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2014 (1) TMI 1225 - AT - Income TaxDisallowance u/s 36(1)(iii) of the Act – Proportionate interest expenditure – Validity of investments made in sister concern – Held that:- It cannot be said that the assessee used borrowed funds for non-business purposes - The Department contended that instead of making interest free investment in M/s. GSPL, the assessee should have used the same for the purpose of clearing loans and it could have very well saved the interest payment - When the assessee not used borrowed funds for the purpose of investment, the Department cannot say that interest free funds availed by the assessee should have been used for the purpose of clearing the existing loans - It is the prerogative of the assessee to take a business decision in what manner the assessee has to deploy its funds. Relying upon SSPDL Ltd. vs. DCIT [2013 (7) TMI 18 - ITAT HYDERABAD] - unless and until borrowed funds are used as investment in sister concern, disallowance of interest is not possible - The Revenue cannot decide what the assessee has to do and cannot compel the assessee to maximise the profit so as to pay higher income tax - The assessee is engaged in the business of real estate - Same is the position with the sister concern, M/s. GSPL - There are common interests among the companies - the assessee advanced the interest free funds to the sister concern which is received from M/s. PPPL - Being so, the interest bearing funds were not at all diverted by the assessee to make investment in the sister concern – thus, no disallowance could be made on notional basis and it cannot be disallowed even if it has not resulted in any income to the assessee – Decided in favour of Assessee.
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