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2015 (11) TMI 1532 - AT - Income TaxAllowability of the interest income from the interest expenditure on the basis of nexus between the interest expenditure and the interest income - Held that - We find the Ld.CIT(A) on the basis of the various details filed by the assessee allowed the claim of the assessee on the ground that the AO has not examined the entire details furnished by the assessee and has been guided by the heading of the expenses such as Advertisement/Miscellaneous Expenses and concluded that interest expenditure includes number of other expenses whereas interest received includes certain miscellaneous expenses written off as nolonger payable. We find the Ld.CIT(A) has given a finding on the basis of the details filed by the assessee that the assessee has received interest amounting to ₹ 59,20,843/- from Brahma Finance Corporation upto F.Y. 31-03-2002 and from Brahma Builders amounting to ₹ 12,54,660/- for the F.Y. 2002-03. He has given a finding that there is a direct nexus between the loan taken from Rupee Cooperative Bank Ltd and the amount of advance to Brahma Finance Corporation and Brahma Associates. The Ld. Departmental Representative could not controvert the above factual finding given by the CIT(A). Further, the finding of the Ld.CIT(A) that the miscellaneous expenditure in the ledger account contains the entire details of expenditure which includes the interest expenditure and also the receipt of interest and dividend for F.Y. 2001-02 wherein the journal entries 447 and 448 are also mentioned could not be controverted by the Ld. Departmental Representative. The submission of the Ld. Counsel for the assessee before us that the loan obtained from the bank and given to the various concerns are back to back transactions could not be controverted by the Ld. Departmental Representative. In view of the above and in view of the detailed reasoning given by the Ld.CIT(A) we find no infirmity in his order. - Decided against revenue
Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act. 2. Treatment of interest income as "income from other sources." 3. Nexus between interest income and interest expenditure. 4. Set-off of interest income against interest expenditure. Detailed Analysis: 1. Deduction under Section 80IB(10) of the Income Tax Act: The assessee, an AOP, filed its return for A.Y. 2003-04 declaring NIL income after claiming a deduction of Rs. 6,38,11,652/- under Section 80IB(10). The AO completed the assessment determining the total income at Rs. 6,51,79,340/- by withdrawing the deduction claimed under Section 80IB(10), among other adjustments. On appeal, the Tribunal directed the AO to allow the deduction under Section 80IB(10) for profits from 15 residential buildings based on profits earned from these exclusively residential buildings on a stand-alone basis, following the decision of the Hon'ble Bombay High Court in the assessee's own case. 2. Treatment of Interest Income as "Income from Other Sources": The Tribunal observed that there was no immediate and direct relation between the housing project and the earning of interest, thus upholding the treatment of interest income as "income from other sources." This was supported by various decisions of the Hon'ble Supreme Court and the jurisdictional High Court in the case of K.K. Doshi and Company. 3. Nexus between Interest Income and Interest Expenditure: The Tribunal noted that the quantum of interest income for tax purposes must be determined by allowing the expenditure incurred by way of interest, which bears a direct nexus with the interest received. The matter was set aside to the AO to examine the connection between receipts and payments and to decide the issue after affording the assessee an opportunity to establish the nexus. 4. Set-off of Interest Income against Interest Expenditure: The AO, following the Tribunal's direction, asked the assessee to make submissions. The assessee contended that there was a direct nexus between the loan borrowed from Rupee Co-operative Bank Ltd and the amount advanced to M/s. Brahma Finance Corporation. The AO, however, found that the assessee could substantiate the nexus only to the extent of Rs. 38,19,238/- and treated the remaining amount of Rs. 71,75,503/- as income from other sources due to the lack of direct nexus. Appellate Findings: The CIT(A) directed the AO to delete the addition of Rs. 71,75,503/-, observing that the AO had not considered the entire details furnished by the assessee. The CIT(A) found that the assessee had received interest income amounting to Rs. 1,09,94,741/- and incurred interest expenditure of Rs. 1,10,01,275/-. The CIT(A) concluded that there was a direct nexus between the loan taken from Rupee Cooperative Bank Ltd and the amounts advanced to Brahma Finance Corporation and Brahma Builders, allowing the set-off of total interest received against the interest paid. Final Judgment: The Tribunal upheld the CIT(A)'s order, finding no infirmity in the detailed reasoning provided. The grounds raised by the Revenue were dismissed, and the appeal filed by the Revenue was dismissed. The judgment was pronounced in the Open Court on 30-11-2015.
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