IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER Assessment Year: 2015-16 ACIT, Vs. M/s. Hindustan Thermal Circle-10(1), Projects Ltd., New Delhi 616A (16A, Sixth Floor), Devika Tower, Nehru Place, South Delhi PAN: AAFCM6703L (Appellant) (Respondent)

Assessee by Sh. A.T. Panda, Adv.

Department by Ms. Amish S. Gupt., CIT(DR)

Date of hearing 21.01.2026 Date of pronouncement 21.01.2026

ORDER

PER SATBEER SINGH GODARA, JM This Revenue’s appeal for assessment year 2015-16, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2025-26/1078041135(1), dated 30.06.2025 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

Heard both the parties. Case file perused.

2. Coming to the Revenue’s sole substantive grievance raised in the instant appeal that the CIT(A) has erred in law and on fact in reversing the assessment findings invoking section 36(1)(iii) interest disallowance of Rs.35 lakhs thereby alleging diversion of interest-bearing funds as non-business purposes, the lower appellate findings under challenge to this effect appear to have accepted the assessee’s stand as under:

“In the F.Y. 2011-12, the appellant had issued OCD worth Rs.250 crore to IFCI Ltd carrying coupon rate of 14%. During F.Y.2011-12, the appellant had invested a sum of Rs.147.75 crore as share money in its 100% subsidiary company which is running a 1200 MW plant in MP. During the impugned AY the appellant had paid interest of Rs.35 crore and claim the same as revenue expenditure. Such expenditure has been allowed in the earlier A.Y(s) also. The AO disallowed the same as not being used for purpose of the business and concluded that the said expenditure was not allowable u/s.36(1)(iii), sec 37 or sec 57 of the Act. The AO also distinguished the case laws stated by the appellant.

It is a fact that the appellant had borrowed funds the purpose of investment in it 100% subsidiary company which is running a power plant. The question that arises where the amount so borrowed by the appellant should be invested by itself or sister concern or subsidiary. This question has been answered by the Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh 288 ITR 1 (SC) it was held:

18. We have considered the submission of the respective parties. The question involved in this case is only about the allowability of the interest, on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of the High Court as well as the authorities below on the aforesaid question was not correct.

19. In this connection we may refer to section 36(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the Income-tax under section 28 of the Act.

20. In Madhav Prasad Jatia v. CIT AIR 1979 SC 1291, this Court held that the expression "for the purpose of business" occurring under the provision is wider in scope than the expression "for the purpose of earning income, profits or gains", and this has been the consistent view of this Court.

21. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income-tax authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency.

22. In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) bec