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2023 (4) TMI 888 - AT - Income TaxExcessive interest expenses - interest paid @ 21% to one person is excessive - commercial expediency which necessitated taking of loan by the assessee @ 21% - interest income at the prevailing rate of 6 to 12% (maximum at rate of 15%) - AO restricting the amount of interest expenses to 15% as against 21% interest paid by the assessee - assessee submitted that the AO cannot sit in judgement as to the amount of interest which is required to be paid by the assessee, since given the commercial expediency of the facts of the instant case, it is assessee who is in the best position to decide at what rate of interest the loan may be required to be taken - HELD THAT:- Since if the assessee is unable to establish the nexus between interest bearing loans and earning of interest income itself, the entire interest expense is liable to be disallowed and not part thereof as upheld by CIT(Appeals). Even in the assessment order, AO has not challenged the fact that assessee has not been able to establish the nexus between interest taken @ 21% and the earning of interest income by the assessee. Both the AO and CIT(Appeals) have not been able to controvert the commercial expediency demonstrated by the assessee for incurring a higher rate of 21% interest on loan taken from Shri Dharmesh Kumar Patel, given the facts of the instant case. Therefore, assessee has been able to establish both the commercial expediency for taking the interest at higher rate of 21% (since the same was required by the assessee on urgent basis to be given to the firm in which the assessee was a Director) and has also been able to establish the nexus as required under section 57 of the Act. As decided in CIT v. Darashaw& Co. (P.) Ltd. [2014 (5) TMI 940 - BOMBAY HIGH COURT] held that It cannot be said that interest expenditure on borrowed capital shall be debited, only if any income is made or earned. In the case of CIT v. Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME COURT] held that to bring a case within section 57(iii), it is not necessary that any income should in fact have been earned as a result of expenditure. Therefore, interest paid on money borrowed for investment in shares, which had not yielded any dividend, was admissible under section 57(iii) of the Act. Appeal of the assessee is allowed.
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