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2016 (1) TMI 37 - ITAT PUNE

2016 (1) TMI 37 - ITAT PUNE - TMI - Disallowance of deduction of interest claimed - as per AO neither any income u/s. 56 of the Act had accrued to the assessee nor the interest liability arose in his individual hand, since it has been incurred in the capacity of the director - Held that:- There is no dispute to the fact that the assessee who was a director of the company C.C. Engineers Pvt. Ltd. stood as a guarantor in his capacity as a director and an individual when the cash credit loan was ob .....

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Thus, after taking over the loan of the company, the assessee became liable to the bank for which, the assessee had paid interest to the bank. Simultaneously, the assessee has received interest from the company on the amount of loan that has been transferred from the company to the assessee. Therefore, there is a direct 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 .....

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t 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 could not be reduced from his income by way of interest on fixed deposits placed by him in the bank - Therefore, this decision, in our opinion, is clearly distinguishable and not applicable to the facts of the present case.

Decided against revenue - ITA No.210/PN/2014, CO No.02/PN/2015 - Dated:- 13-11-2015 - SHRI R.K. PANDA, AM AND SH .....

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ndividual and ex-director in the private limited company M/s. C.C. Engineers Pvt. Ltd. The company had availed cash credit loan of ₹ 2.85 crores and bank guarantee and L.C. limit of ₹ 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 & .....

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n his return of income filed for the year under consideration, the assessee showed interest income of ₹ 24,86,232/- which included interest of ₹ 23,04,932/- received from C.C. Engineers (P) Ltd. The assessee claimed the deduction of interest paid to the Rupee Cooperative Bank of ₹ 34,67,212/- during the year u/s. 57(iii) of the Income-tax Act. The Assessing Officer reopened the assessment u/s. 148 of the Act on the ground that the assessee has wrongly claimed interest liability .....

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en to repay the bank dues. The assessee stated before the Assessing Officer that he had no other option in view of the prevailing circumstances, but to take over the liability of the Rupee Cooperative Bank Ltd. in his individual capacity in order to relieve 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 b .....

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he interest liability arose in his individual hand, since it has been incurred in the capacity of the director. The Assessing Officer accordingly disallowed the interest expenditure claimed by the assessee amounting to ₹ 34,07,212/- 3. Before the CIT(A), the assessee filed detailed written submissions along with various decisions. Based on the arguments advanced by the assessee, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing as under:- 3.3 I have considered .....

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loan, the appellant and other guarantors requested the bank to release the company from the loan liability and allow them to take over the said liability personally, subject to the payment of certain settlement amount and simple interest thereon. Vide clause 12 of the MOU dated 09.06.2005, the company was released from the liability of repayment of aforesaid loans and the appellant and other ex-directors became jointly and individually liable to repay the said loans to the bank. In other words, .....

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arcel 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 the interest paid to the Rupee Cooperative Bank Pvt. Ltd. of ₹ 34,67,712/- is held to be expenditure, which has been wholly and exclusively incurred for the purposes of earning interest income in terms of sec.57(iii). Ground nos.1 and .....

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e and in law, the learned CIT(A) has erred in ignoring the judgment of Hon ble Supreme Court in the case of CIT Vs. Dr. V.P. Gopinathan (2001) 248 ITR 449 (SC). 5. The learned Departmental Representative heavily relied on the order of Assessing Officer. Referring to the decision of Hon ble Supreme Court in the case of CIT Vs. Dr. V.P. Gopinathan reported in (2001) 248 ITR 449 (SC), he submitted that the Hon ble Supreme Court in the said decisions, has held that interest on loan taken by the asse .....

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s 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 ba .....

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pute to the fact that the assessee who was a director of the company C.C. Engineers Pvt. Ltd. stood as a guarantor in his capacity as a director and an individual when the cash credit loan was obtained from the Rupee Cooperative Bank Ltd. He had guaranteed the said loan not on behalf of the assessee company, but in his capacity as director and individual for which, his own property was mortgaged to the bank. Since the company defaulted in making the payment, the assessee and other guarantors req .....

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