TaxTMI 
TaxTMI 
2021 (8) TMI 1354
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.... 1. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in proportionately disallowing interest on borrowing amounting to Rs.1,962,710 invoked alleging that entire borrowed funds were not utilized for the purpose of investment in partnership concerns without appreciating that the appellant was partner in three different concerns, and capital contribution in these concerns was larger than the amount of borrowed funds. 2. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) and the Assessing Officer erred in not appreciating that the flats allotted upon consent terms filed fo....
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....and M/s. Manmantra Infracom LLP is only Rs.3,41,47,071/- and the borrowed unsecured loans amounts to Rs.5,12,10,068/- and, therefore, it cannot be said the entire borrowed funds have been utilised for the purpose earning interest. Therefore, the assessee was asked to explain as to why the proportionate interest attributable to the borrowed funds which has not been utilised for earning the interest should not be disallowed. In response to this the assessee vide letter dated 01/12/2017, submitted that the assessee has claimed set off of interest paid of Rs.30,92,631/- u/s. 71 of the Income tax Act against various income offered to tax under head of Income from Profits and gains of business and income from other sources etc. It has been furthe....
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....is with M/s. Avi Housing Realtors as on 09/05/2014. Therefore, it is clear that the borrowed funds to the extent of Rs.3,25,00,000/- has not been utilised for the purpose of any interest income. It has been further informed by the assessee that the project in which the flat was allotted to the assessee is not yet completed and the assessee has not given the possession of the property. In view of this the interest attributable to the three flats should be capitalised and added to the cost of the flat, therefore, interest on the borrowed funds of Rs.3,25,00,000/- has not been utilised for the purpose of investment in partnership firm from where the assessee has received the interest income. Accordingly the proportionate interest attributable ....
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....be in the nature of personal expenses of the assessee. (Section 58(1) of the Act) iv) The expenditure should be incurred in the accounting year. v) There must be a clear nexus between the expenditure incurred and the income sought to be earned. vi) The expenditure which can be allowed is only of the nature specified in section 57 of the Act. Section 57(ii) declares that any other revenue expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as a deduction. However there is a crucial difference between section 37(1) and section 57 of the Act. Section 37(1) simply permits deduction of revenue expenses and non-personal expenses which have be....
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....owed sums of Rs. 5.12 Crores whereas his capital in the partnership Firms was only Rs. 3.41 Crores. This immediately indicates that the borrowed funds have been used elsewhere. The assessee had claimed that some of the borrowed funds were used by him to introduce capital in a Firm M/s. Avi Housing Realtors but there was some dispute in this Firm. The AO has noted that the dispute with M/s. Avi Housing Realtors had been referred to an arbitrator and the arbitrator had given his award on 09.12.2013, which is prior to the Previous Year under consideration. As per the award, the assessee has received back a sum of Rs. 4.23 Crores and was also given 3 Flats costing Rs. 3.25 Crores. The AO has been considerate to hold that the borrowed funds to t....