9911796707
TMI Blog2016 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is an individual and ex-director in the private limited company M/s. C.C. Engineers Pvt. Ltd. The company had availed cash credit loan of Rs. 2.85 crores and bank guarantee and L.C. limit of Rs. 2.50 crores from the Rupee Cooperative Bank Ltd. during the financial year 1999-2000. The assessee was a guarantor to the above stated loan in his capacity as director and individual. The company defaulted in repayment of the said cash credit and packing credit limit, the outstanding of which stood at Rs. 6.07 crores as on 31.03.2005. Vide tripartite agreement dated 09.06.2005 between the Rupee Cooperative Bank Ltd., C.C. Engineers Pvt. Ltd., and the assessee (in his capacity as guarantor and ex-director), the assessee and other g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve his company from the debts, so that the company could raise finance from elsewhere and restore its business. It was also claimed before the Assessing Officer that the provision of section 71(2A) of the Act was neither applicable nor claimed by the assessee since that section seeks to restrict the set off of business loss only against business income. Since the assessee had claimed the loss under the head income from other sources, the same could be set off against the income from salary and other sources. However, the Assessing Officer was not satisfied with the explanation given by the assessee and disallowed the deduction of interest claimed on the ground that neither any income u/s. 56 of the Act had accrued to the assessee nor the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant became the creditor in the books of the company and received interest amounting to Rs. 23,04,932/- from the company. It is further seen that although the Assessing Officer has mentioned that no income has accrued to the assessee u/s 56 of the IT Act, in the computation of income he has taxed the interest income amounting to Rs. 23,04,932/- received from the company as income from other sources. The interest income that has been received C.C. Engineer Pvt. Ltd. is part and parcel of the entire transaction and therefore the liability to pay interest to the Rupee Cooperative Bank Pvt. Ltd. is also to be allowed to the appellant under the clear provision of sec.57(iii). The expenditure therefore incurred by the appellant by way of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estored. 6. The Counsel for the assessee on the other hand while supporting the order of Ld. CIT(A) submitted that the decision relied on by the learned Departmental Representative for the Revenue is distinguishable and not applicable to the facts of the present case. In the present case, the assessee stood as a guarantor in his capacity as director and individual for which, his own property was mortgaged to the bank against the loan obtained by the company from the bank. Since the company had defaulted in repaying the loan, the assessee paid the amount to the bank and the company was released from the liability of repayment of aforesaid loans. Since the assessee received interest from the company, therefore, the interest paid to the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is a director nexus between the interest earned from the company and the interest paid to the bank. Under these circumstances, the interest expenditure, in our opinion, was rightly allowed by the Ld. CIT(A) u/s. 57(iii) of the Act. The decision relied on by the learned Departmental Representative is not applicable to the facts of the present case and is distinguishable. In that case, the assessee had earned interest on fixed deposits and has paid interest on loan taken on the security of fixed deposits. The assessee claimed the interest on such loan on fixed deposits as expenditure out of interest income. Under these circumstances, it was held that interest on loan taken by the assessee from the bank on the security of fixed deposits cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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