID TO THE PERSONS SPECI FIED U/S 40A(2)(B) OF THE ACT IS RESTRICTED TO 15% AS AGAINST 1 8% CLAIMED BY THE APPELLANT AND 12% ALLOWED BY THE ASS ESSING OFFICER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 13. ON PERUSAL OF THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) . HOWEVER, IN CONSONANCE WITH THE ORDER OF THE I.T.A. T. IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR AND ALSO TAKING INTO CONSIDERATION THE FACT THAT THE BA NK RATE IN THIS YEAR IS AROUND 15.7%, WE HEREBY HOLD 16% RA TE OF INTEREST TO BE REASONABLE, AS THESE ARE UNSECURED L OANS AND ARE ALWAYS AVAILABLE AT A RATE HIGHER THAN THE BANK RATES. THE GROUND NO.2 RAISED BY THE ASSESSEE IS PA RTLY ALLOWED. 14. THE GROUND NO.3 RAISED BY THE ASSESSEE READS A S UNDER : 3. THAT THE LEARNED CIT - I HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.3,62,132/- 36(1)(III) ON ALLEGED INT EREST FREE ADVANCE IGNORING THE FACTS THAT THE SAID ADVANCE WAS GIVEN OUT OF OWN FUNDS. 15. DURING THE ASSESSMENT PROCEEDINGS, IT CAME TO THE NOTICE OF THE ASSESSING OFFICER THAT IN THE LAS T YEAR, THE ASSESSEE HAD MADE CERTAIN INVESTMENTS IN THE SI STER CONCERN M/S TECHNICO STRIPS & TUBES PVT. LTD., WHIC H WAS RETURNED BACK DURING THE YEAR. HOWEVER, DURING THE YEAR, THE ASSESSEE HAS GIVEN ANOTHER RS.30,00,000/- TO TH E SISTER CONCERN. THE EXPLANATION OF THE ASSESSEE WA S THAT THE AMOUNT IN EARLIER YEAR WAS GIVEN FOR PURCHASE O F CERTAIN LAND, WHILE AS REGARDS THE AMOUNT GIVEN DUR ING 8 THE YEAR, IT WAS STATED THAT THE ASSESSEE HAD ENOUG H OWNED FUNDS, AND THE MONEY BEING LENT OUT OF OWNED FUNDS, NO INTEREST IS ATTRIBUTABLE TO THE SAME. TH E ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.3,62,1 32/- BEING PROPORTIONATE INTEREST ON AMOUNTS GIVEN TO TH E SISTER CONCERN, UNDER SECTION 36(1)(III) OF THE ACT , STATING THAT THERE IS NO PROOF THAT THE ADVANCES WERE GIVEN OUT OF BUSINESS EXPEDIENCY. 16. BEFORE THE LEARNED CIT (APPEALS), SAME SUBMISSIONS WERE MADE, WHICH WERE MADE BEFORE THE ASSESSING OFFICER AND RELIANCE WAS PLACED ON THE JU DGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIG HT ENTERPRISES PVT. LTD. VS. CIT IN ITA NO.224 OF 2013 , DATED 24.7.2015. THE CIT (APPEALS) DISTINGUISHED THE CAS E OF PUNJAB & HARYANA HIGH COURT IN BRIGHT ENTERPRISES P VT. LTD. (SUPRA) STATING THAT IN THE SAID CASE, THE CON CERNS WERE IN HOTEL BUSINESS AND THE ADVANCES WERE GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY AND FOR THE PURPOS E OF SISTER CONCERN. SINCE ONE OF THE CONDITIONS TO BE FULFILLED FOR AVAILING DEDUCTION ON ACCOUNT OF INTEREST ON BO RROWED CAPITAL UNDER SECTION 36(1)(III) OF THE ACT IS THAT THE MONEY BORROWED MUST HAVE BEEN USED FOR THE PURPOSE OF BUSINESS, WHICH IS NOT ESTABLISHED IN THE PRESENT C ASE. THE ASSESSEE HAS MIXED FUNDS AND NO NEXUS HAS BEEN PROVED TO SHOW WHICH FUNDS ARE USED FOR WHICH PURPO SE. IN THIS WAY, THE GROUND RAISED BY THE ASSESSEE WAS DISMISSED. 9 17. AGGRIEVED BY THIS THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE DREW OUR ATTENTION AT THE BALANCE SHEET AS ON 31.3. 2008, WHEREBY THE ASSESSEES OWNED FUNDS WERE SHOWN AT RS.18,81,18,559/-, BEING SHARE CAPITAL OF RS.4,85,85,100/- AND RESERVES AND SURPLUS AT RS.13,95,33,459/-, WHILE LOANS AND ADVANCES GIVEN A RE TO THE TUNE OF RS.7,03,32,755/-. THE AMOUNT GIVEN TO M/S TECHNICO STRIPS & TUBES PVT. LTD. WAS RS.30,00,000/ - DURING THE YEAR, WHICH WAS ALSO RECEIVED BACK IN TH E YEAR ITSELF. THESE FIGURES WERE SHOWN TO US IN ORDER TO EMPHASIZE THE FACT THAT THE ASSESSEE HAD ENOUGH OWN ED FUNDS TO LAND IT TO THE SISTER CONCERN INTEREST FRE E. SINCE NO INTEREST EXPENSES HAVE BEEN INCURRED FOR FUNDS G IVEN TO THE SISTER CONCERN, NO DISALLOWANCE UNDER SECTION 3 6(1)(III) OF THE ACT CAN BE MADE. RELIANCE WAS PLACED ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD.(SUPRA) AND CIT VS. KAP SONS ASSOCIATES INVESTMENTS P. LTD. IN ITA NO.354 OF 201 3 (O&M) DATED 4.8.2015. 18. THE LEARNED D.R. VEHEMENTLY ARGUED TO DEFEND THE ORDERS OF THE ASSESSING OFFICER AND CIT (APPEAL S). HE DID NOT DISPUTE THE FACT THAT THE ASSESSEE WAS HAVI NG SUFFICIENT OWNED FUNDS, BUT HEAVY RELIANCE WAS MADE ON THE ARGUMENT THAT NO BUSINESS EXPEDIENCY TO LEND TH E MONEY HAVING BEEN PROVED, THE DISALLOWANCE HAS TO B E MADE UNDER SECTION 36(1)(III) OF THE ACT. 10 19. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THIS IS UNDISPUTED THAT THAT THE ASSESSEE IS HAVING SUFFICIENT OWNED FUNDS TO LEND TO THE SISTER CONCER N. IN SUCH A SCENARIO, PRESUMPTION IS THAT THE ADVANCES H AVE BEEN GIVEN OUT OF OWNED FUNDS AND NO INTEREST EXPEN SES HAVE BEEN INCURRED. THIS PROPOSITION HAS BEEN LAID DOWN IN VERY CLEAR TERMS BY THE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRIS ES PVT. LTD. (SUPRA) AND KAPSONS ASSOCIATES INVESTMENTS PVT . LTD.(SUPRA). WHEN IT IS PRESUMED THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED FOR LENDING MONEY, NO DISALLOWANCE UNDER SECTION 36(1)(III) CAN BE MADE. 20. BEFORE PARTING, WE WOULD LIKE TO DEAL WITH THE ARGUMENT OF THE LEARNED D.R., TO THE EFFECT THAT EV EN IF THERE ARE SUFFICIENT FUNDS, THE BUSINESS EXPEDIENCY FOR LENDING THE MONEY HAS TO BE PROVED BY THE ASSESSEE. FOR THIS, WE WOULD LIKE TO UNDERSTAND THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. SECTION 36 COMES UNDER CHAP TER IVD OF THE ACT, WHICH DEALS WITH THE COMPUTATION OF INC OME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROF ESSION. SECTION 36 DEALS WITH OTHER DEDUCTIONS, WHILE SUB-S ECTION (1) TO SECTION 36 READS AS UNDER : 11 (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28----- 21. THUS, THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT RELATES TO DEDUCTIONS TO BE ALLOWED WHILE COMPU TING INCOME UNDER THE HEAD BUSINESS INCOME. THE CLAUS E (III) OF THE SUB-SECTION (1) OF SECTION 36, TO THE EXTENT RELEVANT IN THE PRESENT CONTEXT, READS AS UNDER : (III) THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. 22. FROM THE BARE PERUSAL OF ALL PROVISIONS, IT BECOMES QUITE CLEAR THAT THE SECTION RELATES TO THE DEDUCTION OF INTEREST EXPENDITURE, WHILE COMPUTING BUSINESS INCOME. WHILE COMPUTING INCOME UNDER THE HEAD, PROFIT & GAINS FROM BUSINESS OR PROFESSION, THE DEDUCTION ON ACCOUNT OF INTEREST IS ALLOWED ONLY IF THE SAME IS PAID IN RESPECT OF CAPITAL BORROWED AND THA T TOO FOR THE PURPOSE OF BUSINESS OR PROFESSION. 23. THE SCENE EMERGING FROM THIS ANALYSIS IS THAT CONDITIONS FOR GETTING DEDUCTION IN RESPECT OF INTE REST ARE, (I) MONEY MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BU SINESS AND (II) THE ASSESSEE MUST HAVE PAID INTEREST ON TH E SAID AMOUNT AND (III) ASSESSEE HAS CLAIMED IT AS DEDUCTI ON. THIS PROPOSITION HAS ALSO BEEN HELD IN THE LANDMARK JUDGMENT 12 OF THE HON'BLE APEX COURT IN THE CASE OF MAHAVIR P RASAD JATIA VS. CIT (1979), 118 ITR 200 (SC). 24. USUALLY, IN A BUSINESS, THE ASSESSEE HAS TWO KINDS OF FUNDS. FIRSTLY, THE INTEREST FREE FUNDS W HICH MAINLY CONSISTS OF ITS OWNED FUNDS AND SECONDLY THE BORROWED FUNDS. IN FIRST KIND OF FUNDS, I.E. OWNED FUNDS, THERE IS NO QUESTION OF ANY INTEREST EXPENDITURE. HOWEVER, IN SECOND KIND OF FUNDS, I.E. BORROWED FUNDS, THERE ARE INTEREST EXPENDITURE, FOR WHICH THE ONUS IS ON THE ASSESSEE TO PROVE THAT SINCE THESE FUNDS WERE BORRO WED FOR BUSINESS PURPOSES, THE INTEREST EXPENDITURE IS ALLO WABLE. 25. ONCE, IT IS ESTABLISHED THAT FOR A GIVEN SITUA TION, THE ASSESSEE HAS NOT BORROWED ANY MONEY, FOR THAT M ATTER, PUTTING IT REVERSE, THE ASSESSEE HAS USED HIS OWNED FUNDS OR INTEREST FREE FUNDS, THERE IS NO QUESTION OF PRO VING THAT THE FUNDS SO TAKEN FROM OWNED OR INTEREST FREE FUND S ARE USED FOR BUSINESS PURPOSES. THERE BEING NO CLAIM O F ANY INTEREST EXPENDITURE, NO QUESTION OF DEDUCTION TO B E ALLOWED UNDER SECTION 36(1)(III) OF THE ACT ARISES. 26. ONCE IT IS PRESUMED THAT THE LENDING AS IN TH E PRESENT CASE IS MADE OUT OF OWNED FUNDS, ASSESSEE N EED NOT SHOW THE BUSINESS EXPEDIENCY FOR THE SAME. AN ASSESSEE OR FOR THAT MATTER ANY PERSON IS FREE TO U SE HIS OWN FUNDS THE WAY HE WANTS. IN THE PRESENT CASE, O N THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL HIGH CO URT THAT THE ASSESSEE HAS USED OWNED FUNDS FOR SUCH LEN DING, 13 WE DO NOT FIND ANY NEED TO GO INTO THE QUESTION OF COMMERCIAL EXPEDIENCY. THE GROUND NO.3 RAISED BY T HE ASSESSEE IS ALLOWED. 27. GROUND NOS. 4 AND 5 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE, THEREFORE, NEED NO ADJUDICATION. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF APRIL, 2016. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 12 TH APRIL, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH