2017 (12) TMI 531

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....e his orders dated 17.12.2013 & 28.02.2014 for assessment years 2011-12 & 2012-13 respectively. Shri Raj Kumar Patodi, Ld. Authorized Representative appeared on behalf of assessee and Shri Arindam Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue. 2. Both appeal are heard together and are being disposed off by way of this consolidated order for the sake of convenience. First we take up ITA No.1964/Kol/2014 for A.Y. 2011-12. 3. The ground raise by the Revenue reads as under:- "1. In the facts and circumstances of the assessee and in law, the CIT(A) has erred in restricting the interest expenditure to Rs. 36,39,402/- in view of the submissions of the assessee that since the source of expenditure for b....

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....Rs. 2577.00 3. Interest on the loan (others) Rs. 2,43,231.00 Total 71,00,934.00   The interest income was calculated by the assessee in the following manner. Gross interest income Rs. 51,97,621.00 Less Interest Expenses Rs. 36,39,403.00   Rs. 15,58,218.00   The assessee computed the amount of interest expenses in the manner as provided in Rule 8D of Income Tax Rule. 1962. In this regard, the assessee submitted that the surplus fund available to the assessee firm was advanced to various parties with a view to earn interest income on the surplus fund. In-fact, the surplus fund is representing the capital of the firm which belongs to the partners of the firm. The partners of the firm are....

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....ove the AO disallowed the interest expenses of Rs. 36,39,403/- claimed against the interest income. 7. Aggrieved, assessee preferred an appeal to Ld CIT(A).The assessee before LD. CIT(A) submitted as under:- a) The assessee is engaged in tea business as well as for providing loan to the parties; b) The assessee has been providing loan to the parties on interest on regular basis. Therefore, the lending activity was not in the nature of investment of any temporary surplus fund; c) The fund available with the assessee was interest bearing funds which were used to provide the advance to the parties. Thus, it cannot be concluded that no cost was incurred by it on its interest income; d) As per the provision....

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....ggrieved, is in appeal before us. 8. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR before us filed paper book which is running from pages 1 to 34 and he reiterated the submissions which were made before Ld. CIT(A) and he relied on the order of Ld. CIT(A). 9. We have heard the rival contentions and perused the material available on record. In the instant case, assessee has earned interest income which was offered to tax under the head "income from other source". The main business of assessee was growing & manufacturing of tea. The assessee against interest income claimed to have incurred cost in the form of interest expenses on the capital contributed by the partners. As per the assessee the surplus fund avail....

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.... this interest income is business income s declared by assessee, but this is interest income and lower authorities have rightly treated the same as income from other sources while assessing the income of assessee. However, the assessee is entitled for deduction u/s. 57 of the Act. The Assessing Officer will allow the claim of assessee of interest expenditure incurred by assessee qua the income of interest earned and declared as income from other sources. This issue of assessee's appeal is partly allowed as indicated above." From the above precedent, we hold that assessee is very much entitled to claim the expense incurred in the form of interest against the impugned interest income. 9.2 Next question before us arises that how to compu....