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2020 (8) TMI 151 - AT - Income TaxAddition of interest income - disallowance of interest income by not allowing proportional deduction of interest expenses - HELD THAT:- AO himself has allowed the amortization of preliminary expenses which is always allowed upon commencement of business activities. Thus the assessee was not in pre-commencement period and set-off of interest income with interest expenses was claimed as allowable & balance has been capitalized in the respective fixed assets. We also found that investment in interest earning advances were out of interest bearing funds borrowed by the assessee. In this regard, we observe that in AY 2008-09 in which the company was incorporated, the share capital was entirely utilized in investment of fixed assets and thereafter the subsequent borrowing were made either for purchase of more assets or in intervening period for advancing loans to other entities on which interest was earned. The assessee has also established nexus of interest paid with interest received i.e. utilisation of interest bearing borrowed funds into interest earning advances. There is no justification for disallowing interest expenditure so incurred. Even if the interest received by the assessee is treated as taxable under the head “Income from Other Sources” then still the deduction on a/c of interest paid by the assessee to the parties from whom the assessee taken loan and utilized to advance the money to persons from whom interest received should be allowed to the assessee. For computing the income taxed under the head “Income from Other Sources” u/s 56 of the Income tax Act the deduction of payment of interest made to earn such income should be allowed to the assessee as per provisions of section 57 (iii). Even otherwise also if it is presumed that the assessee did not commence its business operation and was under pre-commencement period than still in view of following case law the interest expenses should be allowed against interest earned in pre-commencement period. We confirm the detailed findings so recorded by the ld. CIT(A) which is as per materials placed on record, requiring no interference at our part. - Decided against revenue.
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