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2017 (3) TMI 1808 - ITAT INDOREDisallowance of interest on advances given treating it to be non business expenditure - Sufficiency of own funds - AO found that the assessee has advanced interest bearing funds to some of persons from which either no interest is charged or the same is charged at lesser rate whereas the assessee has paid interest @ 12% on loan taken - HELD THAT:- Interest-free advance were given out of interest-free funds available with the assessee during the year for which sufficient interest-free funds were available. Therefore, we are of the view that the Ld. A.O. has failed to establish that interest free advances to above stated four parties were out of interest bearing funds. We find that the AO has not been able to establish the nexus between interest bearing funds utilized for non business purpose In the present case, the sufficient interest free funds were available at the disposal of the assessee. Therefore, presumption would go in favour of the assessee that the interest free funds were given out of interest free funds available at the disposal of the assessee as per balance sheet of the assessee. We further rely on the decision in the case of CIT vs. Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT]wherein it was held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. - Decided in favour of assessee. Addition u/s 41(1) - cessation of liability - there is a one creditor M/s Mahima Porsepun in whose case an amount was outstanding for last three years - HELD THAT:- there was no basis by treating the said amount as remission or cessation of a trading liability of the assessee when it was not unilateral written off by the assessee. We find that the AO has made this addition merely on the basis of expiry of limitation to file the suit by creditor, where he cannot who come up with a proceedings for enforcement of debt. However, we find that this amount was subsequently settled by the assessee in the succeeding years therefore, the assessee has not derived or obtained any benefit in respect of such trading liability. Therefore, the addition made on the basis of presumption cannot be sustained in the eyes of law. Provision of Section 41(1)(a) of the Act can only be invoked when the assessee has written off the liability in its books of accounts by unilateral act. Since, the assessee has not written off the aforesaid amount in its books of accounts and the payment has been settled in the subsequent year, therefore, the addition so made by the AO, is not sustainable in the law. Accordingly, the same is deleted. This grounds of appeal is therefore allowed. Addition u/s 14A r.w.r. 8D - assessee has invested the capital in the form of share capital for which he is earning his share income from the firm and has shown share of profit - HELD THAT:- As relying on DAGA CAPITAL MANAGEMENT (P.) LTD. [2008 (10) TMI 383 - ITAT MUMBAI] there is no dispute that there cannot be any doubt, that some expenditure incurred in making of earning of income for dividend in case of maximum accounting the expenditure is not identified as such it directly relates to earning of dividend but that cannot be granted to say that no expenditure is incurred for earning dividend income for that or no expenditure could be related to that income. Therefore, in the light of aforesaid decisions and the provision of Rule 8D(iii) we are of the view that the assessee must have incurred the some expenditure in relation to earn exempt income therefore, the disallowance made by the AO and as confirmed by the CIT(A) are upheld. Hence this ground of appeal is dismissed.
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