Interest expenditure having direct nexus with interest income is clearly allowable to the assessee

0
201

Interest expenditure having direct nexus with interest income is clearly allowable to the assessee

Business expenditure Interest Expenditure Assessee filed return of income During assessment proceedings, on verifying P&L Account for year under consideration as well as for preceding year revealed that assessee did not carry out any business activity of real estate however, assessee reflected interest income which mainly consisted-off of interest on loans and interest on Income Tax Refund Said income was offered as business income despite fact that assessee’s business activity was that of real estate and not money lending AO found that loans obtained by assessee appeared to have been diverted to directors/sister concerns Assessee paid interest of 12% to couple of lenders and interest of 16% to one lender whereas it was receiving interest of 12% on its own lending Further, assessee was not a financing company and it had no license of money lending and therefore, interest income was assessable under head income from other sources as against business income offered by assessee Assessee failed to substantiate nexus of interest expenditure with interest income earned by assessee thus, AO treated said interest income as income from other sources and consequently, interest expenditure was not allowed as deduction by invoking explanation to s. 37(1) AO held that excess interest of 4% amount being paid to one of lender entities was to be disallowed u/s 36(1)(iii) or s. 57 Finally, interest income was assessed under head Income from other sources CIT(A) granted relief to assessee Held, although primary business of assessee was to acquire/develop properties but assessee could invest and deal with money of company not immediately required Assessee could receive deposits as well as advance money and therefore, it could not be said that said activity violated objectives of assessee Business of assessee was already set-up since assessee had already reflected income from real estate business during AY 2008-09 Perusal of assessee’s financial statements for year under consideration would show that assessee had obtained unsecured loans which was substantially advanced to directors & others and to make-up for accumulated losses incurred by assessee over years Assessee do not have any other source of fund except Share capital therefore, there was complete nexus between borrowings and lending made by assessee This being case, interest expenditure having direct nexus with interest income was clearly allowable to assessee Assessee, in terms of its MoA, could receive deposits as well as advance money and therefore, it could not be said that said activity violated assessee’s objectives Interest received by assessee property developer, on temporary deposits of surplus money out of advances received by from intending purchases was business income and not income from other sources Revenue’s appeal partly allowed
DEPUTY COMMISSIONER OF INCOME TAX vs. ASIAN INFRA PROJECTS PRIVATE LIMITED
(2020) 58 CCH 0009 MumTrib

LEAVE A REPLY

Please enter your comment!
Please enter your name here