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TMI Blog2018 (10) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. That on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the Assessing Officer deduction ? 20,71,233/-, out of interest paid on loan taken for payment of booking in a future project being developed by M/s. Ansals Properties & Infrastructure Ltd.(Ansals) against interest received by the appellant on cancellation of the booking. 3. That on the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in not adjudicating on Ground No. 3 relating to action of the Ld. Assessing Officer adopting the figure of income under the head "Income from Other Sources" at ? 35,15,428/- as against the correct figure of? 33,95,425/- wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,25,375 31.03.2010 9,57,124 31.03.2011 9,65,176 34,32,926 During the impugned year, the HUF cancelled the booking from M/s. Ansal Properties & Infrastructure Ltd., since no project was forthcoming and took back the amount paid to them. On the refund of booking amount of Rs. 75,00,000/-, M/s. Ansal Properties & Infrastructure Ltd. gave interest of Rs. 20,71,233/-. The HUF set off the interest received from the interest paid to ICICI Bank through Co-parcener u/s. 57 of the IT Act. The AO after considering the submissions of the assessee, did not allow the interest paid on the said loan taken by the Co-parcener of the HUF. He refered to section 57(iii) and also relied on the some case laws. The AO, therefore, concluded that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of this case. Reasoning given by the Assessing Officer is contained at Page 6 of Assessing Officer's Order. Amongst other, Assessing Officer relied upon two judgments as noted at Page 4 of his Order. Both these judgments are in fact in favor of assessee as would be explained hereinafter. At the CIT(A) stage, all the facts as well narrated to the Ld. AO were reiterated and it was claimed that the deduction u/s 57(iii) is required to be allowed because there was direct nexus of the funds borrowed on which interest was paid and it was the same funds on which interest has been earned by the assessee. The Ld. CIT(A) didn't agree with the contention of the assessee and upheld the disallowance by relying mainly on the same judgments as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endra Prasad Moody [1978] 115 ITR 519 (SC) has observed as under:- "This being an investment company, if it borrowed money and utilized the same for its investments on which it earned income, the interest paid by it on the loan will clearly be a permissible deduction under section 12(2) of the Income-tax Act." In CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, this court observed (page 521): "The determination of the question before us turns on the true interpretation of section 57(iii) and it would, therefore, be convenient to refer to that section, but before we do so, we may point out that section 57(iii) occurs in a fasciculus of sections under the heading, 'F- Income from other sources'. Section 56, which is the first in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds were realized for the personal purposes, then possibly the deduction u/s 57(iii) cannot be claimed. However, when the borrowed funds have been utilized for the purpose of making investment on which income earned is taxable, then the deduction for the interest on the borrowed funds is required to be allowed. As already clarified there is no dispute about the fact that assessee has earned interest from M/s. Ansal on the funds borrowed for the purpose of making investment in a flat. Therefore, there is a direct nexus and interest paid is wholly and exclusively incurred for the purpose of earning interest income for the same, is prayed to be allowed. 4. On the other hand, the ld. DR relied on the order of the ld. Authorities below and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act because this interest has been received out of the said loan taken from ICICI Bank, which was paid by HUF to M/s. Ansal Properties & Infrastructure Ltd. through co-parcener. It is not the case of the Revenue that any such expenditure of interest incurred by the assessee was claimed by him in the preceding assessment years. Thus, there is direct nexus between earning of interest and expenditure of interest as per section 57 of the Act. Therefore, the assessee is entitled for netting of interest from the expenditure incurred. This principle is settled down in the case of ACG Associates Capsules (P) Ltd. vs. CIT (2012) 18 taxmann.com 137 (SC) that the net interest income should be included in the income of the assessee. Reliance is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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