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2023 (10) TMI 619 - AT - Income TaxDisallowing part of interest expense claimed u/s 57 - assessee had interest income as well as interest expenditure and such transactions of income and expenditure were revealed by the assessee under the head income from other sources - HELD THAT - Since the issue pertaining to the allowability of expenditure u/s.57(iii) was dealt with by the Co-ordinate Bench of the ITAT, Raipur 2022 (5) TMI 1585 - ITAT RAIPUR and also the issue is squarely covered by the order of Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT wherein it is specifically held that how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting, and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. Since, in the present case there was income earned by the assessee by way of interest, however, the same was not equal to the percentage of interest in terms of interest expenditure incurred but the same could not be a reason to disqualify certain expenditure within the provision of Section 57(iii) when the Hon ble Apex Court, in an deficient situation than in the present case, has held that the expenditure could not be denied merely because there was no income earned during the relevant A.Y. In such circumstances, we are of the considered view that expenditure incurred by the assessee, genuineness of which was not disputed by the A.O are allowable expenditure in terms of provisions of Section 57(iii), thus, addition made by the A.O and confirmed by the CIT(Appeals) are not sustainable. We set aside the order of CIT(A) and direct the A.O to delete the addition made u/s.57(iii) of the Act. Thus, grounds of appeal raised by the assessee are allowed in terms of our aforesaid observations.
Issues Involved:
1. Disallowance of interest expense claimed under Section 57. 2. Non-appreciation of submissions by the assessee regarding disallowance. 3. Lack of cogent reasons by CIT(A) in upholding the disallowance. 4. Partial allowance of appeal by CIT(A) with no relief granted. Summary: 1. Disallowance of Interest Expense Claimed Under Section 57: The assessee, an individual deriving income from house property and business, filed a return for A.Y. 2017-18. The case was selected for scrutiny to examine a "large deduction claimed u/s.57." The Assessing Officer (A.O) observed that the assessee received interest income and paid interest to different entities, claiming a deduction under Section 57. The A.O found discrepancies in the interest rates received versus those paid, leading to a proposed disallowance of Rs. 5,58,088. This disallowance was confirmed by the CIT(A). 2. Non-Appreciation of Submissions by the Assessee Regarding Disallowance: The assessee contended before the CIT(A) that the interest received was offered as income from other sources and the corresponding interest payable was duly reflected in the computation of income. The A.O allowed interest up to 9%/9.7%, and there was no dispute that the expenditure was related to earning the interest income. The assessee argued that partial disallowance was unjustified in the absence of any specific provision in the Act. 3. Lack of Cogent Reasons by CIT(A) in Upholding the Disallowance: The CIT(A) upheld the A.O's disallowance without providing cogent reasons. The assessee cited the Supreme Court's judgment in CIT Vs. Rajendra Prasad Moody, which held that expenditure laid out for earning income is deductible under Section 57(iii), regardless of whether income was actually earned. 4. Partial Allowance of Appeal by CIT(A) with No Relief Granted: Despite partially allowing the appeal, the CIT(A) granted no relief. The assessee further appealed to the ITAT, arguing that the interest expenditure was incurred wholly and exclusively for earning interest income and should be allowed as a deduction under Section 57(iii). ITAT's Decision: The ITAT, considering the factual matrix and legal precedents, held that the expenditure incurred by the assessee was allowable under Section 57(iii). The Tribunal referenced the Supreme Court's ruling in Rajendra Prasad Moody and a similar case dealt with by the ITAT, Raipur, concluding that the disallowance was unsustainable. The ITAT set aside the CIT(A)'s order and directed the A.O to delete the addition, allowing the assessee's appeal. Conclusion: The ITAT allowed the appeal, directing the deletion of the disallowance made under Section 57(iii), affirming that the interest expenditure was justifiable and related to earning interest income. The order was pronounced in the open court on 10/10/2023.
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