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2016 (2) TMI 889 - ITAT MUMBAISet off interest on income tax refund received from interest on income tax paid - Held that:- The set off of interest paid against that received shall accordingly be subject to the two being for the same period, and to the extent of interest income for the said period. Two, the interest rate paid to the Revenue is higher than the interest rate paid by it. Now, without question, interest as an expenditure u/s. 57(iii), i.e., under which provision deduction in its respect is claimed and allowed, could only be allowed to the extent of interest attributable to the rate at which interest is received from the Revenue. This is as nobody can be said to have borrowed funds at a rate (of interest) to earn interest income at a lower rate – there being no scope for earning any income, which is only net of expenditure, under such an arrangement. It needs to be appreciated that it is only toward earning (net) interest that the expenditure is allowed u/s. 57(iii), presuming a nexus between the ‘funds’ borrowed and lent. True, the interest rates are not in the control of the assessee, but statutorily defined. That, in fact, is a basis on which we have opined of the interest suffered as being a statutory liability, unconnected with the earning of interest, so that it is not admissible as a deductible in the first place. However, even granting deductibility, the parameters of section 57(iii) do not admit of expenditure being incurred to sustain a predetermined loss, which again points to the expenditure being involuntary - another aspect of the matter emphasizing its’ non-deductibility. The deduction for interest paid would thus be limited to the quantum of interest received on the like (principal) amount for the same period, defined as from a particular date to a particular date. Subject to these two caveats, forming part of the application of the principle of deductibility of interest expenditure to Revenue against that received from it, accepted by us in principle respectfully following the decisions by the co-ordinate benches of this tribunal, we allow the assessee’s claim - Decided in favour of assessee
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