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2015 (11) TMI 864 - AT - Income TaxTreatment to interest income - business income or income from other sources - Held that:- It is clear from the findings recorded by the CIT(A) that the assessee company was engaged in the business of construction as well as lending of money, both constitute its main business activity. Both these objects were clear from the Memorandum and Articles of Association of assessee company. From the record we found that the investment and lending activity was a separate stream of business apart from the business activity in real estate. As per clause 55 of Memorandum and Articles of Association, assessee was authorized to carry business of money lending. Accordingly, we do not find any infirmity in the order of CIT(A) for directing the AO to treat the interest income as business income rather than income from other sources.- Decided in favour of assessee Disallowance u/s 14A - Held that:- Regarding application of Section 14A of the Act, the contention of the learned Department Representative has to be rejected on the face of it inasmuch as the entire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case the entire income is found to be taxable, no disallowance can be made under section 14A of the Act.' Moreover, the AO has not established the nexus between invested funds and the interest bearing funds. Also nterest bearing funds have not been utilized for investment for purchase of shares. - Decided in favour of assessee interest expenditure incurred for the purpose of business - whether same is deductible u/s.36(1)(iiii) or u/s.57 of the Act? - Held that:- As per the findings given hereinabove the CIT(A) has correctly held that interest expenditure was incurred for the purpose of business, therefore, same is deductible u/s.36(1)(iiii) of the Act or u/s.57 of the Act. A clear finding has been recorded by CIT(A) that interest expenditure have direct nexus with the generation of income, therefore, as an alternate, the same is also allowable u/s.57 of the Act. The CIT(A) has dealt in great details AO's observation to the effect that unless interest income is earned, the interest paid cannot be allowed and held that the decision relied on by the AO in case of Tuticorin Alkali Chemicals & Fertilisers Ltd. Vs. CIT, [1997 (7) TMI 4 - SUPREME Court ] are not applicable to the facts of the case, insofar as assessee was already in the business of construction. The CIT(A) has also found that the assessee has already credited interest element of ₹ 10,89,78,431/- to the work-in-progress out of total interest of ₹ 11.63 crores paid on the loans taken, therefore, there is no need to further apportion interest to the work-in-progress. This finding is based on material on record, therefore, do not require our interference. As the assessee had already credited interest of ₹ 10.89 crores to work in progress out of total interest of ₹ 11.63 crores, no further interest is required to be credited to work-in-progress. Accordingly, we confirm the action of CIT(A) in this regard. - Decided in favour of assessee
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