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2023 (2) TMI 692 - AT - Income TaxAddition u/s 36(1)(iii) - disallowance of interest - loans and advances to sister concern - appellant company advanced certain sums to its concern, Darode Jog and Associates during the earlier previous years - HELD THAT:- Admittedly, no fresh advance was made during the previous year relevant to the assessment year under consideration. The appellant company had borrowed the funds from ASK Investment Managers Pvt. Ltd. i.e. third party in the form of allotment of debentures at 10%. The interest on borrowed funds had been claimed as deduction while computing the income of the assessee company. The assessee company had asserted before the Assessing Officer and the ld. CIT(A) that the advance was made by the assessee company to its sister concern, namely, Darode Jog and Associates for the business purposes i.e. procurement of lands in terms of agreement entered into by it with ASK Investment Managers Pvt. Ltd.. It is also an admitted fact that the said Darode Jog and Associates had not procured any land. Thus, the purpose of advance of loan only for business purpose is established beyond the doubt. In the present case, the assessee company had discharged the onus of proving the expenditure incurred for the purpose of business purpose. It is different matter that the beneficiary of loans i.e. Darode Jog and Associates had not utilized the funds for the business purpose. Therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of S.A. Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT] is squarely applicable to the facts of the present case. Admittedly during the previous year relevant to the assessment year under consideration, the appellant firm had not advanced any loan to the Darode Jog and Associates and it is also an admitted fact that in the earlier years in which the loans were made, no disallowance of interest was made. Therefore, the ratio of CIT vs. Sridev Enterprises [1991 (1) TMI 52 - KARNATAKA HIGH COURT] and CIT vs. Givo Limited [2010 (7) TMI 151 - DELHI HIGH COURT] wherein, it was held that for the purpose of disallowance of interest u/s 36(1)(iii) in case where the disallowance was not made in the earlier years, the opening balance of loans and advances to sister concern should not be considered for the purpose of disallowance of interest. Thus, in the light of the above discussion, we are of the considered opinion that no disallowance of interest is warranted in the facts of the present. - Decided in favour of assessee.
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