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2021 (5) TMI 632 - AT - Income TaxAddition of interest expense - Allowability of interest paid on borrowed capital where interest bearing funds have been advanced interest free to the sister concern - transactions of taking money on loan and giving them as advance or loan for interest is being carried out regularly round the year - HELD THAT:- It is a well known fact that in banking industries also per annum rates of interest on Fixed Deposit normally range between 5% to 7% whereas for the cash credit loans and other business loans the banks are charging much higher interest. There cannot be a straight jacket formula that if unsecured loan is taken @12% per annum one will have to charge interest more than 12% on loan given. The same may or may not happen. It is up to the businessmen to take a wise decision at the given point of time and the risk involved in giving loan on interest. In finance business, one is concerned to earn profits but major concern is of receiving the principle amount back as and when due to be received. In the instant case the transactions of taking money on loan and giving them as advance or loan for interest is being carried out regularly round the year. It shows that interest paid on secured and unsecured loan is wholly and exclusively for the business purpose of earning income from loans and advances. The allowability of interest paid on borrowed capital where interest bearing funds have been advanced interest free to the sister concern was deliberated upon by the Hon’ble Supreme Court in S.A. Builders [2006 (12) TMI 82 - SUPREME COURT] In the instant case firstly there is a clear nexus of interest paid against the income received during the year, the transactions carried out by the assessee are for the commercial expediency and for this purpose the rate of interest paid and received by the assessee are varying from case to case which is duly evident from the records placed before us and the audited financial statements. The action of Ld. A.O was not justified in taking up few out of many advances given by the assessee to arbitrarily levy interest rate on loan given at an agreed rate of interest which may be lower than the interest rate charged from other persons or no interest is charged for commercial expediency purposes. We thus set aside the finding of Ld. CIT(A) and delete the disallowance of interest - Decided in favour of the assessee.
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