Interest disallowance fails where no nexus is proved between borrowed funds and interest-free advance

Interest disallowance could not be sustained where the revenue failed to establish a nexus between the assessee's interest-bearing borrowings and the interest-free advance to a related concern. The burden to prove that the borrowed funds were used for the impugned advance rested on the revenue, and that burden was not discharged. In the absence of such correlation, the addition was deleted.

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Issues: Whether the addition of Rs. 20,000 out of interest forgone was sustainable when the revenue failed to establish a correlation between the borrowed funds and the interest-free advance.

Analysis: The revenue did not prove any correlation between the assessee's interest-bearing borrowings and the debit balance in the related concern's account. The burden to substantiate the nexus rested on the revenue, and that burden was not discharged. In the absence of proof linking the borrowed funds to the impugned advance, the addition could not be sustained.

Conclusion: The addition of Rs. 20,000 was not justified and was deleted.

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