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2018 (10) TMI 440 - HC - Income TaxDisallowance u/s 36(1)(iii) - interest free advances to sister concerns - "commercial expediency"for granting such advances - Held that:- The expression "commercial expediency" is again of wide import and includes such expenditure incurred for the purpose of business. Therefore, once it is established that there was a nexus between expenditure and purpose of business, which need not be the business of the assessee, deduction under Section 36(1)(iii) must be allowed. Revenue cannot assume the role and occupy armchair of a businessman to decide whether expenditure was reasonable. The Revenue cannot look at the matter from its own standpoint, but that of a businessman. Money borrowed, even when advanced to a sister concern for some business purpose, would qualify for deduction of interest. However, if the money borrowed is utilized by the assessee for personal benefit and not for business purpose, interest paid on that amount would not satisfy the test of commercial expediency. There is another glaring error by the Assessing Officer. Instead of disallowing interest paid on the borrowed fund, the Assessing Officer made an addition of ₹ 1,50,04,133/- by notionally computing interest @18% p.a. on ₹ 8,33,56,295/- i.e. the interest free advances given by the respondentassessee to the sister concerns. This is clearly impermissible and contrary to law. The Commissioner of Income Tax (Appeals) referring to the 'nexus principle' approved in S.A. Builders (2006 (12) TMI 82 - SUPREME COURT) held that once link between the expenditure given by way of loans and the purpose of the business was established, Revenue cannot justifiably assume the role of the assessee to decide how much was reasonable expenditure having regard to the circumstances of the case. - decided in favour of assessee.
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