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2019 (12) TMI 402 - AT - Income TaxDisallowance of rental expenses - Nature of expenses - revenue or capital - HELD THAT:- Undisputedly, the subject premise in respect of which the assessee has claimed the rental expenses has been taken on lease by the assessee. Though, in the leave and license agreement, it is mentioned that it has been taken on lease for the use of residence of directors/employees, however, it cannot be said that in course of such user, the directors are not doing any official work, such as, meeting the investors, etc. Therefore, merely because as per the terms of the leave and license agreement the premise is to be used for residence purpose of the directors, assessee’s claim cannot be rejected. Tribunal in Stuish Capital Services Pvt. Ltd. [2018 (5) TMI 1948 - ITAT MUMBAI] while considering the allowability of depreciation on a premise taken on lease for use of director’s residence allowed assessee’s claim by holding that since the company is engaged in share trading, the premise is used by directors for official work also, hence, as per CBDT Circular and the decision of the Hon’ble Delhi High Court in CIT v/s Modi Industries Ltd. [1994 (4) TMI 61 - DELHI HIGH COURT] assessee’s claim is allowable. Disallowance of interest expenditure - AO on the basis of AIR information called upon the assessee to reconcile the interest income earned by it during the year - specific contention of the assessee that the borrowed funds on which the assessee has paid interest was utilized for investing in derivatives and NCDs - HELD THAT:- If the borrowed fund or part of it has been utilized in acquiring the NCDs, then the interest on such borrowed fund has to be set–off against the interest income earned on NCDs to the extent of utilization of borrowed funds in NCDs. The aforesaid claim of the assessee, therefore, needs factual verification. In case, it is found that a part of the borrowed fund was utilized for investment in NCDs, then the interest expenditure corresponding to the borrowed fund utilized in NCDs has to be set–off against the interest earned on NCDs. With the aforesaid observation, the issue is restored back to the Assessing Officer for fresh adjudication after verification of facts on record and due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
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