1978 (7) TMI 137

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....see had borrowed considerable funds and paid interest thereon in the year of account. The ITO disallowed the assessee's claim of interest to the extent of Rs. 6,400 on the ground that the assessee had made advances to both parties with whom it had no trade relations and the payment was not made in connection with the carrying on of its business. The ITO placed reliance on the decision of the Mysor....

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....g parties for the purposes stated against each: Name of the party : Debit Balance : Remarks : 1. M/s. U.P. Dyeing & Printing Works. Rs. 8,700 No cash was advanced. The amount due represents the unrealised amount of rent. There was another account of the party in which there are heavy opening and closing credit balances and on which no interest was paid. 2. Shri Abdul Majid. ....

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....2 above also Shri Malik's submission was that it was advanced to weavers for purchase of goods and was later on adjusted against the goods purchased and as such this was also not an advance. As regards the remaining two amounts of Rs. 18,650 and Rs. 10,000 Shri Malik did not seriously dispute that these were loans but submitted that the assessee had sufficient surplus interest-free funds out of wh....

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....d not entitle the Department to disallow a part of the interest paid, unless there is evidence to show that a particular amount borrowed was utilised for his private purposes. (See CIT vs. Gopi Krishan Murli Dhar(4) and P.R.M.S. Ramanathan Chettiar vs. CIT(5)). In the present case, according to balance-sheet submitted for the period from 1st Aug., 1973 to 31st July, 1974, the assessee had interest....