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Pr. Commissioner of Income Tax- 11 Versus Shri Rajesh Bajaj (Deceased) Thr. Lr s

Disallowance of interest - interpretation of Section 57 (iii) - Held that:- In the facts of this case, it is evident that the purpose for creating the FD was solely to secure the loan that the assessee obtained and not for the purpose of earning interest as is insisted upon under Section 57. - Interest income out of the FDRs made with the bank - Held that:- The Court is of the opinion that the ITATís view that since the last transaction, i.e., borrowing to the tune of ₹ 7.2 crores coul .....

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It is urged that the interpretation of Section 57 (iii) of the Income Tax Act, 1961 by the ITAT is erroneous. The assessee had for the purpose of business, borrowed capital from the Bank through overdraft account. The borrowing bank had insisted on securing the advance resulting in the assessee s depositing an amount of ₹ 7.25 crores in a fixed deposit which earned ₹ 42,68,867/-. Its claim in relation to netting and interest set off liability to the tune of ₹ 14,70,493/- from .....

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e bank and these FDRs were made out of the receipt of ₹ 7.25 crores from Sunrise Securities Ltd. and the FDRs were made for the purpose of business and for this an OD A/c (vide OD A/c No.CA-401559) was also opened with the same bank i.e. SBOs in which the FDRs were made. It is submitted that the assessee did not succeed in the business because of various difficulties and problems but it does not mean that the assessee was not doing business and the FDRs and OD account were not for the purp .....

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nces of the case, I am of the view that there is no proper justification for the AO to make the disallowance of the interest by the AO and accordingly, the AO is directed to allow the deduction as claimed by the assessee in the return of income and as such the appeal of the assessee is allowed. The above findings were concurred by the ITAT in the impugned order. Mr. Zoheb Hossain, learned counsel for the Revenue relies upon the decision of the Supreme Court in Commissioner of Income Tax v. Dr. V .....

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ing such income , i.e., the expression such income would mean earning of interest alone would qualify for a deduction. Since the assessee s claim did not relate to the earning of interest but rather related to business expenditure, the set off/netting could not be permitted. The Supreme Court in Dr. V.P. Gopinathan (supra) was concerned with an individual who had borrowed from a bank and earned FD which was used as security. There is nothing in that decision to indicate that the essential point .....

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