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2019 (3) TMI 1155 - AT - Income TaxAddition of notional interest - availability of non-interest bearing funds - whether advance given for business exigencies? - appellant is not in the business of money lending - HELD THAT:- Assessee had availed cash credit facility long back and that the sums advanced were made during the relevant previous year as such there was no nexus between sums borrowed with funds advanced to M/s Dashmesh Steel Hypermart. It is also claimed the advance was given for business exigency i.e to avail a discount of 10% on the purchases made from M/s Dashmesh Steel Hypermart and on total purchases of ₹ 41.10 lakh a discount of ₹ 3,98,920.00 has been received. Thereafter, due to supply chain issues with M/s Essar Steel, the assessee was given to understand that discount further shall not be given by M/s Dashmesh Steel Hypermart, as such purchases were stopped. Further that a part of advance was returned back aggregating to ₹ 1.22 Crores. In this regard the in the case of Reliance Utilities & Power Pvt. Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT] held that the disallowance out of interest expenditure is not called for when the assessee has got sufficient own funds. Where the assessee has own funds as well as borrowed funds, a presumption can be made that advances given for non business purposes have been made out of own funds. A similar view has been held by the Hon’ble Supreme Court in Munjal Sales Corporation vs. CIT [2008 (2) TMI 19 - SUPREME COURT]. Therefore, the contention of the Assessee that no disallowance of interest was called for as it had non-interest bearing funds available in its capital account was not found to be justified by the CIT(A). As pointed out by the AO, the Assessee had only funds to the extent of ₹ 1,02,54,062/- as on 31/03/2QJ0 in the partner’s Capital account, therefore only to this extent it can be considered that non-interest bearing funds were available, accordingly on balance funds (Rs 3,43,00,000/- less ₹ 1,02,54,062/-) the disallowance of interest was valid. Therefore, the AO was rightly directed to recompute the disallowance of interest by the Ld. CIT(A) - decided against assessee.
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