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2019 (12) TMI 867 - ITAT JAIPURDisallowance of claim of interest expenses on assumption and presumption basis - disallowance of interest only in respect of one transaction of payment of interest @ 20% whereas the assessee has earned the interest at the maximum rate of 18% - AO has restricted the payment of interest to 18% - HELD THAT:- When the AO has not disputed the correctness of the payment and genuineness of the transaction, then merely because the payment of interest to one of the parties is higher than the average earning of interest, the same cannot be a reason for disallowing the claim of interest expenditure. The only requirement for allowing the deduction under section 57(iii) is that the expenditure has been incurred wholly and exclusively for the purpose of earning the income. Thus the purpose of expenditure is relevant and not the end result of such expenditure laid out by the assessee. When the interest expenditure was laid out by the assessee for earning the interest income, then the rate of interest for payment of interest is not relevant for the purpose of allowing the deduction under section 57(iii) of the Act. The authorities below have committed an error while disallowing the claim of interest on the ground that the payment in case of one party is at a higher rate than the interest earned by the assessee from such expenditure. The orders of the authorities below are accordingly set aside and claim of the assessee is allowed.
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