2013 (7) TMI 806 - GUJARAT HIGH COURT

Allowability on interest on borrowed funds - Whether the Tribunal was right in confirming the order passed by the CIT (Appeals) deleting the disallowance made by the AO on the ground that the assessee had given interest free loans to associate concerns out of interest bearing funds - Held that:- Once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair 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 - No businessman can be compelled to maximize its profit – court relied upon the judgement of CIT v. Dalmia Cement (B.) Ltd 2001 (9) TMI 48 - DELHI High Court) - the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest-free loan - the test in such a case is really whether this was done as a measure of commercial expediency – appeal decided against revenue.