2023 (8) TMI 811 - AT - Income Tax

Disallowance of interest expenditure - deduction of interest paid against the interest received denied - assessee has not proved the nexus between the interest income and interest expenditure - HELD THAT - As assessee has furnished the ledger confirmation of the loan creditors as well as the loan debtor, assessee has also furnished its bank statement and bank ledger in order to substantiate the nexus between the interest income and interest expenditure. From the perusal of aforesaid documents, we find merit in the submissions of the assessee that the funds received on which interest was paid were used for the purpose of granting the loan to its group concern on which interest was earned. Accordingly, interest expenditure is wholly and exclusively for the purpose of earning interest income. We direct the AO to grant the deduction of interest expenditure paid by the assessee, while computing the income under the head income from other sources . Decided in favour of assessee.

Summary

Issues:
The judgment involves the challenge to an order passed under section 250 of the Income Tax Act, 1961 for the assessment year 2016-17.

Interest Expenditure Disallowance:
The assessee challenged the disallowance of interest expenditure of Rs. 4,05,206. The Assessing Officer disallowed the amount as the assessee failed to establish the nexus between the interest-bearing loan taken and given. The assessee contended that the borrowed funds on which interest was paid were used to grant a loan to its group concern, resulting in interest income. The assessee provided ledger confirmations of loan creditors and debtors, along with bank statements and ledgers to support this claim. The tribunal found merit in the assessee's submissions, concluding that the interest expenditure was incurred wholly and exclusively for earning interest income. Consequently, the tribunal directed the Assessing Officer to allow the deduction of the interest expenditure, setting aside the order of the Commissioner of Income Tax (Appeals).

Conclusion:
The appeal by the assessee was allowed, and the tribunal directed the Assessing Officer to grant the deduction of interest expenditure of Rs. 4,05,206 while computing the income under the head "income from other sources." The impugned order of the Commissioner of Income Tax (Appeals) was set aside, and the sole ground raised by the assessee was upheld.