TMI Blog2015 (8) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... p to the level of the average cost of debt to the assessee. There is no justification in taking into consideration the rate of interest in respect of any particular transaction whereunder an assessee avails advances on interest. An assessee may avail several advances from the same lender or from different lenders and at varying rates of interest. In the absence of anything to indicate that the interest free advance was made only from a particular corresponding advance received by the assessee, the advance made by the assessee would obviously be from the common pool of money. Money lying in a common pool has no identity. The various amounts advanced to the assessee get merged into a common pool. There is no justification then either for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest free advances to various parties including by way of advances to suppliers and employees. These were in the normal course of business. However, advances were made to two parties, namely, Smt. Ritu Saluja and Shiv Narain Investments Private Limited due to their temporary financial requirements. 5. The Assessing Officer following the judgment of this Court in Commissioner of Income Tax-I, Ludhiana vs. M/s Abhishek Industries, Ludhiana, [2006] 286 ITR 1 (P H) disallowed on a proportionate basis the interest pertaining to the said two advances on the ground that they were not made on account of commercial expediency. In Commissioner of Income Tax-I, Ludhiana vs. M/s Abhishek Industries, Ludhiana (supra), it was held: 15. Entire mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof for nonbusiness purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under Section 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concern on interest free basis are to be disallowed. 6. The Assessing Officer held that in respect of the advances given for non-business purposes, interest is to be disallowed on a proportionate basis since all the funds of the assessee are placed in a common kitty and it is not possible to separate the borrowed funds from the assessee's own funds. The Assessing Officer accordingly computed the interest at 11.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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