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[2008] 306 ITR 149 (ALL.) HIGH COURT OF ALLAHABAD Punjab Auto Industries (P.) Ltd. v. Commissioner of Income-tax PRAKASH KRISHNA AND BHARATI SAPRU, JJ. IT APPEAL NO. 32 OF 1999 AUGUST 29, 2007 Section 36(1)(iii) of Income-tax Act, 1961 - Interest on borrowed capital Where borrowed funds were diverted by assessee-company in purchasing agricultural land, department was justified in disallowing proportionate interest on sum invested in purchase of land Where borrowed funds were diverted by the assessee-company in purchasing the agricultural land, the department was justified in disallowing the proportionate interest on the sum invested in the purchase of land. Pawan Shree Agrawal for the Appellant. A N. Mahajan for the Respondent. JUDGMENT 1. This is an appeal under section 260A of the Income-tax Act, 1961, at the instance of the assessee for the assessment year 1989-90. During the assessment proceedings, the Assessing Officer disallowed interest of Rs. 87,064 on an amount of Rs. 4,83,687. The Assessing Officer was of the view that the assessee has diverted its fund and purchased agricultural land not for business purpose for a sum of Rs. 4,83,687 and therefore, the assessee was not entitled to deduction of interest thereon. The said portion of the order was set aside in appeal by the Commissioner of Income-tax (Appeals), However, the Tribunal on further appeal at the instance of the Department restored the assessment order on this point and maintained the disallowance of Rs. 87,064. In the appeal the following question of law has been raised : "Whether, on the facts and in the circumstances of the case, the Tribunal is legally justified in confirming the disallowance of interest at Rs. 87,064? " 2. Heard Shri Pawan Shree Agrawal, learned counsel for the assessee, and Shri A. N. Mahajan, learned standing counsel for the Department. Learned counsel for the assessee submits that it is not a case of diversion of fund by the assessee-company. But the assessee had the sufficient fund to purchase the agricultural land for a sum of Rs. 4,83,687. 3. The matter was examined in depth by the Assessing Officer. The Assessing Officer rejected the contention of the assessee…

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