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2020 (11) TMI 495 - AT - Income TaxDisallowance of interest expenditure - AO observed that assessee has earned interest income on term deposits -deduction u/s. 57 in respect of interest expenditure disallowed -HELD THAT:- As decided in own case [2017 (12) TMI 1668 - ITAT MUMBAI] we find force in the submission of the learned A.R. that since the assessee as well as the recipients are notified entities under the Special Court Act unless the Court directs for distribution of the assets towards existing liabilities under Section 11(2) of the Special Court Act, the assessee cannot make the payment to these creditors. Even otherwise since the existence of liability towards interest has accrued especially when the assessee is following the mercantile system of accounting the interest is to be allowed. we find that there is a nexus between borrowed funds and investments in term deposits. Therefore, the interest paid on the borrowed funds has to be allowed out of the interest earned by the assessee on term deposits. We set aside the order of the CIT(A) and direct the AO to allow deduction in respect of said interest accrued and calculated at 12% per annum after disallowing proportionate interest in respect of the investment in shares. Disallowance u/s 14A - Capitalization of interest expenditure - Deduction on account of interest expenditure - HELD THAT:- ITAT in assessee’s own case [2017 (12) TMI 1668 - ITAT MUMBAI ] held to the extent the interest relate to the investment, i.e. being disallowable under Section 57 will become part of cost of acquisition of shares and therefore the AO is directed to take it as part of the cost of shares for determining profit on sale of the shares. Thus, the additional ground stands allowed to that extent. Addition of personal house hold expenses u/s. 69C - HELD THAT:- Addition made by the AO as well as sustained by the CIT(A) are though on ad-hoc basis, but same was done because no details of expenditures was filed by the appellant. Before us, the Ld. Counsel has submitted that, most of the expenses have been incurred by Dr. Hitesh S. Mehta and other family members living in a Joint family set-up. Further other members have contributed for household expenses and that some of the additions have been confirmed on account of personal household expenses by the Department. Following the said order of the Tribunal we reduce the disallowance sustained by the CIT(A) by 50%. Levy of interest u/s. 234A, 234B and 234C - HELD THAT:- As decided in own case [2017 (12) TMI 1668 - ITAT MUMBAI] we direct the AO to recomputed the interest liability after reducing the amount of tax deductible at source on the income earned.
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