Amarsingh N. Thakur Vs ACIT (ITAT Mumbai)
The assessee, a real estate developer, earned interest income from a partnership firm and a private limited company and claimed deduction of corresponding interest expenditure of ₹50.91 lakh u/s 57 against income offered under the head “Income from Other Sources.” The AO disallowed the claim alleging absence of direct nexus between borrowings and interest income, which was upheld by CIT(A).
ITAT observed that the assessee had capitalised a substantial portion of interest expenditure and claimed deduction only to the extent relatable to interest income earned from specified entities. The Tribunal noted that the genuineness of expenditure was never disputed and the computation of income clearly demonstrated correlation between borrowed funds and interest income.
Interpreting sec.57(iii), ITAT held that the test is whether expenditure is incurred “for the purpose of earning income,” and not whether income is actually generated in the same period. Once borrowed funds are utilised for advancing loans or investments yielding taxable interest income, the corresponding interest cost is allowable even if lower authorities demand strict one-to-one nexus.
Accordingly, Tribunal held that the computation-based nexus established by the assessee was sufficient and deleted the entire disallowance.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
