INCOME TAX ACT, 1961

Section 36(i)(iii)

Business deduction under section 36(1)(iii) - Interest on borrowed capital - Assessee had sufficient own funds for interest free advances -

Assessee filed appeal against the order of AO making disallowance under section 36(i)(iii) of interest expenditure in respect of interest free advances/payments made to different parties as the advances made were not for the business purposes. Held: The advances made to the three parties were out of the business expediency. There was no denial to the contention of the assessee that the assessee had own funds in the shape of own capital and unsecured loans which amount was sufficient to meet the advances made by the assessee. Thus, where assessee possessed of sufficient own interest free funds to meet the investments/interest free advances, then, under the circumstances, presumption will be that interest-free advances/investments have been made by the assessee out of own funds/interest-free funds. Hence, no disallowance under section 36(i)(iii) was warranted on this issue.

REFERRED :

FAVOUR : In favour of assessee.

A.Y. :

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