Expenditure on Interest-bearing Loans acquired for making Investment in Agricultural Land not allowable as Deduction: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Cochin bench has held that the deduction cannot be allowed in respect of interest-bearing funds utilized by the assessee-company for acquiring agricultural land which has yielded agricultural income as the acquisition of agricultural land which yielded exempted income not liable to tax.

In the instant case, the assessee used interest-bearing loans for purchase of land for the agricultural purpose which yielded agricultural income. The claimed that the said land was shown as the business asset in the balance sheet and the land was also used for the purpose of the business of the assessee and therefore, the deduction should be given.

The assessee also contended that the land already existed for last several years and was used for business purpose and yielding income from such assets. The assessee had expanded business by investing more funds in various sectors to earn revenue.

The Tribunal noted that there was no iota of evidence to show that the land was used for the purpose of the business of the assessee.

 “The contention of the assessee was that it had used the agricultural land for the purpose of business. That itself shows that investment in agricultural land cannot be held to be business asset because it should have been shown as agricultural land only. Being so, interest incurred on borrowings used for purchase of agricultural land cannot be allowed a deduction in terms of section 36(1)(iii) of the Income Tax Act as the condition laid down under section 36(1)(iii) has not been fulfilled,” the Tribunal said.

“In our opinion, there is direct nexus between the interest-bearing loans taken by the assessee and the investment made in agricultural land. The income generated from such land acquired by way of borrowings is exempt from tax u/s. 10(1) of the Act. The assessee incurred expenditure on such borrowings and therefore is not entitled for deduction of interest u/s. 36(1)(iii) of the Act which was rightly disallowed by the Assessing Officer,” it said.