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2016 (1) TMI 37 - AT - Income TaxDisallowance of deduction of interest claimed - as per AO neither any income u/s. 56 of the Act had accrued to the assessee nor the interest liability arose in his individual hand, since it has been incurred in the capacity of the director - Held that:- There is no dispute to the fact that the assessee who was a director of the company C.C. Engineers Pvt. Ltd. stood as a guarantor in his capacity as a director and an individual when the cash credit loan was obtained from the Rupee Cooperative Bank Ltd. He had guaranteed the said loan not on behalf of the assessee company, but in his capacity as director and individual for which, his own property was mortgaged to the bank. Since the company defaulted in making the payment, the assessee and other guarantors requested the bank to release the company from loan liability and allow them to take over the said liability personally, subject to payment of certain settlement amount and simple interest thereon. Thus, after taking over the loan of the company, the assessee became liable to the bank for which, the assessee had paid interest to the bank. Simultaneously, the assessee has received interest from the company on the amount of loan that has been transferred from the company to the assessee. Therefore, there is a direct nexus between the interest earned from the company and the interest paid to the bank. Under these circumstances, the interest expenditure, in our opinion, was rightly allowed by the Ld. CIT(A) u/s. 57(iii) of the Act. The decision relied on by the learned Departmental Representative in the case of CIT Vs. Dr. V.P. Gopinathan reported in (2001 (2) TMI 10 - SUPREME Court) is not applicable to the facts of the present case and is distinguishable. In that case, the assessee had earned interest on fixed deposits and has paid interest on loan taken on the security of fixed deposits. The assessee claimed the interest on such loan on fixed deposits as expenditure out of interest income. Under these circumstances, it was held that interest on loan taken by the assessee from the bank on the security of fixed deposits could not be reduced from his income by way of interest on fixed deposits placed by him in the bank - Therefore, this decision, in our opinion, is clearly distinguishable and not applicable to the facts of the present case. Decided against revenue
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