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2022 (2) TMI 662 - AT - Income TaxRevision u/s 263 by CIT - Deduction claimed in respect of interest paid on loan borrowed from HSBC Invest Direct Financial Services [India] Ltd., against the interest received from the CGDA scheme deposit was not proper and the AO ought to have disallowed the same. Accordingly the AO had failed to examine this aspect and had allowed the claim without inquiring into the same - extent of enquiry which was made by the AO while framing the assessment - HELD THAT:- In the present case, there is no full enquiry on the impugned issues. The AO has accepted the claim of assessee which is not correct as seen from the facts of the case. The claim of set off of interest by the assessee is not examined by the AO in proper perspective. Being so, the order passed by the AO on an incorrect assumption of facts and incorrect appreciation of law without applying the correct principles of law and without making full enquiry, the order being erroneous insofar as it is prejudicial to the interests of revenue, the PCIT rightly assumed jurisdiction u/s. 263 . Interest incurred to be allowed as a deduction u/s. 57(iii) out of interest earned from mutual funds - In this case, the assessee received the sale consideration on sale of shares. The sale consideration was used for purchase of mutual funds - For making deposit under CGDA Scheme, the assessee has taken loan from HSBC Bank and paid interest thereon. The interest paid on loan has been claimed as deduction out of interest received from fixed deposit parked under CGDA Scheme u/s 57(iii) In the present case, the borrowings were made by the assessee to deposit in the CGDA Scheme so as to avail the benefit u/s. 54F of the Act. The assessee has paid interest on the loan availed for the purpose of making investment in CGDA scheme. The assessee used the sale consideration receive on sale of shares in mutual funds and earned interest out of it. The assessee wants to set off the interest paid on loan amount out of interest income received from mutual funds. As seen from the above, the borrowings are not made to make investment in the mutual fund and earn interest therefrom. The borrowed amount was used to make investment in CGDA scheme. The interest income was received by the assessee from mutual funds only was totally independent of the borrowings. The interest expenditure is incurred not for the purpose of earning income, but it is on the borrowings used for investment in CGDA scheme. In our opinion, unless funds are borrowed for making deposit to earn interest income, such interest paid on borrowings cannot be allowed as deduction in the computation of income from other sources, which in this case, is interest earned from mutual funds. In the facts stated above, there is no doubt that the funds borrowed from HSBC Bank was never used for investment to earn interest income. On the other hand, it has been used to make investment in CGDA Scheme and interest paid on borrowings cannot be set off against interest earned from mutual funds, as borrowed fund is not converted into mutual fund which yielded interest income. Therefore, in our opinion, there is no merit in the arguments of the assessee that interest incurred is to be allowed as a deduction u/s. 57(iii) of the Act out of interest earned from mutual funds which was taxed under the head ‘income from other sources’. Accordingly, the grounds of the assessee on this issue are rejected the appeal is dismissed.
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