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2020 (12) TMI 68 - AT - Income TaxDisallowance of interest made u/s.57(iii) - assessee had made borrowings from parties @15% p.a and had invested the same in the partnership firm where assessee is a partner, wherein he earned interest @12% pa - AO sought to disallow the difference in interest rates @3% (15%-12%) u/s.57(iii) under the head ‘income from other sources’ while completing the assessment - HELD THAT:- Certain borrowings were made by the assessee at reduced rate of interest. We find that once the borrowings were accepted as genuine and one to one nexus is found to have been proved that the said borrowings were indeed utilised for investment in a partnership firm wherein assessee was a partner, there cannot be any question of disallowance of interest on the borrowings. As relying on RAJENDRA PRASAD MOODY [1978 (10) TMI 133 - SUPREME COURT] we direct the ld. AO to delete the disallowance of interest under the head ‘income from other sources’. Disallowance of brokerage on borrowed loan - AO observed that the said expenditure is not incurred for the purpose of earning income under the head ‘income from other sources’ and accordingly sought to disallow the same - HELD THAT:- There is no dispute that the borrowings made by the assessee were utilised for the purpose of investment in partnership firm from where interest has been received by the assessee and taxed under the head income from other sources. Hence, the brokerage paid becomes an expenditure incurred for the purpose of earning interest income in terms of Section 57(iii) and is squarely allowable as deduction. We find that the ld CIT(A) had deleted ₹ 73,392/- and sustained an adhoc disallowance on account of brokerage to the tune of ₹ 1,00,000/-. We direct the ld. AO to allow deduction towards brokerage for the remaining sum of ₹ 1,00,000/-. Addition made on account of annual value of house property in respect of property situated in a small village - HELD THAT:- CIT(A) had restricted the addition towards annual value of house property @₹ 20,000/- as against ₹ 30,000/- determined by the ld. AO. We find that both the AO as well as ld. CIT(A) had only estimated the fair rental value of the house property without disputing the submissions made by the assessee before them. At the same time, we find that the rental income stated by the assessee @5,000/- per annum seems to be on the lower side. Hence in order to meet the ends of justice, we direct the ld. AO to determine the fair market value of property @₹ 10,000/- supra and from that statutory deduction of 30% should be given to the assessee and accordingly remaining sum of ₹ 7,000/- should be taxed as ‘income from house property’. Accordingly, the ground No.3 raised by the assessee is partly allowed.
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