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Interest on borrowed funds

This query is : Resolved 
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(Querist)
25 July 2012 Dear Friends,

In an Income Tax Hearing attended by me, the ITO raised the following query. Please help me to solve this problem.

" From your balance sheet investment of Rs.3.5 crores in a Private Ltd company share. Explain why interest on this investment should not be disallowed ?"

I think the ITO has proposed to disallow the interest on borrowed funds allowed in the books of accounts.

So I need help from one and all and please quote any case law, if any
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CA. RAGHAV GARG

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CA. RAGHAV GARG (Expert)
25 July 2012 By doing so,

AO wants to disallow Interest you have charged as expenditure on Rs. 3.5 Crore

Since you have not utilised Such amount in business, No interest on that will be allowed as expenditure.

AO is right by doing this provide you can prrove that such expenditure is for business nature.
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