COMMISSIONER OF INCOME TAX Vs. DD INDUSTRIES LTD.

JUDGEMENT

(1.) THE appeals are admitted. Mr. Salil Aggarwal, learned counsel for the assessee accepted notice of the appeals. With consent of counsel for the parties, the appeals were finally heard for disposal. These appeals are directed against the common order of the Income Tax Appellate Tribunal (ITAT) dated 17 -05 -2013, for AY 2007 -08; 2008 -09 and 2009 -10, in cross appeals of the assessee and the revenue (in ITA No. 63 -64/Del/2013; Nos. 264 -266/Del/2013 and ITA No. 635/Del/2013).

(2.) THE revenue urges the following substantial questions of law for the decision of this Court:

(3.) THE AO was of the opinion, in all these assessment years, (AY 2007 -08, 2008 -09, and 2009 -10) that borrowed funds had been used for booking of a property which was to be used as a show room of the company in future years and it could not establish nexus between the money borrowed and sum advanced and that only borrowed funds were utilized to buy a show room i.e., an asset to be used by the company for its future business. It was consequently held that interest on the sum expended by the assessee as advance for the purchase of show room amounting to Rs. 23,28,50,000/ - was not an admissible expenditure. Noting that interest paid on borrowed capital was Rs. 7,54,44,421/ - which, divided by the total borrowed sum disclosed average interest rate of 14.27%, which on application of the same average rate on the fund diverted to the associate companies, worked out to Rs. 3,32,27,695/ -, the AO added back that sum and brought it to tax. Likewise, similar amounts were added back for other years: Rs. 3,21,09,750/ - (for 2008 -09) and Rs. 3,25,85,450/ - (for 2009 -10).