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2014 (11) TMI 225 - MADRAS HIGH COURTInterest payment disallowed – What amounts to commercial expediency – Whether the Tribunal was right in disallowing the interest payment when the interest free advances given to sister concern is out of own funds and out of commercial expediency - Held that:- The assessee had borrowed from a person by paying interest, but has given non-interest bearing advances to the same person and there is no commercial expediency - The assessee has been unable to explain this transaction - once this interest portion is removed, the interest payments to the banks are but minor - the advancement of non-interest bearing funds to related parties is not compelled by any commercial expediency. The assessee has also not proved before any commercial expediency in regard to any of the interest-free advances given to the related parties - The claim of the assessee that it had adequate non-interest bearing funds to give the interest-free advances is seen otherwise insofar as the non-interest bearing funds available with the assessee is in the form of profits of the year which obviously cannot be determined until the end of the year - even assuming that these funds were available, it would have to be seen in line with the cash book of the assessee - the resolution to advance the amounts to one of the concerns was held on 22.04.2002, i.e. at the beginning of the financial year whereas the profits could be determined only during the end of the financial year – thus, the order of the Tribunal is upheld – Decided against assessee.
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