Commercial expediency supports interest deduction where sister concern advances are made for business purposes, not personal diversion.

Interest on borrowed funds remained deductible where advances to sister concerns were made pursuant to a demerger and for commercial expediency. The governing test was whether the borrowing was used for business purposes, and mere benefit to related concerns did not justify disallowance. As there was no allegation that the recipient entities or their directors used the funds for personal benefit, the borrowed money was not treated as diverted for non-business purposes, and the interest expenditure was allowable.

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Issues: Whether interest on borrowed funds was disallowable when the assessee advanced money to sister concerns on account of demerger and other related business advances.

Analysis: The advance of funds to sister concerns was found to be on account of demerger and for commercial expediency. Applying the settled principle that the test is whether the advance was made for business purposes, the mere fact that a third party or sister concern benefited did not justify disallowance. In the absence of any allegation that the recipient concerns or their directors diverted the funds for personal benefit, the borrowed funds could not be treated as diverted for non-business purposes.

Conclusion: The interest expenditure was allowable and the disallowance was unsustainable.

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