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2022 (1) TMI 283 - AT - Income TaxReopening of assessment u/s 147 - Disallowance of Interest on Borrowed Fund - As submitted that the assessee had taken loan on which interest has been claimed as business expenditure, but the borrowed funds were advanced to others on interest free, which shows that the assessee had not utilized the borrowed funds for the purpose of its business - HELD THAT:- During the impugned AY, the assessee has also given loans and advances to other companies which is outstanding as on 31/03/2008 including advances given to M/s SCSL. During the impugned AY, the assessee has received interest - It clearly shows that interest bearing funds had been given to the others/group companies/M/s SCSL on interest free. Therefore, the AO has rightly disallowed interest paid on borrowed funds to the above noted companies u/s 36(1)(iii). Section 36(1)(iii) is clear that if the interest paid by the assessee is to be allowed only in respect of capital borrowed for the purpose of business or profession only, whereas, in the case on hand, the assessee has utilized the above interest bearing loans for other purposes by giving loans on interest free. The facts in the cases relied on by the assessee are that notional interest which was not charged by the assessee, but, the issue in the case under consideration is different that the AO has disallowed interest paid on borrowed funds but not on the notional interest income, which was to be received by the assessee. Assessee company is one of the group companies of M/s SCSL and the assessee had advanced to the tune of ₹ 80.78 crores to M/s SCSL. We find that M/s SCSL was involved in a big financial scandal by way of inflating the figures in the balance sheet due to which M/s SCSL involved in various court cases, which are pending. Genuineness of the amounts advanced to such group company by the assessee is doubtful. Therefore, the arguments advanced by the ld. AR of the assessee are not tenable or acceptable and, therefore, we set aside the order of the CIT(A) and restore that of the AO. Accordingly, the addition made by the AO is restricted to ₹ 11,03,57,441/- towards interest only as against the addition of ₹ 11,11,15,463/- made by the AO u/s 36(1)(iii) of the Act and other addition made by the AO towards bank charges and Demat charges are not covered u/s 36(1)(iii). Thus, the ground raised by the revenue are partly allowed.
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