If interest free loan given in business expediency to Sister concern, no disallowance can be made towards interest paid to banks.
AO has to establish the nexus between the interest bearing borrowings and interest free loan to prove that interest expenditure was for non-business purposes.
IN THE SUPREME COURT OF INDIA
HERO CYCLES (P) LTD. Vs COMMISSIONER OF INCOME TAX (CENTRAL), LUDHIANA
CIVIL APPELLATE JURISDICTION; CIVIL APPEAL NO. 514 OF 2008 Continue reading