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2006 (3) TMI 205 - AT - Income TaxInterest paid on the borrowed funds - HELD THAT:- We find that according to section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act for the purpose of computing total income under this Chapter. Meaning thereby, if any expenditure is incurred on borrowed funds which do not earn any income, the said expenditure are not to be allowed as deduction in computing total income of the assessee. In the instant case, the assessee has borrowed funds to make an investment in the firm under its capital account. As per the partnership deed, the assessee is not entitled for any interest on its capital balance as there was no provision in the partnership deed to this effect. Whatever remuneration was earned by the assessee being a partner, it was on account of services rendered by him for the firm and not on account of investment made by him in the firm. Unless and until the nexus is established between the borrowed funds and the income of the assessee, the deduction of the interest paid on the borrowed funds would not be allowed against the income. In the instant case, since no nexus was established between the borrowed funds and remuneration earned by the assessee, the Assessing Officer was justified in disallowing the interest paid on the borrowed funds. We, therefore, find no infirmity in the order of the CIT(A). Unexplained investment u/s 69 - HELD THAT:- According to assessee, the gold ornaments were sold on 2-7-1997 and tax was deposited on 3-7-1997 much before the filing of the declaration i.e., on 5-9-1997. Under these circumstances, we find no force in the contention of the assessee that taxes were paid out of the sale proceeds of part of gold ornaments declared in the VDIS Scheme. We accordingly find ourselves in agreement with the observation of the lower authorities that the taxes determined on the VDIS on declared amount was paid out of undisclosed source by the assessee. We, therefore, find no infirmity in the order of the CIT(A), who has rightly adjudicated the issue in the light of the material available on record. Accordingly, the order of the CIT(A) is hereby confirmed. In the result, the appeal of the assessee is dismissed.
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