2013 (4) TMI 89

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....ee is engaged in Ship Breaking activities. During the assessment proceedings, the A.O. noticed that the assessee has claimed interest expenditure of Rs.79,35,436/-. The income from interest shown was Rs.54,58,637/-. The A.O. noticed that the there was a difference of Rs.24,76,779/- on account of interest received and interest paid. Therefore, there is no substantial loss in this account. The A.O. asked the assessee to justify the interest rate charged and paid. After considering the assessee's submission, the A.O. noticed that the assessee was paying interest rate from 9 to 21% on the borrowing made by it, but the assessee is not charging interest at the same rate on loans and advances rather charging interest at lesser rate which has resul....

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....re, I find that the disallowance of Rs.24,76,779/- made by the AO, as this amount being difference between the interest paid and interest received by the appellant firm, just on the basis of a general observations that the appellant firm has given loan/advances to the family members and sister concern related to the appellant firm by not charging any interest or charging interest at lower rate and such loan/advances being for the purpose other than business, is not justified. However, on specific examination of the loan and advances given by the appellant firm and its sources, I find that only an amount of Rs.2,83,302/- is to be disallowed as discussed above. Therefore, I restrict the addition on account of disallowance u/s 36(1)(iii) at Rs....

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....'s view without considering the section 36(1)(iii) of the Act. The loss in the interest account was on account of different rates charged from different parties on loans and advances taken and loans and advances given. For allowing deduction under section 36(1)(iii), it is to be seen whether conditions stated in section 36(1)(iii) has been satisfied or not. In the case under consideration, we find that the assessee has satisfied all the conditions that the borrowed fund was used for the purpose of business as prescribed under section 36(1)(iii) of the Act. Also, as stated above, it was not the case of the A.O. that the borrowed fund was not utilised for the purpose of business of the assessee. As regards the A.O.'s view regarding loss in in....