Case Law Details
Gurcharan Singh Bhatia Vs ACIT (ITAT Delhi)
ITAT Delhi held that interest paid on loans borrowed during the course of business of real estate and finance business is allowable as deduction. Accordingly, disallowance of the same deleted.
Facts- Vide the present appeal, the contention of the assessee is that the interest paid on bank loans is business expenditure and is deriving income from business on account of real estate and finance business was not accepted by AO as the assessee has not sold any property or built/purchased any property during the current assessment year.
AO was of the view that the investment appears to be interest free advances/loans to friends/related persons and no interest income has been earned on these advances. AO was also of the view that a significant part of interest free advances has been given to assessee’s own company M/s. Khushi Trading Pvt. Ltd. as well as other relatives or other Bhatia’ s Siblings. AO concluded that the investments were diverted for non business purposes and there is no nexus between the interest paid on funds borrowed and the income earned and, therefore, not allowable as deduction u/s. 36(1)(3) of the Act. The claim of the assessee that the expenditure is allowable u/s. 37(1) of the Act was also denied by observing that the interest bearing funds were not utilized wholly and exclusively for the purpose of business or professions.
CIT(A) sustained the disallowance. Being aggrieved, the present appeal is filed.
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