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2018 (8) TMI 1621 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) - attributing the interest bearing funds of the assessee to have been used for advancing to the partner without interest by way of surplus withdrawals from capital account - Held that:- If there is direct nexus between the trading receipts deposited in the said account and advance given to the partners, it can be safely presumed that the trading receipts had been used for making the said advances and in such circumstances, it can be safely held that the interest-free funds had been used for making advances to the partners warranting no disallowance of interest under section 36(1)(iii) of the Act. But we find that the facts in this regard need to be examined. Restore the issue to the Assessing Officer with the limited direction to examine the nexus, if any, between the trading receipts of the assessee deposited in the Hindu Co-operative Bank account maintained by the assessee and the amount advanced to the partner and direct that in the circumstances the nexus is found to exist, no disallowance of interest under section 36(1)(iii) of the Act be made to the extent pertaining to the amount so advanced. With this limited direction we restore the issue to the Assessing Officer to readjudicate the same. Decided in favour of assessee for statistical purposes.
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