TaxTMI 
TaxTMI 
2006 (10) TMI 90
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....Tribunal was right in law in deleting the disallowance of interest of Rs. 2,79,413/- on the grounds that there is no direct nexus between the borrowing and interest-free advances made to certain parties ? 2.During the course of assessment, it was found that the assessee had incurred liability to pay interest to the persons from whom the loans were raised, whereas on the other hand sums were advanced on interest free basis to M/s Brijmohan Lal & Associates; Mrs. Rama Munjal and M/s S.K. Rai & Sons. Considering the fact that the loans raised to the extent the same were advanced on interest free basis to other persons were not required to be raised, the Assessing Officer disallowed the interest to that extent. In appeal before the Commi....
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....ay interest, still there was justification to advance loans to sister concerns for non-business purposes without any interest and accordingly, the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent. In our view, even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concerns on interest free basis, may be it is pleaded to be out of sale proceeds or share capital or different account cannot be accepted. Entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds etc. do not have any different colour.Whatever are the receipts in the business, that have the colour....
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....st being paid by the assessee to the extent the amounts are diverted to sister concern on interest free basis are to be disallowed. If the plea of the assessee is accepted that the interest free advances made to the sister concerns for non-business purposes was out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee will show the figures of capital introduced by it as a margin for loans being raised and after the loans are raised, when substantial amount is diverted to sister concerns for non-business purposes without interest, a plea is sought to be raised that the amount advanced was out of its capital, which in fact stood....