9911796707
TMI Blog2003 (10) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... /c and other particulars. In the computation of income, the assessee had shown income of Rs. 11,86,739 of this year but the brought forward losses of earlier year have been claimed to be set off to the extent of this year's income and thereafter nil income for the year under consideration has been shown. 3. In the P&L a/c, the assessee has claimed payment of interest of Rs. 4,76,993.77. On scrutiny by learned AO, it was found that interest of Rs. 2,47,244 has been paid to Oriental Bank of Commerce, Bikaner and interest of Rs. 95,000 has been paid to the immediate relatives of the partners for their deposits and remaining interest of Rs. 1,33,849 has been paid to other parties. On scrutiny of the capital account, it was found by the AO that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted for non-business purposes. Therefore, payment of interest to the bank, relatives and other parties was held as not incurred wholly and exclusively for business purposes and according to the claim interest payment is disallowed. 4. When the assessee went in appeal before the learned CIT(A), the learned CIT(A) held that the borrowed funds either from bank or from private parties were utilized for business purposes. The funds so borrowed were not diverted for non-business purposes. The partners had credit balance more than the debit balance in respect of three partners. No nexus was established by the AO in respect of funds which are stated to have been diverted for non-business purposes and the funds which were borrowed. As a result, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the AO asked from the assessee as to how the withdrawals by the partners were utilized. When the AO did not get satisfactory reply on this query, the learned AO came to the conclusion that the funds must have been used for non-business purposes. But we are afraid that we are concerned with the funds borrowed by the assessee and on which the interest has been paid and the AO has sided his arguments towards a different aspect instead of giving a clear-cut finding on the fact that the borrowed funds were used for non-business purposes. 10. In our opinion, the requisite conditions as mentioned/required under s. 36(1)(iii) are fulfilled in this case because the assessee has borrowed money, the money has been used for business purposes and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' own capital was substantially more than the aggregate amount of advances to three partners. In this case, the total of the credit balance is much more than the debit balance and there is no clause for charging of interest and payment of interest on the capital of partners. The interest-free capital was much more than the debit balance of the partners. The fact that there was a profit of Rs. 11 lakhs during this year can be said to be out of profit of the year. So, the interest cannot be disallowed. In these circumstances we are of the considered opinion that the order of the learned CIT(A) is well reasoned and requires no interference.
12. As a result, we dismiss the appeal of the Department. X X X X Extracts X X X X X X X X Extracts X X X X
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