2019 (10) TMI 467 - AT - Income Tax

Addition of interest expenses claimed u/s 57 - diversion of funds - HELD THAT - The expression wholly refers to quantum of expenditure and exclusively refers to the object and purpose of expenditure. Though these expressions are not used in section 57 but the overall meaning of section 57 is also to the same effect that, the expenditure ought to be incurred for earning income which is assessable under the head income from other sources . If the logic of CIT (Appeals) is accepted, then, in each and every case, expenditure would be allowed only, when there is resultant income. In other words, there cannot be any loss in any activity which results income from other sources . All the details were before the CIT(Appeals) but instead of pin pointing any concrete diversion of interest bearing funds; CIT(Appeals) only assumed that some funds might have been used by the assessee for some other purposes. The department has been consistently accepting the claim in earlier years and in subsequent years. It appears that in the beginning, assessee has more income under the head income from other sources as than the interest expenditure, but in Assessment Year 2006-07, 2007-08 and 2009-10, the interest expenditure was more than income, in spite of that loss under the head income from other source was allowed by AO in scrutiny assessment. Thus considering the past history and stand of the revenue itself, we are of the view the AO has erred in making the disallowance. CIT (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue.

Summary

Issues:
1. Addition of interest expenses claimed under section 57 of the Income Tax Act.
2. Appreciation of merits of the case by the Ld. CIT(A) and sustaining the addition.

Issue 1: Addition of Interest Expenses:
The appeal was against the order of the Ld. CIT(A) pertaining to the assessment year 2013-14, focusing on the addition of ?25,05,190 out of interest expenses claimed under section 57 of the Act. The Tribunal considered the identical facts from a previous case and directed the Assessing Officer (A.O.) to delete the addition based on past precedents and the requirement that expenditure must be incurred wholly and exclusively for earning income assessable under "income from other sources." The Tribunal emphasized that the expenditure should not be restricted in proportion to income and allowed the appeal, directing the A.O. to delete the addition.

Issue 2: Appreciation of Merits by Ld. CIT(A):
The Ld. CIT(A) was criticized for not appreciating the merits of the case with reference to the factual submissions of the appellant. The appellant argued that the order was perverse and not based on a proper appreciation of facts, especially in comparison to the preceding assessment year. The Tribunal, following consistent views from previous cases, directed the A.O. to delete the addition, highlighting the importance of expenditure being incurred wholly and exclusively for earning income. The Tribunal allowed the appeal, emphasizing the need for a proper understanding of the facts and merit of the case.

In conclusion, the Tribunal's judgment in the appeal addressed the issues of addition of interest expenses under section 57 of the Income Tax Act and the appreciation of merits by the Ld. CIT(A). The decision highlighted the importance of expenditure being incurred wholly and exclusively for earning income, leading to the allowance of the appeal and the direction to delete the addition.