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2016 (11) TMI 964 - HC - Income TaxDeduction under section 36(1)(iii) - Interest expenses relatable to interest-free advances - ITAT allowed the claim - Held that:- In the judgment in CIT v. V. I. Baby and Co. [2001 (10) TMI 58 - KERALA High Court] this court considered this provision and held that in a case where interest-free advance was given by the assessee and deduction is claimed, the question to be considered is what is the benefit that is derived by the assessee by giving such interest-free advance. It was also held that so long as the assessee is not the beneficiary of the investments made by the partners, their relatives and the sister concerns from out of the interest free advances, the Assessing Officer is perfectly justified in disallowing interest in proportion to the advances made. Subsequently, in the judgment in S. A. Builders Ltd. v. CIT (Appeals) [2006 (12) TMI 82 - SUPREME COURT ] held that when a claim for deduction under section 36(1)(iii) is made, the authorities should enquire as to whether the interest-free loan was given as a measure of commercial expediency and on facts if it is so found, deduction is liable to be allowed. The court also explained that the expression "commercial expediency" is an expression of wide import and includes such expenditure that a prudent businessman incurs for the purpose of business and that such expenditure may not have been incurred under any legal obligation. Reading of the order passed by the Tribunal would show that, it has held that its work is only to decide whether the borrowed capital is used for the purpose of business. Thereafter without any further discussion, it has concluded that the funds advanced to the sister concerns were out of business expediency. All the three orders are totally unsustainable for the reason that the test for extending the benefit of section 36(1)(iii) laid down by this court and the apex court were not applied to the facts of the cases. Answering the questions of law in favour of the Revenue
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