TMI Blog2019 (3) TMI 1812X X X X Extracts X X X X X X X X Extracts X X X X ..... once the nexus between the expenditure and the purpose of business has been established as already decided by the number of judgments pronounces by different legal forum including the judgment passed in the case of CIT-vs-Dalmia Cement (P.) Ltd. [ 2001 (9) TMI 48 - DELHI HIGH COURT] - Assessee s appeal is allowed. - I.T.A. No.73/Ahd/2017 - - - Dated:- 29-3-2019 - Shri Pramod Kumar, Vice President And Ms. Madhumita Roy, Judicial Member Appellant by: Shri Sakar Sharma, A.R. Respondent by: Shri G. C. Daxini, Sr. D.R. ORDER Ms. Madhumita Roy, The instant appeal filed by the assessee is against the order dated 13.10.2016 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad under section 143(3) r.w.s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was not in the money lending business to earn interest. Further that, the interest on borrowed capital is allowed as a deduction from business only if it satisfies the condition that the same is used for the business purposes. When the borrowed fund was diverted for giving interest free loans, the proportionate interest attributable to such loans could be legitimately disallowed. The following details of interest free fund available with the assessee produced by the assessee on 25.02.2015 were also considered by the Learned AO: Interest free Funds Amount in Rs. SHARE CAPITAL 139320000 Share application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10895287 BANK INTEREST ON TERM LOAN 2202071 INTEREST ON UNSECURED LOAN 4419973 INTEREST ON CAR LOAN 26768 TOTAL INTEREST PAID 17544099 RATE OF INTEREST ON TOTAL FUND EMPLOYED IN BUSINESS 5.19% The Learned AO ultimately after considering the above chart of interest fund including the value of depreciation reserves, i nterest expenses in proportion to the funds diverted for non business purpose disallowed an amount of ₹ 20,78,380/- u/s 36(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income tax provision u/s 36(1)(iii) hence payment made for interest on borrowed fund should be allowed as interest expenses in its totality and interest free loans and advances granted out of the interest free own funds even not used for business and no actual interest is received by the assessee than notional interest on such fund cannot be disallowed by interest expenses. If that be so, disallowance of proportionate notional interest expenses of ₹ 20,78,380/- on the basis of interest free advances i.e. ₹ 353.34 lacs is not in terms of law and liable to be deleted. The Learned AR also contended that interest expenses has to be allowed as deduction where interest bearing fund are advanced without interest. It is necessary th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Shree Balaji Corporation 70000.00 3. Subhaubhai M. Shah (Real Estate) 13791000.00 4. Subhaubhai M. Shah 1093660.00 5. Vibrat P Patel (Real Estate) 1000000.00 6. Shree Shyam Distributors (Real Estate) 4500000.00 7. Shakarbhai Chaturbhai Patel (Real Estate) 1000000.00 Total 35834146.00 Following details of interest free fund consisting of capital fund, free reserves, inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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