2008 (5) TMI 363

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.... whereas the interest received was only Rs. 17,70,201. He observed that the assessee had made interest-free advance of Rs. 437.74 lacs. The assessee had funds of Rs. 4.49 crores as advances received from customers which were not deployed for the business purposes and also the requirement was only Rs. 322.5 lacs. The funds were given as loans and advances without interest whereas interest was paid on funds borrowed by the assessee. The AO further observed that the assessee has submitted that even interest-free funds received were advanced towards interest-bearing loans which is misleading. 3. In appeal the CIT(A) observed that the assessee is engaged in development of project Silpgram and received advance from its customers of Rs. 4.41 cr....

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....4.52 lacs were given to Shri Chirag R. Makwan, M/s G.M. Exports, M/s Gujarat Pickers Industries and Shri Rajeshbhai Makwana all closely related persons @ 15 per cent when substantial funds were borrowed from the sister concerns at higher rates. All these show that loans were not taken for the genuine needs of the business as the business needs were fully satisfied from the advances received from the customers who were members of the project being developed by the assessee. He noted that in most of the loans given was either from the bank loan account or from the current account where many a times interest-bearing funds were deposited and thus even nexus is available. He also observed that interest paid was Rs. 44,99,204 and interest receive....