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2022 (6) TMI 1280 - AT - Income TaxDisallowance of interest paid on debit balance of the assessee-partner’s capital account in the partnership firm - HELD THAT:- Proviso to section 36(1)(iii) stipulates that the amount of interest paid in respect of capital borrowed for acquisition of an asset “for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use, shall not be allowed as deduction”. This proviso makes a pitch for disallowance of interest only when the asset acquired with the borrowed funds is not put to use. No disallowance can be made if the borrowed funds are utilized for acquiring an asset which does not produce any income albeit it has been put to use. The relevant criterion for disallowing interest is to examine the date up to which the asset acquired with the borrowed funds was first put to use. If the asset has been actually put to use, deduction of interest cannot be denied even if no income resulted from such an asset. The ld. CIT(A) has gone with the `income criterion’ and not the `user criterion’ for disallowing the interest, which is not justified. AR submitted that the assessee acquired his share in the running hotel in the year 2013, however, failed to place any concrete evidence either before the AO or the ld. CIT(A) to demonstrate the activities of the hotel as to whether it was really in operation during the year. Similar position obtains before the Tribunal as well. Since the assessment order was passed u/s.144 and the assessee could not lead evidence before the authorities below in this regard, I consider it expedient to remit the matter to the file of the AO for examining the question of deductibility of interest on the touchstone of the discussion made herein above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing to put forth the relevant evidence in support of his case. Assessee appeal is allowed for statistical purposes.
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