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2012 (7) TMI 128 - AT - Income TaxDisallowance of interest expenditure under section 36(i)(iii) - AO stated that the assessee has diverted interest bearing funds to the sister concern without interest - Held that:- As regards the contention of the assessee that the interest free loans/advances were not given out of borrowed funds the advances to the sister concerns is not acceptable as the assessee has failed to furnish any evidence to prove as the money was received back in the next F.Y. and the amount was given on account of mutual understanding - the assessee's claim that the advance was given for some deal but he failed to furnish any documentary evidence in support of the contention - nothing has been brought on record that the sale deed for the purpose of which ostensibly the money was advanced has been executed as merely filing a sale agreement of third party and saying they have deposited sale deed against the advance is not acceptable as no other evidence has been filed. Share application money and sundry creditors shall also be available with the assessee as interest free - Held that:- share application money as interest free is not acceptable as the assessee is a private limited company and share application money has been kept as a trustee of that application money - as the Sundry Creditors is pertaining to the business of the assessee, therefore, it cannot be said to be interest free own capital or reserve available with the assessee for giving interest free advance - as decided in CIT vs. Radico Khaitan Limited [2004 (9) TMI 37 (HC)] if the assessee is having sufficient capital and reserve fund, to that extent interest free advance given to the sister concern cannot be disallowed. In case of otherwise position proportionate disallowance is warranted - on perusal of Balance Sheet and P&L Account for the year under consideration, the interest free own fund in the form of capital and reserve after reducing loss available with the assessee is only Rs.21,02,941/- (35,09,000 – 14,06,059) - remit the matter back to the file of the AO to make necessary calculation of amount of disallowance on proportionate basis - partly allowed in favour of assessee.
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