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2015 (11) TMI 57 - ITAT MUMBAINetting of interest income with interest expense - Disallowance of interest paid to Saraswat Co- op. Bank Ltd - Appellant prays that the claim of the assessee be allowed u/s 57 - whether CIT(A) had failed to appreciate that had assessee not made Fixed Deposit and obtained over-draft, it would lent the money directly, in which case there would have been no interest income on Fixed Deposit and no interest expense on Overdraft - Held that:- After considering the provisions of section 56 and 57 of the Act and also the decisions relied upon by both the parties, we hold that the expenditure(other than capital expenditure) shall be allowable only if it is incurred for the purpose of earning income and not vice-versa as held by the Hon’ble Supreme Court in the case of CIT v.. V. Gopinathan (2001 (2) TMI 10 - SUPREME Court) . Hence the netting of interest expenditure against interest income from FDR cannot be allowed as the expenditure of interest incurred by the assessee is not wholly and exclusively laid out or expended for making or earning income as per mandate of Section 57(iii) of the Act rather it is vice versa. The assessee has raised the plea for the first time before us that she has given the interest free loan of ₹ 98 lacs to GPL as a measure of commercial expediency because she is the Director of the said company. However the said plea has not been verified by the authorities below. We, therefore, hold that to the extent of borrowing made from SCBL for lending to GPL of ₹ 98 lacs, the interest attributable thereof paid to SCBL shall be allowable to be set off against the interest income if the assessee is able to prove before the assessing officer that the said interest free loan of ₹ 98 lacs given to GPL has been given as a measure of commercial expediency as held by the Hon’ble Supreme Court it the case of S.A Builders (2006 (12) TMI 82 - SUPREME COURT) and hence to that extent we allow the appeal subject to verification by the assessing officer and accordingly set aside the matter to the file of assessing officer for necessary verification as detailed above and the assessee will be given proper and adequate opportunity in accordance with the principles of natural justice.However, the interest expenditure paid to SCBL and attributable to the advance of ₹ 92 lacs given to PMIPL shall not be allowed as expenditure to be set off against the interest income from FDR as per reasoning given by us above and hence the contention of the assessee to this extent is rejected. - Decided partly in favour of assessee for statistical purposes.
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