Co-operative society's mandatory reserve and share capital fixed deposits with banks-interest treated as business income under 80P(2)(a)(iii) deductio...
Income tax reassessment reopening after four years on investigation tip, without s.147 proviso disclosure failure, struck down as borrowed satisfactio...
ITAT allowed the assessee-firm's appeal and deleted the disallowance of interest expenditure u/s 36(1)(iii). The Revenue had treated partners' drawings routed through an overdraft account as diversion of interest-bearing funds for non-business purposes, relying on negative capital balances. ITAT held that in a capital-intensive ship recycling business, partners' drawings are a normal incident of partnership and that overall interest-free funds (partners' capital and trade liabilities) exceeded such drawings. No direct nexus between borrowed funds and non-business advances was established. The negative capital was mainly due to a non-cash diminution already disallowed earlier, and day-wise working of interest-free funds remained unrebutted.
ITAT allowed the assessee-firm's appeal and deleted the disallowance of interest expenditure u/s 36(1)(iii). The Revenue had treated partners' drawings routed through an overdraft account as diversion of interest-bearing funds for non-business purposes, relying on negative capital balances. ITAT held that in a capital-intensive ship recycling business, partners' drawings are a normal incident of partnership and that overall interest-free funds (partners' capital and trade liabilities) exceeded such drawings. No direct nexus between borrowed funds and non-business advances was established. The negative capital was mainly due to a non-cash diminution already disallowed earlier, and day-wise working of interest-free funds remained unrebutted.
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