TMI Blog2022 (6) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... acquiring an asset which does not produce any income albeit it has been put to use. The relevant criterion for disallowing interest is to examine the date up to which the asset acquired with the borrowed funds was first put to use. If the asset has been actually put to use, deduction of interest cannot be denied even if no income resulted from such an asset. The ld. CIT(A) has gone with the `income criterion and not the `user criterion for disallowing the interest, which is not justified. AR submitted that the assessee acquired his share in the running hotel in the year 2013, however, failed to place any concrete evidence either before the AO or the ld. CIT(A) to demonstrate the activities of the hotel as to whether it was really in op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.20,94,755/- was paid on debit balance of the capital account with the resultant net minus income from the firm at Rs.10,96,397/-. Such negative income was adjusted against income from house property etc. The assessee could not place necessary documents before the AO, which led to the passing of the assessment order u/s.144 of the Income-tax Act, 1961 (hereinafter also called `the Act ), in which deduction of interest of Rs.20,94,755/- was denied. The matter was taken up before the ld. CIT(A), but without success. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. I have heard the rival submissions and gone through the relevant material on record. The assessee has been a partner in M/s. Pipada Motors, from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 28(v) of the Act governs only the taxability of salary and interest income from firm. Au contraire , the deductibility of interest is managed by section 36(1)(iii) of the Act, which is a special provision. I am reminded of the legal maxim generalia specialibus non derogant, which means that special provision overrides general provisions. Once there is a special provision dealing with the deductibility of interest expenditure in terms of section 36(1)(iii), it is impermissible to contend that section 28(v), covering interest income from firm, should also be read to deal with interest expenditure paid to firm. It is, ergo, held that the deductibility of interest under Chapter IVD is covered only under the express provision of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -06-2013, which was a business purpose. The ld. CIT(A) relied on the proviso to section 36(1)(iii) of the Act and denied the deduction by observing that no income from the hotel was shown by the assessee for the year. 8. Proviso to section 36(1)(iii) stipulates that the amount of interest paid in respect of capital borrowed for acquisition of an asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use, shall not be allowed as deduction . This proviso makes a pitch for disallowance of interest only when the asset acquired with the borrowed funds is not put to use. In other words, no disallowance can be made if the borrowed funds are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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