Interest free advance to sister concerns- disallowance out of interest

Only because the sum total of share capital and reserves was far greater than the loan advanced to sister concern it was held in CIT v. Raghuvir Synthetics Ltd. (2013) 354ITR222 that no disallowance could be made out of interest paid on borrowed capital.

The ratio of this decision can be utilized in the context of s. 14A provisions where the AO if presented with a statement of interest free funds to show that the assessee maintain substantial interest free funds to match the investments in tax free securities and that it has thus not utilized any monies for making investments in tax free securities.

Having said that then it is for the AO to bring evidence to hold otherwise in the absence of which even rule 8D interference would be improper

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