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TMI Blog2022 (6) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... at the only activity of the Appellant was to obtain an advance and to park such funds and in ignoring the fact that the project development of the Appellant had already commenced during the year. 2. The Assessing Officer erred in holding that the interest expending attributable to the borrowings utilized for giving loans to the partners was not allowable under Section 36(l)(iii) of the Act against the interest income earned by the Appellant LLP from such loans and in holding that interest income generated from such loans had no nexus to the borrowed funds. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in taxing interest income of Rs.12.87,432/- under the head "Income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Limited at Pune, which formed part of the project inventory was acquired on 19th December 2011. Immediately thereafter the project expenses for the development of the residential project under construction commenced from 9th January onwards. Various expenses incurred on construction expenses, architect fees, advertising & marketing fees and overhead expenses are furnished as per paper book on pages No. 51 to 57. These expenses are fully reflected in the audited balance sheet of the assessee and duly confirmed by the AO also in his order vide page 1 para 3. So, in these circumstances of the facts it's not reasonable at the end of the AO to hold that the Appellant was not a running concern and that the only activity of the Appellant was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of Rs. 58.20 lacs as a loan to one of the partners and the Assessee LLP charged interest at the rate of 12% from the said partner on the amount advanced. Thus, it was explained that interest income that has been earned by the assessee LLP is lower than the interest expenditure incurred to earn such income. However, as the interest expenditure incurred to earn such income was less than the interest expenditure, the interest expenditure incurred has been set off against such interest income and the balance interest expenditure has been treated as part of cost of the project. And as the funds were borrowed for business purposes, the interest income and the expenses attributable thereto were reflected profits gains of business. The assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r M/S Godrej Properties Ltd and lending out of that to two partners. Therefore, in our opinion, while assessing interest income received on loans from two partners namely M/s. Repton landmarks LLP and Mr. Ramesh P. Bhatia to the tune of Rs. 49,84,677/- as income from other sources, deduction has to be allowed in respect of interest payment on loan to M/s. Godrej Properties Ltd. to equal extent. In our opinion decision cited by learned CIT (A) in the case of Dr. V.P. Gopinathan (supra) is clearly distinguishable on fact and not applicable in the present case. In our view, the assessee has proved direct nexus between borrowings and lending. Therefore we are not in agreement with the conclusion of learned CIT (A). Accordingly we set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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