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TMI Blog2016 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual for which, his own property was mortgaged to the bank. Since the company defaulted in making the payment, the assessee and other guarantors requested the bank to release the company from loan liability and allow them to take over the said liability personally, subject to payment of certain settlement amount and simple interest thereon. Thus, after taking over the loan of the company, the assessee became liable to the bank for which, the assessee had paid interest to the bank. Simultaneously, the assessee has received interest from the company on the amount of loan that has been transferred from the company to the assessee. Therefore, there is a direct nexus between the interest earned from the company and the interest paid to the ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common order. ITA No.210/PN/2014 (Revenue) 2. Facts of the case, in brief, are that the assessee is an individual and ex-director in the private limited company M/s. C.C. Engineers Pvt. Ltd. The company had availed cash credit loan of ₹ 2.85 crores and bank guarantee and L.C. limit of ₹ 2.50 crores from the Rupee Cooperative Bank Ltd. during the financial year 1999-2000. The assessee was a guarantor to the above stated loan in his capacity as director and individual. The company defaulted in repayment of the said cash credit and packing credit limit, the outstanding of which stood at ₹ 6.07 crores as on 31.03.2005. Vide tripartite agreement dated 09.06.2005 between the Rupee Cooperative Bank Ltd., C.C. Engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, but to take over the liability of the Rupee Cooperative Bank Ltd. in his individual capacity in order to relieve his company from the debts, so that the company could raise finance from elsewhere and restore its business. It was also claimed before the Assessing Officer that the provision of section 71(2A) of the Act was neither applicable nor claimed by the assessee since that section seeks to restrict the set off of business loss only against business income. Since the assessee had claimed the loss under the head income from other sources, the same could be set off against the income from salary and other sources. However, the Assessing Officer was not satisfied with the explanation given by the assessee and disallowed the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant and other ex-directors became jointly and individually liable to repay the said loans to the bank. In other words, the appellant became the creditor in the books of the company and received interest amounting to ₹ 23,04,932/- from the company. It is further seen that although the Assessing Officer has mentioned that no income has accrued to the assessee u/s 56 of the IT Act, in the computation of income he has taxed the interest income amounting to ₹ 23,04,932/- received from the company as income from other sources. The interest income that has been received C.C. Engineer Pvt. Ltd. is part and parcel of the entire transaction and therefore the liability to pay interest to the Rupee Cooperative Bank Pvt. Ltd. is also to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on fixed deposits placed by him in the bank. He accordingly submitted that the order of Ld. CIT(A) be reversed and that of Assessing Officer be restored. 6. The Counsel for the assessee on the other hand while supporting the order of Ld. CIT(A) submitted that the decision relied on by the learned Departmental Representative for the Revenue is distinguishable and not applicable to the facts of the present case. In the present case, the assessee stood as a guarantor in his capacity as director and individual for which, his own property was mortgaged to the bank against the loan obtained by the company from the bank. Since the company had defaulted in repaying the loan, the assessee paid the amount to the bank and the company was releas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly, the assessee has received interest from the company on the amount of loan that has been transferred from the company to the assessee. Therefore, there is a director nexus between the interest earned from the company and the interest paid to the bank. Under these circumstances, the interest expenditure, in our opinion, was rightly allowed by the Ld. CIT(A) u/s. 57(iii) of the Act. The decision relied on by the learned Departmental Representative is not applicable to the facts of the present case and is distinguishable. In that case, the assessee had earned interest on fixed deposits and has paid interest on loan taken on the security of fixed deposits. The assessee claimed the interest on such loan on fixed deposits as expenditure out o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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