Interest deduction, TDS-based recomputation, and acquisition-cost treatment of disallowed investment interest followed consistent group rulings.

Interest expenditure was allowed against interest income where the liability had accrued, a sufficient nexus existed between borrowed funds and interest-bearing investments, and the absence of a written agreement did not defeat the claim; the Tribunal also applied consistency with earlier years on materially similar facts. Compensatory interest under sections 234A, 234B and 234C was to be recomputed after excluding income already subjected to tax deduction at source. The proportionate interest disallowance under section 14A was upheld as part of the cost of acquisition of shares and securities, following the same view taken in connected group matters.

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Issues: (i) whether the assessee was entitled to deduction of interest expenditure against interest income earned during the year, and whether the Revenue's objection to the allowance of such interest as a recurring liability could be sustained; (ii) whether interest under sections 234A, 234B and 234C was to be recomputed by excluding income subject to tax deduction at source; (iii) whether the proportionate disallowance of interest under section 14A was rightly capitalised as part of the cost of acquisition of shares and securities.

Issue (i): whether the assessee was entitled to deduction of interest expenditure against interest income earned during the year, and whether the Revenue's objection to the allowance of such interest as a recurring liability could be sustained.

Analysis: The appeals involved a recurring controversy already decided in the assessee's group cases. The Tribunal followed its earlier view that interest liability had accrued, that there was a sufficient nexus between the borrowed funds and the interest-bearing investments, and that the absence of a written agreement did not by itself negate the liability. The Tribunal also applied the principle of consistency, noting that the same claim had been accepted in earlier years on materially similar facts.

Conclusion: The issue was decided in favour of the assessee and the deduction of interest expenditure was allowed.

Issue (ii): whether interest under sections 234A, 234B and 234C was to be recomputed by excluding income subject to tax deduction at source.

Analysis: The Tribunal followed the coordinate bench view in the assessee's group matters and held that, for the purpose of charging compensatory interest, income already subjected to tax deduction at source had to be excluded from the computation base. The matter was therefore directed to be recalculated in the manner already accepted in the connected cases.

Conclusion: The issue was decided in favour of the assessee, with a direction for recomputation of interest.

Issue (iii): whether the proportionate disallowance of interest under section 14A was rightly capitalised as part of the cost of acquisition of shares and securities.

Analysis: The Tribunal followed its earlier decisions in the connected group appeals, where it had been held that the portion of interest expenditure disallowed on investments was to be treated as part of the acquisition cost of the shares and securities. No contrary facts or legal position were shown to justify a different view.

Conclusion: The issue was decided against the Revenue and the capitalisation treatment was upheld.

Final Conclusion: The assessee succeeded on the substantive issues, the Revenue's challenges failed, and the connected appeals were disposed of in accordance with the consistent view already taken in the group matters.

Ratio Decidendi: Where the facts are materially identical across assessment years and the liability has accrued with a demonstrable nexus to income, the Tribunal may apply consistency to allow the interest claim and direct recomputation of consequential interest, while treating disallowed investment-related interest as part of acquisition cost.

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