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2017 (12) TMI 1335 - AT - Income TaxProportionate disallowance of interest u/s.36(1)(iii) - business nexus and use of the said diverted funds for business purposes of the assessee - diversion of funds when excess interest free funds are available in the common kitty of the assessee firm - Held that:- The funds diverted by the assessee are obviously lesser than the said amount of partners’ capital. It is clarified adequately that said amount of partners’ capital is not an interest bearing loans from the firms. Assessee never paid interest to the partners for all the years including the year under consideration. Therefore, it cannot be said that the partners’ capital is not an interest free funds of the assessee. Considering this fact, we are of the view that availability of interest free funds is much higher than the funds diverted by the assessee. There is no requirement for the assessee to establish utility of the said diverted funds for business purposes when said diverted funds are from the interest free funds in the kitty of the assessee firm. Accordingly, Ground No.1 raised by the assessee is allowed.
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