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2018 (4) TMI 702 - AT - Income TaxDisallowance of interest expenditure - Held that:- Excess borrowings made by Shri J.P. Agarwal from the assessee company was in the normal course of business and to retain the facility of loan availed from the bank, which clearly demonstrates the business nexus of the advances made by the company to Shri J.P. Agarwal. Hence, it cannot be said that the monies advanced to Shri J.P. Agarwal were for non-business purposes. Once the money is borrowed for the purpose of business and interest is paid thereon, the same would be squarely allowable as deduction u/s 36(1)(iii) of the Act. Accordingly, the lending of monies to Shri J.P. Agarwal (Individual) and Shri J.P. Agarwal (Karta of HUF) is for the purpose of business and hence no proportionate disallowance of interest paid on borrowed capital could be made in respect of amounts advanced to these two parties. With regard to amounts advanced to Kolkata Concrete Pvt. Ltd. (sister concern of the assessee) assessee had charged interest on the amounts advanced to them during assessment year 2008-09 and had offered to tax - since M/s Kolkata Concrete Pvt. Ltd. was facing financial crunch and was in bad position, the assessee company waived its right to charge interest during assessment year 2009- 10 i.e. the year under appeal and was able to recover a substantial portion of balance outstanding in the sum of ₹ 1,36,30,495/- during the year, thereby leaving a meager balance of ₹ 9,09,183/- as on 31.03.2009. In any case, we find that the assessee is having sufficient funds to make advance to M/s Kolkata Concrete Pvt. Ltd. as is evident from the balance sheet. Hence, there cannot be any disallowance of interest u/s 36(1)(iii) - Decided in favour of assessee Disallowance u/s 14A - Held that:- The assessee is having sufficient own funds and in any case we are inclined to agree with the argument of AR that the interest received by the assessee is to be netted off with interest paid and bank interest also deserves to be excluded for the purpose of computing disallowance under the second limb of Rule 8D(2) - Once the bank interest is reduced from the total interest payment and the resultant figure thereon is netted off with interest received by the assessee on the loan given by the assessee, then there is no positive figure of interest payment. Hence, no disallowance under the second limb of Rule 8D(2) is warranted. With regard to disallowance under the third limb of Rule 8D(2) in the sum of ₹ 2,515/- the ld. AR fairly agreed for the same. In any case it is already settled that the disallowance under 14A read with Rule 8D cannot exceed the exempt income claimed by the assessee - addition made under the second limb of Rule 8D(2) is hereby directed to be deleted and disallowance under the third limb is sustained - Decided partly in favour of assessee.
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