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2022 (12) TMI 572 - ITAT CHANDIGARHDisallowance pertaining to the interest credited to the account - disallowance u/s. 36(1)(iii) - direct link or nexus between the borrowed funds and investment in shares - AO was of the view that in terms of provisions of section 36(1)(iii) the deduction for interest was admissible only when the capital is borrowed directly for the purpose of business whereas, the investment in unquoted shares was not relating to the business of the assessee - HELD THAT:- As basic contention of the Ld. AR that interest free funds were not utilised for the purpose of investing in shares of the sister concern does not stand proved. Taking the logic further, the inference that if the assessee has sufficient surplus funds, then it is to be assumed that the investments were made from surplus funds would also hold not true. Also that on one hand it is the assessee's contention that the borrowings were made for the purpose of investing in shares coupled with the arguments that these investments were strategic in nature and on the other hand, it has been contended that the inference should be that the investments were made out of surplus funds. Thus, there is an apparent contradiction in the stand taken by the assessee. It is not clearly brought out either from the assessment order or from the Ld. CIT(A)'s order as to whether there is a direct nexus or link between the borrowed funds and the investments. A clear and direct nexus has to be established between the loan funds and the investments before a disallowance u/s. 56(1)(iii) of the Act is made. If there is a direct nexus between the loan funds and such investments, then the proposition that if the assessee had surplus funds with it, then the investment would be presumed to have been made from such surplus funds would not hold good and then the disallowance u/s. 36(1)(iii) of the Act would be fully justified. However, if there is no direct link between the borrowed funds and the investments, then the presumption would were in favour of the assessee. Restore this issue to the file of the AO with a direction to verify as to whether there is any direct link or nexus between the borrowed funds and investment in shares. If it is so found, then the impugned disallowance shall hold good. Appeal of the assessee stands allowed for statistical purposes.
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