Interest on Loan for Purchasing Agricutural Land not Allowable

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Interest on Loan for Purchasing Agricutural Land not Allowable U/s 36 (III) of Income Tax Act (Kerala High Court)

HIGH COURT OF KERALA

Mini Muthoottu Credit India (P) Ltd.

V/s

CIT

Appeal Number: ITA No. 76 of 2019

Date of Judgement/Order: 25/03/2024

Background:

Mini Muthoottu Credit India (P) Ltd., a company providing asset management services, reported its income for the assessment year 2012-13. Nevertheless, the assessing officer disallowed a section of the interest paid on long-term borrowings, alleging that the loan funds were utilized for the acquisition of agricultural land. The appellant appealed to the Commissioner of Income Tax (Appeals), who initially ruled in its favor. However, the ITAT overturned the decision, upholding the disallowance of interest expense.

Important Para

Para 7. On a consideration of the facts and circumstances of the case and the submissions made across the bar, we find that there is no material produced by the appellant that would clearly suggest that the loan amount availed by it during the assessment year in question had been used for purchasing an asset, which it had used for the purposes of its business as a provider of asset management services. The evidence that was available before the authorities below clearly pointed to the acquisition of agricultural land valued at Rs.5,91,52,500/- and the earning of agricultural income through the sale of tapioca to the tune of Rs.1,93,540/- during the said period.

Thus, notwithstanding the fact that the land in question was shown as a business asset in the balance sheet of the company, the fact remains that there was no evidence to show that the land was used for the purposes of the business of the assessee. As rightly noticed by the Tribunal in the impugned order, the evidence on record showed that the land in question was used for agricultural purposes, which yielded agricultural income, which in turn was exempt from income tax under Section 10(1) of the Income Tax Act. Admittedly,

therefore, and in view of Section 14A of the IT Act, the expenses could not have been seen as incurred for the purposes of the business for the purposes of Section 36 (iii) of the IT Act.

We, therefore, see no reason to interfere with the well-reasoned order of the Tribunal and we dispose this IT Appeal, by answering the substantial questions of law raised therein, against the assessee and in favour of the revenue.