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AO disallowedpart interest paid on unsecured loans of Rs. 502.69 crores as the respondent-assessee had advanced Rs. 172.59 crores to third parties on which no interest was charged and received. The Assessing Officer had accordingly proportionately disallowed an amount of Rs. 23.60 crore from the interest of Rs. 68.75 crores/- paid by the respondent-assessee. The expression "for purposes of business or profession" occurring in Section 36(1)(iii) of the Act is wider in scope than the expression "for the purpose of earning income, profits or gains". Accordingly, expenditure voluntarily incurred and meeting the "commercial expediency" test is to be allowed as a deduction. It is immaterial if a third party also benefits by the said expenditure. as held inS.A. Builders Ltd. Versus Commissioner of Income Tax (Appeals) Chandigarh and Another, (2007) 1 SCC 781 Purpose of business need not be the business of the assessee, for deduction under Section 36(1)(iii) of the Act to be allowed. Further, Revenue cannot assume the role and occupy armchair of a businessman to decide whether expenditure was reasonable. If the money borrowed is utilised by the assessee for personal benefit and not for business purpose, interest paid on that money would not satisfy the test of "commercial expediency". In the context of the present case the unsecured loans were not used for personal purpose. Merely because non-interest-bearing advances were given to third parties, would not justify a finding that the test of "commercial expediency" was not satisfied. The findings of the Tribunal are in accordance with the law. In these circumstances, we are not inclined to frame any substantial question of law. The present appeal by the Revenue is dismissed.

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Section 36(1)(iii) of the Income Tax Act — Business Expenditure — Interest on borrowed Capital — Merely because non-interest-bearing advances were given to third parties, would not justify a finding that the test of “commercial expediency” was not satisfied.[2018] 48 ITCD 36 (DEL)
Facts: The present appeal raises only one question/issue which relates to disallowance of part interest paid on unsecured loans of Rs. 502.69 crores as the assessee had advanced Rs. 172.59 crores to third parties on which no interest was charged and received. The Assessing Officer had accordingly proportionately disallowed an amount of Rs. 23.60 crore from the interest of Rs. 68.75 crores/- paid by the assessee.The Dispute Resolution Panel had affirmed the addition as proposed in the draft assessment order observing that the Assessing Officer was empowered by law to examine if such expenses meet the test/rigours of “business connection” and “expediency”. Further, the assessee had failed to furnish necessary details on the proposed disallowance, though with regard to other proposed additions details had been furnished by the assessee. The tribunal had deleted the addition. Being aggrieved, Revenue went on appeal before High Court.

Held, that The factum that the loans amounting to Rs. 502.69/- crores were outstanding, was undisputed. Payment of interest was also undisputed. Tribunal was of the view that the assessee had paid interest on capital borrowed for business purpose and in the absence of any allegation and finding that the assessee had diverted unsecured loans for non-business purpose no disallowance could be made. As per Section 36(1)(iii) interest paid for capital borrowed for purpose of business has to be allowed as a deduction. Money borrowed even when advanced to a subsidiary for some business purpose would qualify for deduction of interest. However, if the money borrowed is utilised by the assessee for personal benefit and not for business purpose, interest paid on that money would not satisfy the test of “commercial expediency”. In the context of the present case the unsecured loans were not used for personal purpose. Merely because non-interest-bearing advances were given to third parties, would not justify a finding that the test of “commercial expediency” was not satisfied. Interest free advances were preferred to the parties connected with the business of the respondent/assessee. Money taken on loan was not diverted for non business purpose. The findings of the tribunal are in accordance with law. Thus, appeal was answered in favour of assessee.