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2021 (1) TMI 781 - AT - Income TaxTaxability of interest income - Netting of interest expenditure - interest income received from the Fixed Deposit created out of the loan Fund received from NEDFI - AO noted that the assessee has claimed TDS credit in respect of interest income from banks but corresponding interest income is not shown while computing total income for the year under consideration - HELD THAT:- The assessee received interest income from the said Fixed Deposits and at the same time the assessee had incurred the interest expenditure to NEDFI, which has been netted by the assessee in its computation/books and the net amount was capitalized and shown as work in progress (WIP) which action of assessee has not been accepted by the AO and the AO has taxed the interest income under the head other income and taxed it. According to Ld. Advocate since the assessee has commenced the project, the interest expenditure should be netted with that of the interest received and only the net amount should be brought to tax. CIT(A) has noted that the assessee has commenced its project (Tarun nagar Project) and since the interest amount from the fixed deposits are intrinsically linked to the business/project which has admittedly commenced, therefore the interest expenditure need to be allowed u/s 36(1)(iii) and in that event only the net amount can be taxed [i.e. the interest received minus interest expenditure]. Therefore, the impugned orders are set aside and it is directed that only the net interest amount should be taxed and it can only be brought to tax in accordance to law. Appeals of the assessee are partly allowed.
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