Case Law Details
Mukesh Kanyailal Shah Vs Office of the Principal Commissioner of Income Tax PCIT (ITAT Mumbai)
ITAT Mumbai held that there is a direct nexus between interest received on loan given to firm and interest payment on loan taken from the bank and hence netting of the net interest income allowable under section 57 of the Income Tax Act.
Facts- The ld. PCIT in his revisionary jurisdiction called for the assessment records and noted that assessee has claimed interest expenses of Rs.37,16,200/- on SBI term loan as against interest income received from the partnership firm of Rs. 46,23,832/-. The assessee has declared net interest income after claiming interest expenses u/s.57, i.e., interest paid on SBI term loan of Rs.37,16,200/- was claimed as expenditure allowable u/s.57 of the Act. He observed that AO has not verified the said claim properly and therefore, the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue.
Conclusion- The loan taken by the firm from the assessee, in turn was taken by the assessee from the SBI. Thus, the assessee received interest on loan given to the firm and on the same loan taken from the bank, the assessee has paid interest. Thus, there was direct nexus between earning of the interest income and interest paid. Accordingly, the netting of the net interest income after deducting the interest paid to the bank had direct nexus which is allowable under Section 57. This aspect of the matter was also examined by the AO and assessee has filed all the replies which were called upon by the AO. Thus, we do not find any infirmity in allowing the interest paid by the AO and therefore, order of ld. PCIT cannot be sustained, because on merits the assessment order is neither erroneous nor prejudicial to the interest of the Revenue and therefore, on merits, the appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
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