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3. In brief, the relevant facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of development of infrastructure projects. In an assessment finalised u/s 143(3) of the Act dated 26.3.2013, the total income was determined at Rs.16,53,00,190/- as against returned income of Rs.6,64,36,950/- after making certain additions/disallowances. The assessee's appeal against such additions/disallowances was partly allowed by the CIT(A) and not being satisfied with the order of CIT(A), assessee is in further appeal before us on the aforestated Grounds of appeal.

9 M/s. Horizon Infrastructure Ltd.

10. We have carefully considered the rival submissions. Ostensibly, as the aforesaid discussion reveals, the controversy before us revolves around the application of Sec. 36(1)(iii) of the Act, which permits deduction on account of interest expenditure while computing business income. Sec. 36(1)(iii) of the Act allows deduction in computing 'business income' of the amount of interest paid in respect of capital borrowed "for the purposes of the business". In fact, the rationale of Sec. 36(1)(iii) of the Act is provided by the presence of the expression "for the purposes of the business". In terms of the prescription of Sec. 36(1)(iii) of the Act, the amount of interest paid in respect of capital borrowed is to be allowed as a deduction so long as the corresponding capital is borrowed for the purposes of business. In the present case, and as has been noted by the Assessing Officer also, assessee's stated business is of infrastructure development. It has been canvassed by the assessee before us, on the basis of the loan sanction letter of the bank, that the impugned loan of Rs. 200 crores was raised by the assessee for the purpose of meeting the cost of "initial development work of various infrastructure projects". To this extent, there is no dispute that the raising of the loan is for the purposes of assessee's business. The dispute arises hereinafter whereby the Revenue has contested the claim of the assessee that the borrowed funds have been used for the purpose of business. The assessee supported its plea of having used the borrowed funds for the purpose of business by pointing out that the amounts were advanced to two concerns, namely, Shri Bhakti and Mahakaleshwar in furtherance of its business of infrastructure development. As per the explanation which has been consistently 10 M/s. Horizon Infrastructure Ltd.

Mahakaleshwar became assessee's subsidiary subsequently and since it has been canvassed that the project has thereafter been undertaken under the aegis of the said concern, the liability for the loan from the bank also stood transferred to the said concern subsequently. All this goes to show that both at the time of raising of the loan as well as at the time of advancing of monies to Mahakaleshwar, assessee was acting as a prudent businessman with the purpose of furthering its stated business of infrastructure development. No doubt, with respect to Shri Bhakti, the purpose of land procurement was not achieved as it was not found suitable, but as explained, the amount has been received back and thereafter utilised in the business of infrastructure development. Therefore, on an overall consideration of facts, it is quite clear that there is a nexus between the interest expenditure and the business purpose of the assessee, namely, business of infrastructure development and once it is so established, the reasonableness or otherwise of the quantum of return or profits cannot be a factor to decide its commercial expediency. In this context, we may reproduce hereinafter the following observation of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. (supra) :-

[underlined for emphasis by us] To the similar effect is the ratio of the judgment of the Hon'ble Supreme Court in the case of Walchand & Co. Pvt. Ltd. (supra).

13. Considering the ratio of the aforesaid judicial pronouncements, it has to be inferred that since the advances given by the assessee to the 14 M/s. Horizon Infrastructure Ltd.

two concerns were for the purpose of business of land aggregation for its infrastructure development project in Navi Mumbai, and thus a part of the interest expenditure relatable to such deployment of funds could not be disallowed u/s 36(1)(iii) of the Act.