TaxTMI 
TaxTMI 
TaxTMI 
2006 (11) TMI 131
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.... deduction on account of interest under Section 36(1)(iii), that the funds borrowed by it were utilized for the purpose of business and not given as interest free advances for non-business purposes and does not the matter require to be remanded to the Assessing Officer (AO) for examining the agreements on record in order to determine whether there is a nexus between the funds borrowed and the interest free advances given by the assessee." 3. The facts in brief are that the Respondent assessee, which was incorporated on 31.7.1991 has for its main objects the cultivation and dealing with agricultural produce, vegetable produce and other vegetable products and "setting up farms, agricultural houses, orchards, gardens business of horticulture ....
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....paid interest of Rs.25,79,692/- to Delhi Brass and Metal Works Limited on the sum borrowed by the assessee. After allowing a deduction of Rs. 5 lakhs, which was received as liquidated damages, the AO disallowed the interest paid to the extent of Rs.20,79,692/-. After adding the disallowed liquidated damages, the carried forward loss of the assessee was re-computed at Rs.58,698/- instead of Rs.50,38,390/- as claimed by it. 5. Allowing the assessee's appeal, the Commissioner of Income Tax (CIT) (Appeals) held as follows: "The fact that the advances given and received by the appellant company are project financing arrangements, without any fixed rate of interest has not been denied by the A.O. The A.O. has not established any nexus between t....
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....ized the funds borrowed for giving interest free advances and and therefore, the CIT(A) and the ITAT were not justified in deleting the disallowance as ordered by the AO. 8. Dr. Rakesh Gupta, learned counsel for the assessee was unable to categorically state if in fact the evidence forming part of the assessment record showed that the funds borrowed were for the purposes of the assessee's business and that there was no nexus between the advances made by the assessee and the funds borrowed by it. He sought to tender copies of certain agreements referred to in the order of the AO to show that even though the loans advanced by the assessee to third parties as part of the project finance arrangement were interest free, that would not necessari....