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2013 (8) TMI 744 - AT - Income TaxDisallowance the interest paid at the rate of difference between two average rates (of borrowing funds and lending funds from and to sister concerns) without going into details of utilization of funds borrowed and the purpose of giving of loans – Held that:- AO has not mentioned anything in the assessment order as to under which provision, he has made addition of the differential interest rate - AO has not brought out any detailed facts on record proving nexus of funds borrowed with the funds given as loan to establish that the borrowed funds were diverted at lesser rate of interest to sister concern or other than business purposes - On the face of these findings of fact recorded by the ld. CIT(A) even the part addition sustained by the ld. CIT(A) is not justified - CIT(A) even should not have sustained the part addition because the AO has not pointed out as to how the conditions of section 36(1)(iii) have been violated in this case – Decided against the Revenue. In the case under consideration, the case of the A.O. is that there is a loss on account of interest paid and received. The CIT(A) has also wrongly accepted the A.O.'s view without considering the section 36(1)(iii) of the Act. The loss in the interest account was on account of different rates charged from different parties on loans and advances taken and loans and advances given. For allowing deduction under section 36(1)(iii), it is to be seen whether conditions stated in section 36(1)(iii) has been satisfied or not. In the case under consideration, the assessee has satisfied all the conditions that the borrowed fund was used for the purpose of business as prescribed under section 36(1)(iii) of the Act. Also, it was not the case of the A.O. that the borrowed fund was not utilised for the purpose of business of the assessee.
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