Case Law Details
Shri Kailash Chand Soni Vs ACIT (ITAT Jaipur)
The issue under consideration is whether the addition on account of disallowance of interest expenses which are in accordance the provisions of section 57(iii) of the Income Tax Act, 1961 is justified in law?
In the present case, the assessee has taken unsecured loans from various parties during the year under consideration or in the earlier years for the purpose of advancing loans to other parties and making investment in finesse jewels Pvt. Ltd. where the assessee is director and shareholder. During the year under consideration the assessee has received total interest of Rs. 4,21,667/- from loan advanced to various parties and has shown total investment in finesse jewels of Rs. 52,29,785/- as on 31.03.2014. These funds have been raised through unsecured loans taken from various parties on which the assessee has to pay interest of Rs. 12,01,145/- during the year under consideration. Therefore it is clear that all the funds have been utilized for earning interest income or for business purpose and for no other use. AO made disallowance of deduction claimed under section 57(iii) in respect of interest expenditure on the ground that assessee has advanced money to his sister concern M/s. Finesse Jeweles (P) Ltd. at nil rate of interest out of commercial expediency.
ITAT states that the assessee has provided AO with the bank statements in which it is clearly visible that the funds raised from the unsecured loan taken from various parties is utilized for lending money to various parties. It means that the interest paid on unsecured loans is expended wholly and exclusively for earning the interest income from loans and advances. In addition to that the assessee has advanced money to its sister concern M/s finesse jewles Pvt. Ltd. at nil rate of interest for the purpose of earning the income from the investment either in the form of interest or in the form of dividend or capital gain which will be assessed under the head “Income from other sources” in the year when it is earned. It is immaterial whether the assessee has made profit out of such expenditure or not. For claiming deduction u/s 57(iii) of the income tax act it would be sufficient to prove that there is nexus between the income earned and amount expended. Therefore here in the case of the assessee as all the requirements for claiming deduction u/s 57(iii) of the income tax act, 1961 are fulfilled, assessee can avail the full deduction u/s 57(iii).
Hence, appeal file by assessee is allowed.
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