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2018 (10) TMI 717 - AT - Income TaxRevision u/s 263 - addition towards interest on advances to partners - advances given to partners - The assessee did not admit any interest / profit from these investments but paid the interest on partners capital accounts promptly - Held that:- Payment of interest to the partners as at the end of the year and not collecting the interest from the partners on the amounts advanced to them for diversion of funds for non business purposes would distort the profits of the firm and as rightly observed the Ld.CIT(A) it is lopsided and does not reflect the true and correct picture of the profits of the firm. The assessee could not establish the business interest or availability of interest free funds to give advances to the partners in the guise of investment. Therefore, we consider it is fair and just to disallow the proportionate interest on the amounts advanced to the partners. Disallowance of interest for diversion of funds - Held that:- Though the assessee stated that the assessee is following the cash system of accounting and would admit the income as and when it is received, the assessee has not proved with any evidence that the assessee has made any efforts to collect the advances along with interest till date. No attempt has been made by the assessee to collect the interest on advances given to debtor till date. This attitude clearly shows that the assessee has intentionally diverted interest bearing funds for non business purposes and has no intention to collect the interest to suppress the profits. Ld.CIT(A) has rightly confirmed the disallowance of interest for non-business purposes and enhanced the interest from 12% to 18%, since the assessee has borrowed loans for interest rate of 18%. Decided against the assessee.
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