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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)-28, Mumbai dated 02/03/2017 for A.Y.2013-14 in the matter of order passed u/s.143(3) of the IT Act. 2. The only grievance of assessee relates to decline of deduction u/s.57(iii) in respect of interest paid on the borrowings which was used for earning interest income. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that assessee is engaged in the business of building construction. During the year under consideration, assessee has borrowed some funds for the purpose of its business. Since the funds were not immediately required in order to reduce interest liability / expenditure, the M/s. KGA Investments assessee put fund temporarily in fixed deposit. On such deposits, the assessee has interest income which he netted out of the interest expenditure and the balance interest expenditure were carried to the balance sheet and added to the work in progress. The AO was of the view that since fund was borrowed for the business purpose, the same is deductable out of business income only and assessee was to pay tax on the interest income earned from the deposit so made under the head income from other sources.
By the impugned order, CIT(A) confirmed the action of the AO.
I have considered rival contentions and carefully gone through the orders of the authorities below. I had also verified the bank statement indicating taking overdraft / loan from the bank which was subsequently used by assessee temporarily for making FDRs on which interest was earned. There is no dispute to the one to one link between the amount borrowed and the amount invested. Interest expenditure incurred and the interest income earned both are in revenue in nature. Accordingly, I do not find any justification for decline of netting of interest expenditure against interest income when there is no dispute to the fact that only borrowed fund was put in the deposit for earning interest income. The act of borrowing was first and then such borrowed funds were put in the fixed deposit earning interest income. Accordingly, I direct the AO to set off the interest income against the interest expenditure so incurred by the assessee.