2023 (9) TMI 882

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....st the confirming the disallowance of Rs. 31,51,288/- by Ld. CIT(A) by invoking provisions of section 36(1)(iii) of the Act which was made by the AO on account of notional interest @12% on unsecured loans advanced free of interest. 4. Facts in brief are that the AO, on perusal of books of accounts and details filed by the assessee, observed that the assessee debited interest expenditure amounting to Rs. 42,33,309/- on unsecured loans of Rs. 44,30,73,060/- taken from various persons by the assessee. The AO also noted that the assessee has given loans amounting to Rs. 2,62,60,730/- to three persons without charging any interest. The AO further observed that the assessee has paid interest @ 12% on unsecured loans whereas no interest was charg....

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....rest. We have to consider several factors and establish that funds were paid out of interest bearing funds taken by the assessee. In the present case, we observe from the balance sheet of the assessee and various other documents filed that the assessee has not borrowed any fresh funds during the year rather loans were repaid during the year. We observe that at the end of year 31.03.2010, the secured loans and unsecured loan were Rs. 14,26,91,496/- whereas as on 31.03.2011 the aggregate loans were of Rs. 11,00,07,403/-. Similarly we observe that the money advanced by the assessee during the year was Rs. 2,62,60,730/- comprised of three parties out of whom Rs. 1,79,24,200/- is opening balance which was advanced/transferred from Tulsi Damodara....