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TMI Blog2014 (5) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has received huge interest free loans which aggregated to more than Rs. 50 crores - a presumption can be drawn that the interest free loan has been given out of these interest free unsecured loans received by the assessee – thus, there is no reason to interfere in the order of the CIT(A). The assessee has also given huge loans which are interest bearing and on which the assessee had shown interest income of Rs. 1.96 crores - The interest which has been incurred for the purpose of the business, has been shown at Rs. 1.83 crores, which has been claimed as deduction u/s 36(1)(iii) - Such a claim of deduction cannot be disallowed, unless it has been shown that the assessee has actually diverted its interest bearing loan either for some n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of finance, service relating to accounting, project management, legal, finance procurement and compliance. The Assessing Officer noted that the assessee has taken huge loans during the year and has also re-paid some of them. The loans taken were both interest bearing loans as well as interest free loans. The assessee has also advanced loans on interest and also as interest free. As noted by the Assessing Officer in the assessment order that in response to the query as to why interest attributable to interest free loans should not be disallowed, the assessee had submitted that only those interest should be disallowed which have been given as interest free loans from interest bearing funds / loans. The assessee has also given working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Commissioner (Appeals), after examining the material placed on record, noted that the assessee has taken interest bearing loans on which interest to the tune of Rs. 1,82,74,880, was paid which has been claimed as deduction. Apart from the interest bearing loan, the assessee has also interest free loans to the extent of Rs. 29,76,48,648. Thus, substantial funds were available on which no interest was payable. The availability of interest free funds in the Balance Sheet was also noted by him in the following manner:- Particulars A.Y. 2006-07 Share Capital Rs. 1,00,000 Reserve including current year profit Rs. 5,85,42,051 Current Liabilities 5,67,89,935 Interest free loans taken during the year Rs. 29,76,48,648 Total:- Rs. 41,30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Malayalam Ltd., [2012] 25 Taxman.com 546 (Ker.). 7. The learned Counsel, on the other hand, submitted that insofar as the observations and findings of the Assessing Officer are concerned that the assessee has accepted before the Assessing Officer that only those interest should be disallowed on the advance of interest free loans, which were given out of interest bearing funds is not correct because the assessee's main contention were two folds; firstly, the assessee had huge interest free funds which were given to certain persons as interest free loans and, secondly, the interest, which has been paid and claimed by the assessee was wholly and exclusively for the purpose of business. The working which was given before the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e / loans given by the assessee. He further submitted that the interest free loans were not given to any related parties but to outsiders wholly and exclusively during the course of the business. The interest, which has been paid are only for the business purpose, as the assessee's main income is interest only. Therefore, the claim of deduction under section 36(1)(iii) should not be disturbed. He reiterated the case laws which were relied upon before the learned Commissioner (Appeals). 8. We have carefully considered the rival contentions and perused the material available on record. The main dispute is disallowance of interest on the ground that the assessee has given interest free loans out of interest bearing funds. From the material pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn by the learned Commissioner (Appeals). Besides this, it is also noted that the assessee has also given huge loans which are interest bearing and on which the assessee had shown interest income of Rs. 1.96 crores. The interest which has been incurred for the purpose of the business, has been shown at Rs. 1.83 crores, which has been claimed as deduction under section 36(1)(iii). Such a claim of deduction cannot be disallowed, unless it has been shown that the assessee has actually diverted its interest bearing loan either for some non-business purpose of for personal use. There is no diversion of interest bearing loan for any other purpose except for the purpose of the business. Hence, the claim of the assessee under section 36(1)(iii) c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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