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2015 (7) TMI 356 - ITAT MUMBAI

2015 (7) TMI 356 - ITAT MUMBAI - TMI - Disallowance of the interest expenditure from being set off against the interest income offered under the head “Income from other sources” - whether the interest paid on the borrowings which were source of funds parked in term deposits has to allow as expenditure or not? - Held that:- The interest earned by the assessee is assessable u/s 56 and only such expenditure can be allowed which has been set out in clauses (i) to (iii) in section 57. In that case it .....

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ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (1997 (7) TMI 4 - SUPREME Court) and other decisions as relied upon by the Ld. CIT(A) will not be applicable.

In order to establish that such an interest expenditure was directly related to the interest income, the matter is being restored back to the file of the AO to verify the assessee’s contention and to see, whether there is a direct nexus of the interest expenditure incurred to the interest income .....

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ppeals have been filed by the Assessee against separate impugned orders of even date, 16.07.2012 passed by Ld. CIT-9 Mumbai, for the quantum of assessment passed u/s 143(3) for the A.Ys. 2008-09 and 2009-10. Since the issue involved in both the appeals are common, arising out of identical set facts therefore, for the sake of convenience same were heard together. 2. First of all we will take appeal for the A.Y. 2008-09, wherein the only issue raised in various grounds of appeal is that, the Ld. C .....

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erations during the year. In the course of the assessment proceedings, the assessing officer noted that the assessee had shown interest on term deposit and ICD of ₹ 1,80,53,158/-. Out of the said amount interest of ₹ 2,87,671/- relating to the project was transferred to the capital work in progress and balance interest of ₹ 1,77,65,487/- was credited in the account. In the computation of income, out of the gross interest income of ₹ 1,80,53,158/-, the assessee has set off .....

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purpose of setting up of steel plant has not been debited in the P&L Account but taken as pre operative expenses, only interest income of ₹ 1,77,65,487/- which was the interest income on termed deposits out of the funds which were not immediately required for the business and was offered to tax as Income from other sources. The interest expenditure of ₹ 5,02,732/- was on rupee term loan of ₹ 40 crores which was directly linked with the interest income. The assessee s detai .....

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capitalized under the head pre operative expenses. His detail analysis for making the decisions and reliance on other decision have been dealt and incorporated by him from pages 7 to 12 of the assessment order. 4. Before the Ld. CIT(A), the assessee again reiterated its submissions and clarified that the assessee company has not debited any interest expenditure relating to its borrowing to the P& L account. The total finance cost of ₹ 1,91,18,95,453/- was debited to preoperative expen .....

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diture was directly related to the interest income offered for taxation under the head Income from other sources . It was also calrified that the decision of Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra) was in connection with taxability of interest earned before the commencement of finance of short term deposit, which was treated as to be taxed under the head Income from other sources . The Apex Court has held that interest income earned by the asse .....

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preme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. and held that assessee may be entitled to capitalize interest payable by it, however, it cannot claim an adjustment of this expenditure against interest assessable u/s 56. The expenditure which are allowable as deduction have to be within the ambit of section 57 only, i.e. if they have been incurred for the purpose of income assessable u/s 56, which the assessee has failed to prove. Since the business of the assessee had .....

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lkali Chemicals and Fertilizers Ltd. (supra) will not be applicable at all because here in this case the assessee has already offered the interest income to be taxed under the head Income from other sources and the interest expenditure which is directly attributable to earning of such an income has to be allowed. 6. On the other hand Ld. DR had strongly relied upon the order of the Ld. CIT(A). 7. After considering the rival submissions and the finding given in the impugned orders, it is noted th .....

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ts earmarked against the borrowing facilities has been deducted from the same and the net finance cost has been shown in C.W.I.P. Thus, the interest expenditure and interest earning relating to setting up of project has not been routed through P&L account. A separate interest income on term deposits of ₹ 1,80,53,158/- which was parked out of funds not immediately required was offered to tax as Income from other sources . From the said income the assessee has reduced the interest expend .....

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h the earning of interest income u/s 56, then the same has to be allowed while computing the said income. Heavy reliance has been placed on the decision of Hon ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) by the AO as well as Ld. CIT(A) for disallowing the setting off of interest of ₹ 5,02,732/- from the interest income of ₹ 1,80,53,158/-. In the case before the Hon ble Supreme Court the main issue involved was, whether the interest derived by .....

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f the factory should be adjusted against the interest payable on the borrowed funds. The Hon ble Supreme Court held that the fact that the source of income was borrowed money does not lead to any inference that it is not a revenue receipt. The interest earned by the assessee is assessable u/s 56 and only such expenditure can be allowed which has been set out in clauses (i) to (iii) in section 57. In that case it was not the case of the assessee that the interest payable by it on the term loans s .....

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