JUDGMENT : K.S. Jhaveri, J. 1. By way of these appeals, the appellant has challenged the judgment and order of the Income Tax Appellate Tribunal, Ahmedabad (For short, "the Tribunal"), passed in various appeals, whereby the Tribunal has reversed the finding of the CIT (Appeals). 2. At the time of admitting Tax Appeals No. 874 of 2009, following questions of law were framed by this Court:- "(i) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the interest expenditure amounting to Rs. 1,74,01,007/- incurred by the appellant on the funds borrowed for the purpose of business of making share application is not business expenditure and therefore not eligible for deduction? (ii) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in not appreciating that borrowings have ultimately been used for the purpose of business and therefore interest upon the same has to be allowed as business expenditure u/s. 36(1)(iii) of the Act? (iii) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in disallowing interest expenditure u/s. 57(iii) of the Act?" 2.1 Similarly, in Tax Appeal Nos. 876, 2272 to 2274 of 2009 and 1486, 1488, 1489 and 1590 of 2010, all the substantial questions are same except the variation in the amount of interest expenditure in question No. (i) in each of said appeals. So far as Tax Appeal No. 1485 of 2010 is concerned, over and above aforesaid questions, following additional question is posed for our consideration. "(ii) Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the interest expenditure amounting to Rs. 81,37,702/- incurred by the appellant on the delayed payment of allotment money is not business expenditure and therefore not eligible for deduction?" 3. At the time of hearing of these appeals, learned counsel for the appellant, Mr. Mihir Joshi submitted that the Tribunal has relied upon a decision in the case of DCIT v. Pramukh Oxygen Ltd. and in paragraph 12 of the impugned judgment, observed as under:- "12. We have carefully considered the rival submissions and, perused the material on record. At the time of hearing of these appeals, learned counsel for the appellant, Mr. Mihir Joshi submitted that the Tribunal has relied upon a decision in the case of DCIT v. Pramukh Oxygen Ltd. and in paragraph 12 of the impugned judgment, observed as under:- "12. We have carefully considered the rival submissions and, perused the material on record. This is an undisputed fact that when the assessee has applied for allotment of shares and paid the share application money, GACL was having authorized capital of Rs. 95 crores, the company could not have issued the shares without increasing the authorized capital. The share application money were returned to the assessee subsequently without allotting the shares. The assessee is one of the promoters of GACL. The funds have been advanced by GACL to SFC whose proprietor was one of the employees of GACL and in turn the assessee has received the funds from SFC and ultimately given the share application money to GACL. The money was advanced in respect of shares which were never allotted to the assessee. The assessee although claims that he derived income from the business and has claimed the deduction u/s. 36. We have also gone through the copy of the balance sheet as filed by the assessee and we noted that the assessee has shown some of the shares in Gujarat Alkalies Group Company as investment while the other shares were shown as stock-in-trade. Therefore, we do not agree with the plea of the learned AR that the shares were held as stock-in-trade and the assessee paid the share application money for acquiring the business assets. We have also gone through the decision as relied upon by the learned DR in the case of DCIT v. Pramukh Oxygen Pvt. Ltd., [ITA Nos. 3939/Ahd/2002, 1935 and 1936/Ahd/2001 for AYs. 1996-97 to 1998-99] and we find that the facts involved in that case are similar to the facts in the case of the assessee. In that case also the assessee had made payment of Rs. 43,30,000/- as share application money to one M/s. Akshar Pvt. Ltd., a sister concern of the assessee out of the funds borrowed by taking loan from Baroda Peoples' Co-op. Bank for which the assessee has deposited a sum of Rs. In that case also the assessee had made payment of Rs. 43,30,000/- as share application money to one M/s. Akshar Pvt. Ltd., a sister concern of the assessee out of the funds borrowed by taking loan from Baroda Peoples' Co-op. Bank for which the assessee has deposited a sum of Rs. 12,40,000/- as margin money with the bank for this purpose which was taken from Ashokjyot Oxygen Pvt. Ltd. another concern of the assessee. In the case before us there is a clear-cut finding given by the AO that the funds had been rotated from GACL to SFC, from SFC to the assessee and again went back to GACL. No material or evidence was brought before us by the learned AR which may prove that the finding given by the AO is not correct. This finding, in our opinion, remains uncontroverted and due to this finding the facts involved in this case are also similar to the facts in the case of DCIT v. Pramukh Oxygen Ltd. in which this Tribunal has vide order 31-10-2005 restored the order of the AO disallowing the interest by observing as under:- "4. We have heard the parties and considered their rival submissions. When the assessee had applied for allotment of shares on 8-5-1995 and paid the full value of the shares and when the project for which the share capital was being raised could not be completed because of recession in the market and other unfavourable market conditions, the question of retaining the assessee's money did not arise. This may amount to be utilization of assessee's money by them received in the garb of application money, the interest would not be an allowable deduction to the assessee because the shares have never come on the surface. It is true that in view of the Calcutta High Court decision in the case of Rajiv Lochan Kanoria (supra), an interest on borrowed capital utilized for purchase of shares of different companies in order to acquire controlling interest may be an allowable deduction but the assessee had not acquired any controlling interest and, therefore, the said decision would not be of any help to the assessee. Similarly, the decision of the Gujarat High Court in the case of Laxmi Agents Pvt. Ltd. (supra), the interest paid was for acquiring shares of its managed company and it was held to be an allowable deduction u/s. 36(1)(iii) of the Act. This would also not be of any help to the assessee in the absence of purchase of shares. The decision of Chandigarh Bench of the Tribunal in the case of Shivalik Agro Polyproducts (supra) referred to by the CIT (A) is also of no help to the assessee because in that case, the diversification of business by the sister concern out of borrowed funds was held to be for the purpose of business. Here, the project was abandoned by the company of whose shares the assessee thought of purchasing and in spite of the abandonment of the project the assessee's money was retained by them. 5. The ld. counsel of the assessee submitted that even otherwise the money given for the purpose of shares as application money would be for making and earning income from dividend of that company and, therefore, would be an allowable deduction u/s. 57 of the Act. Here also, we do not find any merit in the claim of the assessee. The shares have never come to existence. The interest payment with relation to the amount attributable to share application money without the allotment of shares would not entitle the assessee to claim any deduction for the interest paid on such borrowings and could not be said to be an expenditure incurred wholly and exclusively for the purpose of making and earning income from other sources. The orders of the CIT (A), in our opinion, are not in accordance with law and the same are reversed and those of the AO are restored." Respectfully following the decision of the coordinate bench of this Tribunal, we set aside the order of the CIT (A) and restore the order of the AO disallowing the claim of interest. Thus, Ground No. 1 stands allowed." 4. He contended that the aforesaid decision in the case of DCIT v. Pramukh Oxygen Ltd. has been reversed by a judgment of this Court rendered in Tax Appeal No. 474 of 2006 and allied matters, wherein it is observed as under:- "11. Thus, Ground No. 1 stands allowed." 4. He contended that the aforesaid decision in the case of DCIT v. Pramukh Oxygen Ltd. has been reversed by a judgment of this Court rendered in Tax Appeal No. 474 of 2006 and allied matters, wherein it is observed as under:- "11. In the backdrop of the aforesaid facts, it would be germane to refer to the question as to whether the provisions of section 36(1)(iii) of the Act would be applicable to the facts of the present case and whether the assessee is entitled to the deduction of interest on borrowed funds which have been advanced for the purpose of acquisition of shares in the sister concern. 12. A perusal of the orders passed by the authorities below clearly shows that it is the consistent case of the assessee that the advance obtained from the Baroda Peoples Co-operative Bank Limited was for the purpose of acquiring the shares of Akshar Private Limited, an associate concern, to gain the controlling interest in the said company with a view to expand its business operations through the said investment. Thus, the intention behind giving the advance is for the purpose of acquiring the controlling interest in the associate concern. It is the case of the appellant that the borrowed funds having been utilised as a measure of commercial expediency, the assessee is entitled to deduction of the interest under section 36(1)(iii) of the Act. In this regard, reference may be made to the decision of the Supreme Court in the case of S.A. Builders Limited (supra) wherein the court was dealing with the question as regards the allowability of interest on borrowed funds. The court took note of the fact that the borrowed amount in question was not utilised by the assessee for its own business, but had been advanced as interest-free loan to its sister concern. However, it was of the opinion that, that fact was not really relevant. What was relevant was whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. The court was of the view that the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expression used is for the purpose of business. What was relevant was whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. The court was of the view that the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expression used is for the purpose of business. It was noted that it has been consistently held in decisions relating to section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also benefits thereby. The court held that the expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. The court agreed with the view taken by the Delhi High Court in the case of CIT v. Dalmia Cement (B) Ltd., (2002) 254 ITR 377 (Del.), that once it is established that there was nexus between the expenditure and the purpose of the business (which need not be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. 13. Reference may also be made to the decision of the Supreme Court in the case of Deputy Commissioner of Income tax, Ahmedabad v. Core Health Care Ltd., (2008) 2 SCC 465 , wherein the court held that interest on monies borrowed for the purpose of business is a necessary item of expenditure in a business. For allowance of a claim for deduction of interest under the said section, all that is necessary is that firstly, the money i.e. capital, must have been borrowed by the assessee; secondly, it must have been borrowed for the purpose of business; and thirdly, the assessee must have paid interest on the borrowed amount. All that is germane is: whether the borrowing was, or was not, for the purpose of business. All that is germane is: whether the borrowing was, or was not, for the purpose of business. It was held that the expression for the purpose of business occurring in section 36(1)(iii) indicates that once the test of for the purpose of business is satisfied in respect of borrowed capital, the assessee would be entitled to deduction under section 36(1)(iii) of the 1961 Act. 14. Examining the facts of the present case in the light of the principles propounded in the above decisions, the facts as emerging from the record reveal that the assessee had borrowed capital for the purpose of acquiring shares of Akshar P. Ltd., a sister concern, as it intended to acquire the controlling interest in the said company to expand its business operation through such investments. Such amount was directly paid by the Baroda Peoples Co. Op. Bank Ltd., Baroda to the sister concern. The share application money was kept lying with Akshar P. Ltd. and was returned without allotment of shares as due to the recession in the market and other unfavourable market conditions, the sister concern could not expand its business of setting up a project at Daman. Thus, the purpose behind borrowing the capital was for acquiring shares for the purpose of gaining a controlling interest in the sister concern and expanding the business of the assessee. Evidently therefore, the basic requirement of section 36(1)(iii) of the Act stands satisfied, inasmuch as, the assessee has borrowed capital for the purpose of business and had paid interest on the borrowed amount. As held by the Supreme Court in the above referred decisions all that is germane is whether the borrowing was or was not for the purpose of business. On the facts as emerging from the record, having regard to the intention of the assessee of acquisition of shares of the associate concern for the purpose of gaining controlling interest therein to expand its own business, it cannot be said that the amount advanced was not for the purpose of its business. Merely because ultimately such shares could not be acquired for the reasons stated hereinabove, would not detract from the fact that the amount had been borrowed for the purpose of business. When funds are invested for business purposes, there can be no guarantee that the purpose would be achieved. Merely because ultimately such shares could not be acquired for the reasons stated hereinabove, would not detract from the fact that the amount had been borrowed for the purpose of business. When funds are invested for business purposes, there can be no guarantee that the purpose would be achieved. What has to be looked into is whether the funds were expended as a measure of commercial expediency, which includes such expenditure which a prudent businessman incurs for the purposes of business. Once it is established that there was a nexus between the expenditure and the purpose of the business, the revenue cannot justifiably claim to put itself in the armchair of the businessman and assume the role to decide the reasonableness of such expenditure. In the facts and circumstances narrated hereinabove, the court is of the view that the amount in question having been borrowed for the purposes of its business, the requirements of section 36(1)(iii) of the Act stand satisfied and the assessee was entitled to deduction of the interest paid on such borrowed funds notwithstanding the fact that ultimately, the purpose for which the capital was borrowed was not served and the shares were not actually allotted to the assessee. 15. The findings recorded by the Assessing Officer that the amount was paid under the guise of share application money to the sister concern, stand dislodged by the facts which emerge from the record, inasmuch as, the amount was directly paid by the concerned bank to the sister concern and in fact, share applications had been made for 4,29,000 shares which was reflected in the records of the assessee as well as the sister concern. 16. 16. As regards the contention of the learned advocate for the revenue that the borrowed funds were advanced towards share application money which shares would have ultimately yielded dividend which would be exempted income and hence, in the light of the decision of the Kerala High Court in the case of Leena Ramachandran (supra), the expenditure incurred by the assessee towards purchase of shares would not be an admissible expenditure is concerned, in the opinion of this court, the view adopted in the above decision is contrary to the view adopted by this court in the case of Additional Commissioner of Income tax v. Laxmi Agents (supra), wherein the court has upheld the finding of the Tribunal that though the income from the dividend has to be assessed under a separate head, payment of interest by the assessee and amounts borrowed for the purpose of earning interest must be allowed as business expenditure and not expenditure incurred for earning dividend. The court has also held that if it is once established that capital was borrowed for the purpose of business, it is immaterial how the borrowed capital was applied because all that clause (iii) of section 36(1) of the Act requires is that borrowings on which interest is paid should be for the purpose of business. 17. In the light of the above discussion, it is not necessary to refer to and deal with the other decisions on which reliance had been placed by the learned advocate for the appellant. 18. For the foregoing reasons, the appeals succeed and are accordingly allowed. The questions are answered in the negative namely, in favour of the assessee and against the revenue. The Income Tax Appellate Tribunal was not right in law in holding that deduction of interest expenses was not admissible under section 36(1)(iii) of the Income Tax Act, 1961 merely because shares were never allotted to the appellant in response to the share application. The Income Tax Appellate Tribunal accordingly was not right in law in confirming the disallowance of interest for each of the assessment years. In the light of the fact that this court has held that section 37 is applicable to the facts of the present case, the issue regarding application of section 57(iii) of the Act is left unanswered. The Income Tax Appellate Tribunal accordingly was not right in law in confirming the disallowance of interest for each of the assessment years. In the light of the fact that this court has held that section 37 is applicable to the facts of the present case, the issue regarding application of section 57(iii) of the Act is left unanswered. The impugned order passed by the Tribunal is accordingly quashed and set aside and the order passed by the Commissioner (Appeals) is hereby restored." 5. He submitted that, therefore, the Tribunal has committed an error in holding that the interest incurred by the appellant on the funds borrowed for share application money is not allowable as a deduction. He further pointed out that the CIT (Appeals) has accepted the net loss being the interest paid to M/s. Sharma Finance Company. Thus, the Tribunal has taken a contrary view and once Sharma Finance has been assessed with the interest income, the Tribunal has committed an error in holding that the interest incurred by the assessee on the funds borrowed for share application money is not allowable as a deduction. He reiterated that the decision, which has been relied upon by the Tribunal, has been reversed by this Court in the Tax Appeal, as aforesaid. 6. Mr. Sudhir Mehta, learned counsel for the respondent has supported the impugned order and submitted that in view of the following decisions, impugned order is not required to be interfered with. 6.1 In the case of Commissioner of Income-tax, Ahmedabad v. Cornerstone Exports (P.) Ltd. reported in, [2016] 67 taxmann.com 345 (Gujarat), it is observed as under:- "13. The facts in this case are some what peculiar. As recorded by the Assessing Officer and which facts are not disturbed by the Tribunal, the assessee, during year under consideration, borrowed Rs. 25.30 crores from various group companies at a higher interest rate, in most cases @ 21%. Amount of Rs. 16.88 crores out of such funds was advanced to the various companies, mostly @ 14% interest. In many cases funds borrowed on the same day were used for making advances. Out of advances of Rs. 16.88 crores, Rs. 15.08 crores was made to various companies having common address at Jammu. By assessee's own account when such advances were made these borrowing companies were completely unrelated, however, subsequently these companies merged with the group companies of Lalbhai Group. Out of advances of Rs. 16.88 crores, Rs. 15.08 crores was made to various companies having common address at Jammu. By assessee's own account when such advances were made these borrowing companies were completely unrelated, however, subsequently these companies merged with the group companies of Lalbhai Group. At no stage the assessee pointed out any business expediency in making advances at a lower interest rate than the rate at which the assessee company had borrowed the money. It is undoubtedly true that Section 36(1)(iii) of the Act permits deduction of interest paid on capital borrowed for the purpose of business or profession and the expression for the purpose of business is seen wider than the expression for the purpose of earning income. Nevertheless the assessee had to point out the business expediency which prompted the assessee to make advances at a lower rate of interest. The assessee failed to bring on record any such material or even plead before the Assessing Officer any business expediency. 14. Without upsetting the factual findings of the Assessing Officer, in our opinion, the Tribunal committed two errors in reversing the decisions of the revenue authorities the first was of applying the principles for the purpose of business being wider than for the purpose of earning income in abstract. Such principles had to be applied in the context of business expediency if the same was demonstrated which, as recorded by us earlier, was not done. The second error committed by the Tribunal was to hold that the Assessing Officer had applied the principles of Section 40A(2) of the Act which, according to the Tribunal, was not permissible. In other words, view of the Tribunal was that the Assessing Officer could have either allowed or disallowed the entire interest component relatable to a particular borrowing of the assessee. However, once the Assessing Officer decided to grant deduction of interest on a particular loan, it was not open for the Assessing Officer to disallow the portion of interest component. 15. In this context, we do not find that the Assessing Officer applied the principles analogous to Section 40A(2) of the Act by holding that the interest paid by the assessee was excessive. In fact the Assessing Officer applied the deduction to the extent the rate of interest at which the advances were made by the assessee. 15. In this context, we do not find that the Assessing Officer applied the principles analogous to Section 40A(2) of the Act by holding that the interest paid by the assessee was excessive. In fact the Assessing Officer applied the deduction to the extent the rate of interest at which the advances were made by the assessee. However, the action of the assessee company to make advances at a lower rate of interest than the interest liability discharged by the assessee company in borrowing such funds was not shown to be in any manner actuated by business expediency. The Assessing Officer was perfectly justified in disallowing such component of interest." 6.2 In Jayesh Raichand Shah v. Assistant v. Commissioner of Income-tax reported in, [2014] 360 ITR 387 (Gujarat), it is observed as under:- "3.00. Having heard Mr. Hemani, learned advocate appearing on behalf of the appellant assessee. With respect to the impugned judgment and order passed by the ITAT remanding the matter to the Assessing Officer on the issue of rejection of books of accounts under section 145(3) of the ITAT and consequently addition of Rs. 1,07,39,574/- by way of estimation of gross profit is concerned, as the matter is remanded to the Assessing Officer and sufficient opportunity will be given to the assessee to make submissions and submit explanation, we do not think it proper to interfere with the impugned order of remand by the ITAT with respect to the aforesaid issue. However, suffice it to say that despite the sufficient opportunity given to the assessee to explain the discrepancies in the books of accounts as well as stock, the assessee failed to availed the opportunity and furnish the explanation before the Assessing Officer. Thereafter before the CIT(A) for the first time the assessee furnished the explanation which came to be considered by the CIT(A) and considering the said explanation, CIT(A) held that sufficient explanation has been furnished by the assessee and therefore, the Assessing Officer erred in rejecting the books of accounts. Considering the fact that the assessee did not furnish explanation before the Assessing Officer and furnished explanation before the CIT(A) for the first time and the Assessing Officer was not given opportunity to consider the explanation, ITAT has rightly remanded the matter to the Assessing Officer on the aforesaid issue. Considering the fact that the assessee did not furnish explanation before the Assessing Officer and furnished explanation before the CIT(A) for the first time and the Assessing Officer was not given opportunity to consider the explanation, ITAT has rightly remanded the matter to the Assessing Officer on the aforesaid issue. Under the circumstances, no interference of this Court is called for with respect to the aforesaid order of remand. 4.00. Now, so far the issue with respect to addition made by the Assessing Officer of Rs. 7,46,965/- on account of disallowance of interest payment under section 40(A)(2)(b) of the Act confirmed by the ITAT is concerned, it is required to be noted that the assessee claimed disallowance of the aforesaid amount under section 40(A)(2)(b) of the Act on the amount of loan taken from three persons, namely, Mr. Bhavik J. Shah, Mr. Tejas Shah and Mr. Jignesh Shah and the interest paid to them at the rate of 16% per annum. It was found that so far as Mr. Bhavik J. Shah is concerned, he is son of the assessee and Mr. Tejas Shah and Mr. Jignesh Shah are his nephews. It was also found by the Assessing Officer as well as ITAT that the assessee made gift of Rs. 20,00,000/- to each of the three persons, namely, Mr. Bhavik J. Shah, Mr. Tejas Shah and Mr. Jignesh Shah on 19/6/2007 and immediately thereafter the aforesaid three persons placed the same amount in the hands of the assessee on which interest at the rate of 16% aggregating to Rs. 7,46,965/- was claimed as deduction by the assessee. While disallowing the aforesaid claim and making addition of the aforesaid amount of Rs. 7,46,965/- to the total income, the Assessing Officer observed as under: Here it is important to mention that business exigency and prudency are the two basic parameters to determine the allowability of any expenditure. Therefore no prudent businessman will gift his money when there is certain exigency of money. In the instant case it is seen that the assessee has made gift of Rs. 20,00,000/- to each to Shri Bhavik J. Shah, Shri Tejas Shah and Shri Jignesh Shah on 19/06/07, 19/06/07 and 16/06/07 respectively and almost the same amount is received as loan from these persons just after 3 days that is on 22/06/07. In the instant case it is seen that the assessee has made gift of Rs. 20,00,000/- to each to Shri Bhavik J. Shah, Shri Tejas Shah and Shri Jignesh Shah on 19/06/07, 19/06/07 and 16/06/07 respectively and almost the same amount is received as loan from these persons just after 3 days that is on 22/06/07. This action of the assessee clearly transpires that business exigency was over looked and unreasonable interest was paid to the above persons. Therefore, the interest paid to the above persons on the amount gifted is not allowable as per 40(A)(2)(b) of the IT Act. Accordingly I calculate the excessive payment of interest on the amount gifted as under:- Name of the person Amount of gift Gift made on Period upto March 2008 Interest @ 16% Bhavik J. Shah Rs.20,00,000 19/06/07 285 days Rs.2,49,863 Tejas R. Shah Rs.20,00,000 19/06/07 285 days Rs.2,49,863 Jignesh Shah Rs.20,00,000 16/06/07 285 days Rs.2,47,239 Total Rs.7,46,965 The same came to be deleted by CIT(A) and in appeal ITAT reversed the order of CIT(A) and confirmed the addition made by the Assessing Officer. While restoring order passed by Assessing Officer, ITAT in the impugned order has observed and held as under: 17. We have heard both the parties. Observations made the assessment order indicate that Rs. 60,00,000/- were diverted by the assessee from his business in favour of three persons namely, Shri Bhavik J. Shah, Shri Tejas R. Shah and Shri Jignesh R. Shah allegedly by way of gift. After the so-called gift, the assessee got back the same money from all the aforesaid three persons on which the assessee chose to pay interest @ 16% which aggregated to Rs. 7,46,965/-. None of the aforesaid persons could have got interest @ 16% as the rate of interest given by the bank and financial institutions even on fixed deposit was not as high as 16% in the year under appeal. The assessee claims that Shri Bhavik J. Shah alone was related to the assessee within the meaning of Section 40(A)(2)(b) and remaining two persons were not related to the assessee within the meaning of Section 40A(2). It is however not in dispute that all the three persons were related to the assessee which may or may not be covered by section 40A(2)(b). 18. Section 36(1)(iii) allows deduction for payment of interest on capital borrowed for the purpose of business. It is however not in dispute that all the three persons were related to the assessee which may or may not be covered by section 40A(2)(b). 18. Section 36(1)(iii) allows deduction for payment of interest on capital borrowed for the purpose of business. In the present case, the money was first diverted by the assessee from his business disguising it as gift to the aforesaid three persons and thereafter the same money was taken back by the assessee from the aforesaid two persons on which the impugned interest was claimed by the assessee to have paid to them. On the facts of the case, there is no borrowing of capital and therefore the requirement of section 36(1)(iii) is not fulfilled. Without prejudice to the aforesaid, the entire series of transactions are illusory, colourable and not genuinely for the purpose of the business. In this view of the matter, the assessee is not entitled to deduction u/s. 36(1)(iii). The order of the AO making the impugned disallowance is therefore restored. 19. Reliance placed by the ld. CIT(A) on section 40A(2)(b) is completely misplaced for the reason that the deduction towards the interest paid on borrowed capital has to be examined firstly with reference to the provisions of sec. 36(1)(iii) and thereafter with reference to the provisions of section 40A(2). In the present case, the series of transactions carried out by the assessee simply indicate a colourable device to ensure deduction of interest from taxable income. They do not establish any genuine borrowing. It is quite well settled that illegal or colourable devices have to be ignored. The CIT(A) ought to have ignored them and decided the issue in accordance with the provisions of sec. 36(1)(iii) which was relevant for deciding the issue under appeal. Ground 2 is allowed. 5. We are in complete agreement with the reasoning given by the ITAT The submissions on behalf of the assessee that out of the aforesaid three persons, two persons namely, Mr. Tejas Shah and Mr. 36(1)(iii) which was relevant for deciding the issue under appeal. Ground 2 is allowed. 5. We are in complete agreement with the reasoning given by the ITAT The submissions on behalf of the assessee that out of the aforesaid three persons, two persons namely, Mr. Tejas Shah and Mr. Jignesh Shah cannot be said to be related to the assessee within the meaning of section 40(A)(2)(b) of the Act is concerned, it is required to be noted that as such the aforesaid persons are found to be nephews of the assessee and the finding that money was first diverted by the assessee from his business as a gift to the aforesaid three persons and thereafter the same money was given to the assessee at the rate of 16% per annum and on which the assessee claimed benefit under section 40(A)(2)(b) of the Act and the entire series of transactions were illusory, colourable and not genuinely for the purpose of the business. It is rightly held that there is no borrowing of capital and therefore, requirement of section 36(1)(iii) is not fulfilled and therefore, the ITAT has rightly restored disallowance by the Assessing Officer. No interference of this Court is called for." 6.3 In the case of Sarabhai Sons (P.) Ltd. v. Commissioner of Income-tax reported in, [1993] 201 ITR 464 (Gujarat), it is observed as under:- "9. This court while dealing with the claim for deduction under Section 12(2) of the 1922 Act, which provision is similar to Section 57(iii) of the 1961 Act, in the case of Kasturbhai Lalbhai, [1968] 70 ITR 267 (Guj), has held as under (at page 273): "... in order to decide whether an expenditure is a permissible deduction under Section 12(2). We have to examine the nature of the expenditure. The purpose for which the expenditure is incurred must be in order to earn the income and here we must not confuse purpose with motive. What Section 12(2) emphasizes is the purpose for which the expenditure is incurred and the word 'purpose' does not mean motive for the transaction. The motive which may have operated on the minds of assessees in making the expenditure is quite irrelevant. . . Moreover, the purpose of making or earning the income must be the sole purpose for which the expenditure is incurred. The motive which may have operated on the minds of assessees in making the expenditure is quite irrelevant. . . Moreover, the purpose of making or earning the income must be the sole purpose for which the expenditure is incurred. If the expenditure is incurred for the purpose of making or earning the income as also for another purpose or, in other words, the purpose of making or earning the income is mixed up with another purpose in making of the expenditure . . . the expenditure would be outside the scope and ambit of Section 12(2) and would not be a permissible deduction under that Section. The expenditure in order to fall within Section 12(2) must, therefore, be incurred solely for the purpose of making or earning the income sought to be assessed..." 10. Again, in Smt. Virmati Ramkrishna's case, [1981] 131 ITR 659 (Guj), this court, after considering the case-law on the point, has stated the propositions which follow therefrom. One of the propositions so stated is that the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose, or for a mixed purpose. Another proposition which is stated therein is that the distinction between purpose and motive must always be borne in mind, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing in the mind of the assessee for incurring the expenditure. 11. Now, if we turn to the facts of this case, what is required to be noted is that the shares of SGML were held by the assessee along with two other groups of shareholders, viz., Kasturbhai group and Patel group. The assessee held 11,264 shares, Kasturbhai group held 24,975 shares and the Patel group held 12,737 shares. The assessee was also the managing agent of SGML. It was agreed amongst the shareholders that the assessee should purchase all the shares in order to improve the business of SGML by holding 100% shares of SGML, which would have enabled it to implement the expansion projects. Thus, the shares which were purchased by the assessee were not for the purpose of earning income, though that can be regarded as the ultimate motive. Thus, the shares which were purchased by the assessee were not for the purpose of earning income, though that can be regarded as the ultimate motive. The shares were purchased by the assessee with a clear purpose or object of getting 100% control over SOML. If the purpose was to earn income only, or even if that was the dominant purpose, it would not have sold the shares again to KPPL as, by that time, it had already acquired more than 90% shares, and that would have satisfied its object of earning more income by possessing more shares. The reason why the asses-see sold the shares was that it was not able to get 100% control by purchasing all the remaining shares. Thus, from the nature of the transaction, it becomes apparent that the expenditure which was incurred by the assessee was not for the purpose of earning income, but for the purpose of getting full control over SOML. Thus, applying the test as laid down in Kasturbhai Lalbhai's case, [1968] 70 ITR 267 (Guj) and Smt. Virmati Ramkrishna's case, [1981] 131 ITR 659 (Guj) to the facts of this case, it becomes clear that the dominant purpose for which expenditure was incurred was not to earn income. At the highest, it was a mixed purpose. For that reason, it will have to be held that the expenditure incurred in that behalf fell outside the purview of Section 57(iii) of the Act. 12. For the reasons stated above, we answer the question referred to us in the affirmative, that is, against the assessee and in favour of the Revenue. No order as to costs." 6.4 In view of these decisions, he prayed to dismiss present appeals by confirming the impugned order. 7. We have heard both the learned counsel and also perused the record. We have also gone through the judgments cited before us as well as the impugned order. It is not in dispute that the decision on which reliance is placed by the Tribunal while passing the impugned order has been reversed by this Court while deciding Tax Appeal No. 474 of 2008 and allied matters. Therefore, we are of the opinion that the questions posed for our consideration are required to be answered in favour of the assessee and against the department. Therefore, we are of the opinion that the questions posed for our consideration are required to be answered in favour of the assessee and against the department. The judgments relied upon by the learned counsel for the respondent are not applicable in the facts of the present case. We are of the opinion that for the business urgency loan was taken. Therefore, the expenses are required to be allowed under Section 36(1)(iii) of the Act and in view of the decision in Tax Appeal No. 474 of 2008, the same is accepted by deciding the issue in favour of the assessee. Accordingly, Tax Appeal Nos. 874, 876 and 2272 to 2274 of 2009 as well as Tax Appeal Nos. 1485, 1486, 1488, 1489 and 1590 of 2010 are disposed of. 8. So far as Tax Appeal Nos. 438 to 443 of 2015 are concerned, the same were admitted for the following questions of law:- "i. Whether the Appellate Tribunal is right in law and on facts in holding that principles of res judicata cannot be made applicable to Income Tax proceedings and Tribunal can take a different view in subsequent order if in the earlier order it fails to take into consideration material facts and thereby it can overlook decision on an identical matter of cognate bench? ii. Whether the Appellate Tribunal erred in law in deriving jurisdiction to take a contrary view from the cognate bench instead of referring the matter to a larger bench? iii. Whether in facts and circumstances of the present case, the Appellate Tribunal is right in levying penalty under Section 271(1)(c) of the Income Tax Act, 1961?" 9. We have not answered issue Nos. 1 and 2 in view of the fact that we have allowed Tax Appeal on the quantum under Section 271 of the Act, to the extent to which aforesaid appeals are allowed and it will not apply for the remaining part of the order and for the rest of the issues, the assessee will be governed by the decision of the Tribunal. Accordingly, these Tax Appeal Nos. 438 to 443 of 2015 are allowed to the aforesaid extent and question of quantum under Section 271 of the Act is held in favour of the assessee and rest of the issues will be governed by the order of the Tribunal. Accordingly, these Tax Appeal Nos. 438 to 443 of 2015 are allowed to the aforesaid extent and question of quantum under Section 271 of the Act is held in favour of the assessee and rest of the issues will be governed by the order of the Tribunal. Accordingly, the issue is answered in favour of the assessee and all these appeals are disposed of.