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2023 (6) TMI 389 - AT - Income TaxAllowability of interest paid on borrowed funds u/s.36(1)(iii) - alternatively allowability of interest u/s.37 - HELD THAT:- It is incorrect on the part of the CIT(A) to say that no evidences were furnished by the assessee to prove the financial sickness of these four parties. The financial statements of these four parties are reflected clearly. Assessee company in its notes on accounts in Schedule 14 had duly stated that the loans given by it includes Rs.15204.62 Lakhs given to companies having negative net worth and Rs.25.25 lakhs given to a company where legal action has been initiated for recovering the loan and accordingly no provision has been made as against these loans. This fact is also qualified by the statutory auditor in his statutory audit report stating that - subject to this non-provision of doubtful advances, financial statements of the assessee company is true and fair. Reliance placed by the ld.AR on the decision of Sarabhai Holdings (P) Ltd [2008 (10) TMI 12 - SUPREME COURT] squarely supports the case of the assessee. We hold that assessee was duly justified in not charging interest in respect of these four parties during the year under consideration. Hence, AO is hereby directed to delete the disallowance of interest on proportionate basis in respect of loans given to these four parties. Remaining loans outstanding from parties we find that the total loan outstanding of these parties worked out to Rs.10.75 Crores. In this regard on perusal of the balance sheet of the assessee company, we find that assessee has got own funds Rs.58.02 Crores (Rs.61.60 – Rs.8.58 Crores), which would cover the interest free advances given to the aforesaid parties. Hence, by placing reliance on the decision of Reliance Utilities and Power Ltd . [2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] we direct the ld. AO to delete the interest disallowance made in respect of advances given to parties listed in Sr.No.7,8,11,12,13,16, 17 & 18 of the table above.
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