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2012 (3) TMI 210 - ITAT MUMBAIDisallowance of interest u/s 36(1)(iii) - the assessee gave interest free advances to its sister-concerns - AO observed that the assessee had not charged any interest on such advances whereas substantial amount of interest was paid on the funds borrowed - Held that:- it is manifest that if the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds available with the assessee (East India Pharmaceutical Works Ltd. v. CIT [1997 -TMI - 5570 - SUPREME Court]. - it is observed that the interest free funds available at the disposal of the assessee are far in excess of the interest free loans advanced to the sister-concerns. Respectfully following the mandate of the Hon'ble jurisdictional High Court in the case of Reliance Utilities & Power Ltd. (2009 - TMI - 32150 - HIGH COURT BOMBAY), we order for the deletion of the addition. Disallowance of interest u/s 40(a)(ia) for non deduction of TDS u/s 194A - held that:- As per Section 145 income under the head 'Profits and gains of business or profession' is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee considering a person to become entitled to deduction when liability in respect of any expenditure is incurred - in the mercantile system of accounting, deduction is allowed on accrual of liability - when the assessee is admittedly following mercantile system of accounting it cannot be disputed that the impugned interest expenditure has accrued within the year, it is to be allowed irrespective of the fact that assessee has passed necessary entries in the books of account or not - the assessee did not credit such interest in the books of account under any account - rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable. - Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted.
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