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2016 (1) TMI 1072 - AT - Income TaxPenalty u/s 271(1)(c) - no nexus between borrowed funds and the investment made by the assessee and further huge interest expenditure was disallowed by the Assessing Officer - CIT(A) deleted the addition - Held that:- Section 36(1)(iii) has to be read on its own terms as it is a code by itself. All that section requires is that the assessee must borrow capital for business purposes, carried out by the assessee in the year of account. Unlike section 37, which expressly excludes an expense of capital nature, section 36(1)(iii) emphasizes the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital. Where the money borrowed had been utilized for the business purposes as also earning income under the residuary head “income from other sources” the interest paid on the money so borrowed should be bifurcated proportionately between the “business income” and “other source of income” H.K (Investment) Company pvt. Ltd. vs CIT (1993 (12) TMI 19 - GUJARAT High Court ). The totality of facts clearly indicates that the assessee did not establish the nexus between the borrowed funds and the investment so made with a clear intention to conceal the income by furnishing inaccurate particulars of such income, therefore, in our view, penalty was rightly imposed by the Assessing Officer. The stand of the Revenue is further fortified by the fact that even the assessee did not file appeal against the disallowance of huge interest expenditure while deciding the quantum addition and accepted the same. - Decided against assessee.
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