D D & Co. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that for claiming deduction u/s. 57 of the Income Tax Act, it is important to establish that the expenditure is laid out or expended wholly and exclusively for the purpose of making or earning such income. Accordingly, matter remanded to consider the movement in the FD account and the loan account to understand the nexus.
Facts- In the present case, AO held that the assessee could not establish the nexus between the fixed deposits made and the loans borrowed from the family members and, therefore, the deduction claimed by the assessee against the interest income from fixed deposits u/s. 57 cannot be allowed as a deduction since it was not established by the assessee that the expenses is incurred wholly and exclusively for the purpose of earning income offered under section 56 of the Act. Accordingly, AO disallowed the interest expenses to the tune of Rs.47,89,528/- for A.Ys 2017-18 and Rs. 55,46,456/- for A.Y. 2018-19.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that for the purpose of claiming deduction under section 57, it is important to establish that the expenditure (not being in the nature of capital expenditure) is laid out or expended wholly and exclusively for the purpose of making or earning such income. In assessee’s case the assessing officer has not considered the movement in the loan account details submitted by the assessee and also has not considered the fresh FDs and renewal of FDs before concluding that the entire claim is not allowable under section 57. The alternate plea of the assessee that the interest expenditure if disallowed under section 57 should be allowed as business expenditure for the reason that the FDs are kept for business purpose has also not been considered by the lower authorities. In view of these discussions we deem it fit to remit the issue back to the assessing officer for a de novo consideration. The assessing officer is directed to consider the movement in the FD account and the loan account to understand the nexus and also to consider the alternate claim of interest as business expenditure based on the facts and evidences that may be submitted by the assessee. Needless to say that the assessee be given a reasonable opportunity of being heard.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals filed by the assessee are against the separate orders of Commissioner of Income-tax, National faceless Appeal Centre (NFAC)[hereinafter ‘the Ld.CIT(A)’] both dated 24/03/2023 for A.Ys. 2017-18 and 2018-19.
2. The only issue contended in both these appeals is the disallowance of interest expenses by the Assessing Officer under section 57 of the Income-tax Act, 1961(in short, ‘the Act’).
3. The assessee is a partnership firm engaged in the business of trading in shares. The assessee filed its return of income for A.Y. 2017-18 on 28/08/2017 declaring Nil income and on 11/07/2018 for A.Y.2018-19 declaring Nil income. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The assessee in the return of income has declared income from business as well as income from other sources. The assessee in the return of income for A.Y. 2017-18 has claimed interest on loan and OD of Rs.68,92,787/-out of which Rs.47,89,529 was claimed under section 57 and the balances as business expenditure. For the A.Y. 2018-19, the assessee made similar claim of Rs.71,72,101/- out of which Rs.55,46,456 was claimed under section 57 and the balances as business expenditure.
4. The Assessing Officer noticed that in the balance-sheet, assessee has shown unsecured loan at Rs.7,86,74,438/- for A.Y.2017-18 and Rs.7,52,40,801/- for A.Y. 2018-19. The Assessing Officer further noticed that these unsecured loans have been taken from individuals @ 9% and the same is disclosed in form 3CD as payments made to persons specified under section 40A(2)(b). It is also noticed by the Assessing Officer that the assessee has investments in fixed deposit in bank earning interest income @6.25%. The Assessing Officer called on the assessee to furnish details of unsecured loans taken and its nexus and usage for business, details of interest paid, loan confirmation, etc. The assessee furnished the following details with regard to the unsecured loans before the Assessing Officer.
A.Y. 2017-18
