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2023 (1) TMI 527 - AT - Income TaxDisallowance of interest expense paid u/s. 57 - nexus between the funds withdraw from the Partnership Firm and funds used for acquiring immovable property - whether the interest expense may be allowed to be capitalized and added to the cost of acquisition of the immovable property? - HELD THAT:- Merely the assessee has taken a decision that instead withdrawing money from deposit made to make investment in land property, has borrowed the money from the partnership firm on interest basis, the assessee could not be made suffer to tax. In simple words, there might be a possibility that the company in which the assessee has made deposit, it was not having any liquid fund and therefore it was not in a position to return the money to the assessee for the purpose of the investment. In such a situation, the assessee prudently decided to borrow the money from the partnership firm on interest as there was no loss to the assessee. We are of the view that in the given facts and circumstances the assessee should not be penalized by way of making the disallowance of interest expenses. Whether the impugned interest expense was capital in nature and therefore the same cannot be allowed as deduction under section 57(iii)? - We note that the order of the authorities below is silent. Nevertheless, what is gathered from the preceding discussion is that the assessee has not capitalized the interest expense incurred by him. It is for the reason that the assessee has claimed the interest expense against the interest income which evidences that the assessee has not claimed any interest expenses as capital in nature. Moreover, if we apply the reasoning given in the immediate preceding paragraph that had the assessee not borrowed the money from the partnership firm on interest basis and would have taken the money out of the deposits made with the companies, there would not have been any question of the interest expenses whether capital or revenue in nature. The lower authorities have not disputed the claim of the assessee that the deposit made with the impugned parties were made out of withdrawal from the partnership. The lower authorities also failed to consider the fact that assessee incurred interest expenses on the total outstanding liability of Rs. 10,52,07,072/- whereas the alleged investment in land property out of borrowing money was of Rs. 3,61,85,825/- only. Thus, it shows that the AO made addition with prejudice mind without properly considering the materials made available on record before him. We set aside the finding of the CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
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