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2020 (11) TMI 326 - ITAT MUMBAIDeduction of interest expenditure - nexus between the borrowed funds on which assessee has paid interest - HELD THAT:- We notice from the records that the assessee has earned interest income from the deposits in bank. These deposits are out of the balance of liquidating certain investments. Since the assessee is under the direct control of Hon'ble Spl. Court and all the issues are pending before the Hon'ble Spl. Court. The plea of the assessee is that there is oral contract between the parties to pay 12% per annum and whatever the interest income earned by the assessee are out of the surplus of the liquidation of certain investment. The investment as well as the fund management are under the supervision of the Hon'ble Spl. Court, assessee has no role to play. From the facts on record, prima facie, it appears that there is a nexus between the borrowed funds on which assessee has paid interest and the investment on which it has earned interest income. Therefore, the assessee should get deduction of interest expenditure to the extent of interest income earned. It is relevant to observe, in assessee's own case in AY 2017-18, the AO himself has allowed claim of deduction of interest expenditure to the extent of interest income earned during that year, In view of the aforesaid, the ground is allowed as indicated above. Levy of collection of interest under section 234A, 234B & 234C and charging of interest excluding the income which is subject to TDS - HELD THAT:- Interest levied under section 234A, 234B & 234C be recomputed after excluding the income which is subject to TDS. Considering the decision in [2017 (12) TMI 1668 - ITAT MUMBAI] the Assessing Officer is directed to re-compute the interest accordingly, In the result, these grounds of appeal are allowed for statistical purpose. Capitalization of interest - HELD THAT:- We are of the view that to the extent the interest relate to the investment, i.e. being disallowable under Section 57 will become part of cost of acquisition of shares and therefore the AO is directed to take it as part of the cost of shares for determining profit on sale of the shares. Thus, the additional ground stands allowed to that extent.
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