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2022 (1) TMI 785 - AT - Income TaxDisallowance of interest expenses u/s 36(1)(iii) borrowed funds were utilized by the assessee for purposes other than its business activity, having been invested in the form of zero percent debentures in a sister concern - Whether the CIT(A), in restricting the disallowance of interest expenses has erred in ignoring the findings of the AO that on the one hand the assessee has claimed huge interest expenses and on the other hand substantial amount have been placed at the disposal of the sister concern on interest-free basis - HELD THAT:- Nowhere AO has analyzed as to when assessee had been advancing loan right from AY 2006-07 from out of any interest bearing funds or during the relevant year any further interest bearing funds have been diverted. Converting of debentures on 30.04.2011 out of debit balance with the said party cannot be treated as diversion of funds to the sister concern out of interest bearing funds for the year under consideration. As stated by the assessee, the long term borrowings were reduced to ₹ 6.12 crores during the year. Thus, we do not find any reason as to why disallowance can be made on such a premise. Without going into the merit, whether interest free funds were available or not, we hold no disallowance can be made. Accordingly, entire disallowance made by the AO is deleted - Decided in favour of assessee.
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