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TMI Blog2008 (5) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee had made interest-free advance of Rs. 437.74 lacs. The assessee had funds of Rs. 4.49 crores as advances received from customers which were not deployed for the business purposes and also the requirement was only Rs. 322.5 lacs. The funds were given as loans and advances without interest whereas interest was paid on funds borrowed by the assessee. The AO further observed that the assessee has submitted that even interest-free funds received were advanced towards interest-bearing loans which is misleading. 3. In appeal the CIT(A) observed that the assessee is engaged in development of project Silpgram and received advance from its customers of Rs. 4.41 crores in the earlier assessment year. The AO observed that require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Gujarat Pickers Industries and Shri Rajeshbhai Makwana all closely related persons @ 15 per cent when substantial funds were borrowed from the sister concerns at higher rates. All these show that loans were not taken for the genuine needs of the business as the business needs were fully satisfied from the advances received from the customers who were members of the project being developed by the assessee. He noted that in most of the loans given was either from the bank loan account or from the current account where many a times interest-bearing funds were deposited and thus even nexus is available. He also observed that interest paid was Rs. 44,99,204 and interest received was Rs. 17,23,801 and thus net interest paid was Rs. 27,75,404. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when it should not borrow. These are the matters which require to be decided by the assessee as a businessman. The assessee may make an imprudent business decision but the same itself does not empower the Revenue to disallow a legitimate and bona fide business expenditure. Thus, we find that the lower authorities have proceeded on a wrong interpretation of law. In our considered opinion if the borrowed funds were utilized for the business of the assessee the interest paid thereon is to be allowed as deduction to the assessee and when the borrowed funds were used for non-business purpose the same cannot be allowed as deduction under s. 36(1)(iii) of the Act while computing the business income. Further, the necessary facts to decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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