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2016 (9) TMI 693 - ITAT MUMBAIAllowability of interest as deductible expenses - applicability of provision of section 40(a)(ia) - Held that:- CIT(A) judicially taken into consideration that as per the facts and circumstances of the present case where the borrowers financial condition was not sound, the lenders might wish to postpone the recognition of interest income which may or may not be realized at all in future. Ld. CIT(A) has also appreciated that in the facts of the present case the said interest liability has been crystallized during the year, as earlier it was not certain whether the interest would be payable or not. Since the assessee has paid the interest after deducting TDS in current assessment year, and accordingly claimed the interest expenses in current assessment year as the assessee was in a position to pay the interest component and hence the same was provided and paid during the year under consideration. Ld. CIT(A) has rightly found no justification in disallowing such claim of the assessee for the payment of interest. It was also appreciated by ld. CIT(A) that since the assessee has deducted the TDS in AY 2009-10 under consideration therefore it would automatically be allowed in this year as per the provision of section 40(a)(ia). - Decided in favour assessee Interest attributable to loans - Whether the interest can be disallowed due to the closure of business/profession closure of one of the activities? - whether the interest expenses can be attributed to interest free loans given to sister concerns in present case? - Held that:- CIT(A) while dealing with the first issue has rightly considered the facts of the present case and observed that the loan was initially taken for textile business, which has been closed/suspended due to adverse business conditions but the assessee is still showing income from certain other sources such as rental income and profit on sale of shares though not under the head “ Profits or gains of business or profession”. Ld. CIT(A) while considering the latter judgement of Hon’ble Supreme court in the case of Veecumsees (1996 (4) TMI 6 - SUPREME Court) had rightly come to the conclusion that business of the assessee is a composite business during the period under consideration and expenditure is incurred for this composite business activities. Hence, the ld. CIT(A) has rightly held that the claim of the assessee of interest cannot be denied. The ld. CIT(A) has also considered the figures regarding advance of interest free loans out of interest free loans from family and partner’s capital and the ld. CIT(A) after considering the facts and figures and documentary evidences has correctly noticed that the interest free funds to the sister concerns during the period under consideration were out of interest free funds from the family members and it will not have any impact on the interest payment made by the assessee for the other business purposes. We have also found that as per assessment order the AO had not examined in detail to establish that the interest free loans to sister concerns were out of borrowed funds and therefore in the absence of proving any nexus between the borrowed funds and interest free loans given by the assessee, it was not justifiable for the AO to make any disallowance. - Decided in favour assessee
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