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2020 (1) TMI 163 - AT - Income TaxDisallowance of interest - nexus between interest paid on borrowings utilized for interest yielding advances - HELD THAT:- The business of the assessee was already set-up since the assessee had already reflected income from real estate business during AY 2008-09. The perusal of assessee’s financial statements for year under consideration would show that the assessee has obtained unsecured loans of ₹ 583.56 Lacs which has substantially been advanced to directors & others (to the extent of ₹ 185.45 Lacs) and to make-up for the accumulated losses of ₹ 317.31 Lacs incurred by the assessee over the years. The assessee do not have any other source of fund except Share capital of ₹ 1 Lac. Therefore, there was complete nexus between the borrowings and lending made by the assessee. This being the case, the interest expenditure having direct nexus with interest income was clearly allowable to the assessee. Applicability of head of income - Interest income received - HELD THAT:- We find that Ld. CIT(A) was correct in directing Ld.AO to assess the interest income as business income and allow interest expenditure against the same to the extent as specified in the impugned order. The ground stand dismissed to that extent. We find that factual matrix would require our indulgence only to the extent of interest on tax refund of ₹ 7.77 Lacs earned by the assessee which is a part of overall interest income of ₹ 144.41 Lacs. The said interest income, undisputedly, could not be held to be business income for the assessee rather it was assessable as Income from Other Sources. Therefore, we direct Ld.AO to modify order giving effect dated 27/11/2015 accordingly. The ground stand partly allowed to that extent. Proportionate disallowance u/s 36(1)(iii) - The issue as well as factual matrix being identical as in AY 2011-12 and since we have decided the issue on merits in AY 2011-12, taking the same, we confirm the stand of CIT(A) in directing AO to accept interest income as business income. The interest on tax refund, if any, would be assessable as Income from other sources. No indulgence would be required against proportionate disallowance u/s 36(1)(iii) as confirmed by Ld. CIT(A).
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