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TMI Blog2009 (10) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... DGMENT C.N. Ramachandran Nair, J. - The question raised in the connected appeals filed by the Revenue is whether the Tribunal was justified in allowing deduction of interest paid on borrowed funds which were diverted by the assessee to sister concerns as interest-free loans. We have heard Senior Standing Counsel Sri P.K.R. Menon appearing for the appellant and Sri P. Balakrishnan, counsel appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerns for meeting their business needs in which assessee also has an interest, then such advances should not lead to disallowance of interest paid on subsequent borrowings. In other words, unless the assessee establishes with cash flow statements about availability of its own funds at the time of making the interest-free advances, the finding of the Tribunal cannot stand. Besides this, going by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act only if it is for business purposes. Admittedly the funds borrowed were not used directly for the business of the assessee and the only question is whether interest-free advances made to sister concerns is also a business purpose. The Supreme Court has held that if loan is justified by applying the principle of commercial expediency, then claim can be allowed. We are of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest and financial position of such business concerns at the time of making the advances for the officer to consider eligibility for deduction of interest on borrowed capital. In order to avoid further contest, we direct the Assessing Officer to examine the details furnished by the assessee, issue a written pre- assessment notice containing proposals for disallowance of interest, if any, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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