Ankur Chandulal Shah Vs ACIT (ITAT Mumbai)
The Mumbai Bench of the ITAT deleted the disallowance of ₹1.06 crore claimed under section 57(iii) towards interest expenditure, holding that the assessee had clearly established a direct and proximate nexus between interest paid and interest earned under the head “Income from Other Sources”.
The assessee had earned interest income of about ₹1.77 crore from loans advanced to a company in which he was a director and shareholder, and had funded these advances through borrowings from family members and others, on which interest was paid. Though the assessment was framed ex parte under section 144, the assessee produced complete supporting material before the CIT(A), including confirmations, ledger accounts, and computation, all of which were admitted under Rule 46A and remand proceedings were conducted.
The Tribunal observed that the genuineness of both interest income and interest expenditure was never doubted, and once the net interest income was duly offered to tax, denial of deduction merely on alleged lack of nexus was unsustainable. Relying on the principle laid down in CIT v. Rajendra Prasad Moody (SC), the ITAT reiterated that what is relevant under section 57(iii) is the purpose and nexus of expenditure with income-earning activity, not the manner of assessment or technical non-compliance.
Accordingly, holding that the expenditure was wholly and exclusively incurred for earning interest income, the ITAT directed deletion of the entire disallowance and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
