2022 (7) TMI 1220 - AT - Income Tax

Disallowance of interest expenses claimed u/s.57 - entitlement of the assessee towards deduction of interest paid on borrowed funds u/s.57(iii) - nexus between the interest bearing funds raised by the assessee and the interest bearing amounts given - HELD THAT - Dynasty Tradelink Pvt. Ltd - As interest bearing amounts raised by the assessee from M/s. Dynasty Tradelink Pvt. Ltd. had been wholly and exclusively advanced on interest to GDR Educational Society, therefore, the interest expenditure so incurred on the interest bearing funds was rightly claimed by the assessee as a deduction u/s. 57(iii) of the Act. Our aforesaid view is fortified by the judgment of the Hon ble Apex Court in the case of Commissioner of Income Tax Vs. Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT - Thus taking cognizance of the fact that an inextricable nexus between the interest bearing funds raised by the assessee from M/s Dynasty Tradelink Pvt. Ltd. and the interest bearing amounts given to GDR Educational Society is proved to the hilt, therefore, set-aside the order of the CIT(Appeals) and vacate the disallowance of the assessee s claim for deduction under Sec. 57(iii) of the interest paid to M/s Dynasty Tradelink Pvt. Ltd. Rajni Rungta - As we find substance in the claim of the AR as regards the allowability of the assessee s claim for deduction of the interest expenditure on the old loan of Smt. Rajani Rungta which was advanced as an interest bearing loan/advance for earning of interest income. Our aforesaid conviction is supported by the fact that the assessee s claim for deduction of interest paid on the loan raised from the aforesaid person, viz. Smt. Rajani Rungta, as was raised by him in his return of income for the immediately preceding year, i.e AY 2012-13, had not been dislodged by the department. Nothing to the contrary has been brought to our notice by the ld. DR to rebut the aforesaid factual position as had been canvassed by the ld. AR before us. As the fact situation qua the issue in hand during the year under consideration remains the same as was there in the immediately preceding year, therefore, going by the principle of consistency we find no reason to take a different view, and thus, allow the assessee s claim for deduction of interest on the aforesaid loan - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of interest expenses claimed under Sec. 57 of the Income Tax Act.
2. Confirmation of assessed income by CIT(A) instead of the claimed amount.
3. Maintainability of the claim for deduction of interest paid on borrowed funds under Sec. 57(iii) of the Act.

Issue 1: Disallowance of Interest Expenses:
The assessee claimed deduction of interest expenses on an unsecured loan under Sec. 57 of the Income Tax Act. The Assessing Officer (AO) disallowed the claim, resulting in an increased assessed income. The CIT(A) upheld the disallowance, leading to the appeal before the ITAT. The assessee argued that the interest expenses were justified as they were incurred on interest-bearing loans raised from specific entities. The ITAT examined the details provided by the assessee and found a direct link between the interest-bearing funds raised and advanced to specific parties. Citing relevant legal precedents, the ITAT concluded that the interest expenditure was allowable as a deduction under Sec. 57(iii) of the Act. Consequently, the disallowance of the claimed interest expenses was set aside.

Issue 2: Confirmation of Assessed Income:
The CIT(A) confirmed the assessed income at a higher amount than claimed by the assessee. The ITAT reviewed the contentions presented by both parties and focused on the specific interest payments made by the assessee. After a thorough analysis, the ITAT found merit in the assessee's claim for deduction of interest expenses on loans raised from certain individuals. By considering the consistency in the treatment of similar claims in the preceding year, the ITAT allowed the deduction of interest paid on the loans. As a result, the ITAT allowed the assessee's appeal concerning the confirmed assessed income.

Issue 3: Maintainability of Deduction Claim:
The primary issue revolved around the maintainability of the assessee's claim for deduction under Sec. 57(iii) of the Act regarding interest paid on specific borrowed funds. The ITAT examined two distinct cases related to interest-bearing funds raised from different parties. Firstly, concerning funds raised from M/s. Dynasty Tradelink Pvt. Ltd., the ITAT observed a clear connection between the borrowed funds and their subsequent use for advancing loans. Relying on legal judgments, the ITAT allowed the deduction of interest paid on these funds. Secondly, regarding funds raised from Smt. Rajni Rungta, the ITAT found the interest expenditure on the borrowed funds to be allowable as a deduction under Sec. 57(iii) of the Act. By maintaining consistency with the previous year's treatment, the ITAT upheld the deduction claim in this case as well. Additionally, a general ground of appeal was dismissed as not pressed. Ultimately, the ITAT allowed the assessee's appeal based on the detailed analysis and findings related to the deduction claims.

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