2015 (4) TMI 145 - AT - Income Tax

Disallowing interest paid having no nexus with the interest income earned - funds borrowed from individual lenders have been advanced to M/s. SSAPL and has earned interest income on funds so borrowed - Held that - It is an undisputed fact that the interest income earned by the assessee is to be assessed as income from other sources . If any expenditure has been incurred for earning of such income, the same is to be allowed as deduction under section 57(iii), while computing the taxable income. From the proximity of the dates, it can be seen that there is a direct nexus between the loan taken and loan given. Similarly, the assessee has received sum of ₹ 15 lakhs on 27th March 2008 and 28th March 2008, from three persons and the same have been given to the company on 28th March 2008 and 2nd April 2008. At that time also, a sum of ₹ 12,90,000, which was debited by way of autosweep by the bank and the same has been remitted back at the time of clearance of the cheque. Thus, the contention of the learned counsel before us appears to be factually correct and the findings of the learned Commissioner (Appeals) as noted above, gets vitiated from the facts and material placed on record. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) and hold that there is a direct nexus between the loan received and the loan given and, therefore, the interest paid by the assessee has to be allowed from the interest income as there is a direct nexus. - Decided in favour of assessee. Disallowance of bank charges and profession fees paid - Held that - The amount of bank charges for a sum of ₹ 280, is also directly relatable to earning of the income from other sources. However, regarding professional fees of ₹ 3,750, nothing has been placed before us on record as to what was the nature of such professional fees, as it has neither been mentioned by the Assessing Officer / learned CIT(A) nor by the assessee. In the absence of any such explanation or record, the disallowance with regard to professional fees of ₹ 3,750, stands confirmed. In the result, the disallowance of interest of ₹ 4,48,640, and bank charges of ₹ 820, stands deleted and the claim of professional fees of ₹ 3,750 stands confirmed - Decided partly in favour of assessee.

Summary

Issues:
Challenge to disallowance of interest paid, consideration of nexus between borrowed funds and interest income, consideration of profession fees disallowance.

Analysis:
1. The appeal challenged the order disallowing interest paid of Rs. 4,53,210 for lack of nexus with interest income earned. The Assessing Officer noted interest income of Rs. 5,75,173 against claimed deductions including interest on loans, professional fees, and bank charges. The AO disallowed the deduction under section 57(iii) due to perceived lack of nexus.

2. The assessee argued before the Commissioner (Appeals) that there was a direct nexus between funds borrowed and invested in a company, justifying interest paid as a deduction under section 57(iii). Details of loans taken and given were presented to establish the connection between interest earned and paid.

3. The Commissioner (Appeals) reviewed the bank statement and found discrepancies in loan transactions, leading to a disallowance of interest claimed. The Commissioner held that the loans given and taken were not directly related, upholding the AO's decision of disallowance.

4. The assessee, during the appeal, provided a detailed account of loan transactions, emphasizing the direct nexus between loans taken and given. It was argued that the bank's autosweep mechanism caused temporary balance fluctuations, which were not considered by the Commissioner (Appeals).

5. The Tribunal analyzed the transactions and found a clear connection between loans received and given by the assessee. The Tribunal disagreed with the Commissioner's findings, stating that the interest paid should be allowed as there was a direct nexus between borrowed funds and interest income.

6. The Tribunal also addressed the bank charges directly related to income from other sources but confirmed the disallowance of professional fees due to lack of supporting information. Consequently, the disallowance of interest and bank charges was reversed, while the disallowance of professional fees was upheld partially.

7. The Tribunal partially allowed the assessee's appeal, emphasizing the direct nexus between borrowed funds and interest income, leading to the reversal of disallowed deductions related to interest and bank charges.

This comprehensive analysis highlights the key arguments, findings, and decisions made in the legal judgment, addressing each issue raised in the appeal.