SUMMARY OF CASE LAW
The assessee may make an imprudent business decision but the same itself does not empower the Revenue to disallow legitimate and bona fide business expenditure.
6. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case it is observed that interest expenditure claimed by the assessee at an amount of Rs. 27.90 lacs was disallowed by the Assessing Officer which was restricted by the Commissioner (Appeals) to Rs. 27.75 lacs being net amount of interest paid by the assessee. We observe that the lower authorities have proceeded in the case by holding that the assessee was not required to borrow money as advances received against project were sufficient to carry out the business of the assessee. In our considered opinion interest on borrowed funds paid by the assessee is allowable expenditure when borrowed fund is utilized for the purpose of business of the assessee. The Department is not empowered to decide when the assessee is to borrow and when it should not borrow. These are the matters which require to be decided by the assessee as a businessman. The assessee may make an imprudent business decision but the same itself does not empower the Revenue to disallow a legitimate and bonafide business expenditure. Thus, we find that the lower authorities have proceeded on a wrong interpretation of law. In our considered opinion if the borrowed funds were utilized for the business of the assessee the interest paid thereon is to be allowed as deduction to the assessee and when the borrowed funds were used for non-business purpose the same cannot be allowed as deduction under section 36(1)(iii) of the Act while computing the business income. Further, the necessary facts to decide the issue in hands are not available on record. Hence, we consider it fair and just to restore the issue back to the file of the Assessing Officer for deciding the same after allowing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal of the assessee is allowed for statistical purposes.