CIT v KAJAL EXPORTS [Tax Appeal No. 756 of 2013 dated 23.01.2014] (Gujarat High Court) Background: Assessee is engaged in business of export activities. During the course of assessment proceedings, the AO observed that the assessee had made borrowings throughout the year under the banner of business necessity and on review of the purchases and the sales patterns of the assessee, held that the funds borrowed were utilised for purposes other than business. The AO further noted that the assessee had advanced money to close relatives/ sister concerns without charging the interest. Accordingly, the AO disallowed the interest expenditure. CIT(Appeals) concluded that the borrowed funds were not used for the business purposes in the AY 2003-04 and the AO was justified in disallowing the expenditure on such borrowed funds to the extent it is claimed in the P&L account. The Tribunal deleted the entire amount except Rs.21,900/-, i.e. 15% of Rs.1.46 lakhs.