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2017 (8) TMI 1184 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) - interest on borrowed capital - Held that:- On the similar issue pertaining to disallowance of interest on borrowed capital u/s. 36(1)(iii), substantial relief had been given by the CIT(A) while disposing of the appeal of the assessee for A.Y. 2010-11. We thus remained divested of being afforded sufficient opportunity of being heard by the CIT(A). We thus in all fairness restore the issue to the file of the A.O with a direction to verify the facts as had been averred by the ld. A.R before us. The A.O is directed to consider the claim of the assessee in respect of interest which is claimed by him to have been received in respect of the amounts advanced to third parties, as well as verify the availability of interest free funds with the assessee at the time when the interest free advances were given by him to certain parties. In case if the assessee is able to substantiate the availability of interest free funds with him at the time of advancing of the interest free loans/advances, then to the said extent no disallowance of the interest expenditure claimed by the assessee u/s. 36(1)(iii) would be liable to be made. We thus restore the matter to the file of the A.O for fresh adjudication - Ground of appeal no. 1 raised by the assessee is thus allowed for statistical purposes. Disallowance of the ‘vehicle expenses’ - expenses attributed to the personal usages - Held that:- In the case of the present assessee the A.O had carried out disallowance of ‘vehicle expenses’ not merely for the reason that some part of usage of the motor cars could safely be attributed to the personal usages by the partners of the assessee firm and their family members, but also on the ground that the documentary evidence supporting incurring of the vehicle expenses by the assessee neither did inspire much confidence, nor the authenticity of the same could be proved to the hilt by the assessee. We thus in the totality of the facts involved in the case of the present assessee, in all fairness restrict the disallowance made by the A.O. in respect of ‘vehicle expenses’ to 10%. The order of the CIT(A) upholding the disallowance of ‘vehicle expenses’ at the rate of 20% is thus modified in light of our aforesaid observations. The Ground of appeal No. 2 raised by the assessee is partly allowed.
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