Allowability of interest expenditure on borrowed funds

RELEVANT PARAGRAPH 4. The facts of the case are that the assessee is engaged in the business of sales and service of vehicles, auto parts and accessories. The relevant return of income was filed on 31st October 2004 at a total income of Rs. 2,47,150/-. The Assessing Officer, as per order dated 26th December 2006, determined the total income at Rs. 10,73,450/-. The Assessing Officer made addition of Rs.8,07,549/ – disallowing the interest paid to M/s Vee Key Alloy Conductors (P) Ltd. for the reasons that the interest payment was not for the purpose of business, that the payment was made t...