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Facts
The assessee borrowed interest-bearing funds and declared gross interest income. The assessee claimed interest expenditure paid on these borrowed funds as a deduction. The AO disallowed the deduction for lack of a direct nexus between the interest income and the interest expense.
Held
The Tribunal held that there was a direct nexus between the interest earned by the assessee and the interest paid on the borrowed funds, based on a prior penalty order which also found a direct nexus. Therefore, the interest payment claimed as deduction was allowed.
Key Issues
Whether interest paid on borrowed funds for earning interest income is deductible under Section 57 of the Income Tax Act when a direct nexus is established?
Sections Cited
57, 271(1)(c)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SANDEEP SINGH KARHAIL, HON’BLE
O R D E R PER NARENDRA KUMAR BILLAIYA, AM: & I.T.A. No. 892/Mum/2025 are two separate appeals by the assessee preferred against two separate orders dt. 06/01/2024 and 13/12/2024 by NFAC, Delhi [hereinafter “the ld. CIT(A)”] pertaining to AYs 2016-17 and 2017- 18 respectively.