TMI Blog2006 (10) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... rh Bench 'B' (for short, 'the Tribunal') in I.T.A. No. 1296/CHANDI/96, for the assessment year 1993-94, raising the following substantial questions of law: "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the disallowance of interest of Rs. 2,79,413/- on the grounds that there is no direct nexus between the borrowing and interest-free advances made to certain parties ? 2.During the course of assessment, it was found that the assessee had incurred liability to pay interest to the persons from whom the loans were raised, whereas on the other hand sums were advanced on interest free basis to M/s Brijmohan Lal Associates; Mrs. Rama Munjal and M/s S.K. Rai Sons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on without any interest, there would be very heavy onus on the assessee to be discharged before the Assessing Officer to the effect that inspite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, still there was justification to advance loans to sister concerns for non-business purposes without any interest and accordingly, the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent. In our view, even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concerns on interest free basis, may be it is pleaded to be out of sale proceeds or share capital or different account cannot be accepted. Entire mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof for non-business 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. If the plea of the assessee is accepted that the interest free advances made to the sister concerns for non-business purposes was out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee will show the figures of capital introduced by it as a margin for loans bei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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