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2016 (11) TMI 206 - AT - Income TaxAdditions towards notional interest on advances given to partners and sister concerns - Held that:- We find force in the arguments of the assessee for the reason that the partners have withdrawn an amount of ₹ 59,73,600/- during the financial year 2006-07, relevant to assessment year 2007-08 out of the amount standing to the credit of their capital account. Though the assessee is having borrowed funds, the borrowed funds represent the deployment of funds in the business assets in the form of stock in trade and receivables. The assessee has not diverted any interest bearing funds to its partners or sister concerns. The amount of advance given to partners and sister concerns is debited to the capital account of the partners, still there is a credit balance in the partners capital account, therefore, the A.O. was not correct in holding that the assessee has diverted its interest bearing funds to its partners and sister concerns. The CIT(A) after considering the relevant details rightly deleted additions made by the A.O. - Decided in favour of assessee. Additions towards advances turning bad - Held that:- On perusal of the paper book filed by the assessee, we find that these advances were given in the normal course of business towards purchase of raw materials. When the suppliers not supplied the goods, the assessee has classified these advances under the head “advances to suppliers” and kept under current assets. The assessee has written off these advances in the books of accounts as bad debts. Even if these amounts are not allowed as deduction u/s 36(1)(v) of the Act, the assessee can always claim deduction u/s 37 of the Act, as the scope of section 37 of the Act is vide enough to include all such amounts paid for the purpose of business and are to be allowed unless and otherwise the advance is capital in nature. In the present case on hand, on perusal of the details available on record, we noticed that these advances are given for the purpose of purchase of raw materials. The assessee has written off these advances in the books of accounts. Therefore, we are of the view that the A.O. was erred in holding that the advances are in the nature of capital advances and hence, not allowable as deduction u/s 37 of the Act. The CIT(A) after considering the relevant details rightly deleted additions made by the A.O - Decided in favour of assessee.
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