TMI Blog1990 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... , a firm owned by the relatives of the partners of the assessee firm. The CIT(A) observed that the interest cannot be disallowed on the closing balance or the peak credits in account of M/s Navrang Pottery to whom the interest free advance was given by the assessee firm and he, therefore directed that the disallowable amount out of interest be calculated in the basis of the day to day user of the fund. The amount of such interest calculated on the basis of day to day user of the fund and entries in the account of M/s Navrang Pottery was worked out to Rs. 23,583 by the assessee and the CIT(A) directed the ITO to restrict the disallowance to the aforesaid extent after verification of the calculation made by the assessee. 3. The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concern. M/s Navrang Pottery. It is a case where mixed funds are kept in the bank and it cannot be said that the advance were given to M/s Navrang Pottery out of the fund borrowed on interest from the aforesaid bank. The assessee had interest free fund available with it which was substantially more than the amount advanced to the aforesaid sister concern. In this connection, attention was drawn towards page 3 of the written submission submitted by the assessee before the CIT(A). The learned counsel for the assessee also relied upon the various other judgements, the gist of which had been submitted in the paper book at pages 6 to 8. He, therefore urged that the disallowance confirmed by the CIT(A) should be cancelled. 4. The learned Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,500, Further the various business receipts received during the year were also credited or deposited in the aforesaid bank account. Therefore it cannot be said that there was a direct nexus between the loan borrowed from the bank and the interest free amounts advanced to M/s Navrang Pottery. The assessee maintained mixed funds and most of the business transaction of the assessee firm were routed through the aforesaid bank account with the Bank of Baroda. It is an undisputed fact that the aforesaid loan was taken by the assessee on the security of the hypothecation of the goods and drawing power against the limit of loan sanctioned in cash credit account depends upon level of the goods owned and possessed by the assessee on different dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative is clearly distinguishable on facts. In that case, the loan was taken on the security of the F.D.R. and amount was utilised for personal purposes and not for earning of dividend or interest and that case related to a claim of deduction under s. 57(iii) and not under s. 36(1)(iii) as in the present case. 6. Considering the fact that the interest free funds and the current profit of the assessee were substantially more than the amount of interest free loan advanced to the sister concern and also in view of the fact that there is no direct co relation or nexus between the fund borrowed on interest from the bank and the amount of interest free loan advanced to M/s Navrang Pottery, we are of the view that the disallowance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
