2024 (8) TMI 817 - AT - Income Tax

Disallowance of deductions claimed u/s 57 - addition of Interest expenditure, Legal expenses, Bank charges and Brokerage claimed by assessee against interest income - HELD THAT - In present case, the assessee is not engaged in money lending business which is a fact. The assessee has shown interest income under other sources head and therefore the deduction claimed by assessee has to be allowed only if the mandate of section 57(iii) is satisfied. While we admit that the interest rate paid can be higher as compared to interest rate received but first of all the assessee has to prove that the funds on which he has paid interest and claimed deduction were actually utilized for giving loans so as to satisfy the requirement of wholly and exclusively for the purpose of making or earning income as per section 57(iii). In present case, there is no submission by assessee to prove this factum. Therefore, the assessee is required to submit clinching particulars to AO in this regard. AO has disallowed interest deduction claimed by assessee fully as if the assessee has not utilized a single pie of borrowed funds for giving loans. Apparently, this approach of AO is also not correct. So far as other expenses, namely Legal expenses, Bank charges and Brokerage are concerned, there is no submission from assessee s side before lower-authorities or even before us. Therefore, the case of assessee can be carried to a proper conclusion only if complete particulars of all deductions are available and the AO examines the same from the touchstone of section 57(iii). No option except to remand this matter back to the file of AO for a fresh adjudication. Addition on account of interest receipt/income - We find that the assessee has shown net loss under the head other source safter claiming deduction from gross interest receipt/income. Thus, the gross interest receipt/income stands already included in total income of assessee. Therefore, by making a further addition in assessment-order, the AO has doubly taxed the same item. Being so, we delete the addition made by AO. This ground is allowed.

Summary

Issues Involved:
Challenge to disallowance of deductions claimed under section 57 and addition of interest income.

Detailed Analysis:

Issue 1: Challenge to Disallowance of Deductions Claimed under Section 57
The assessee challenged the disallowance of deductions amounting to Rs. 59,71,338 made by the Assessing Officer (AO) under section 57 of the Income-tax Act, 1961. The AO disallowed the deductions as the assessee did not provide any justification for the claimed deductions. The deductions included interest expenditure, legal expenses, bank charges, and brokerage expenses. The Authorized Representative (AR) argued that the interest rates paid and received were comparable, citing a previous ITAT order in a related case. However, the Departmental Representative (DR) contended that the assessee failed to provide submissions regarding the admissibility of the deductions. The ITAT noted that the deductions claimed were significantly higher than the interest income earned, and the burden was on the assessee to prove that the expenses were wholly and exclusively for earning interest income. As the assessee did not provide sufficient details to support the claim, the matter was remanded back to the AO for fresh adjudication.

Issue 2: Addition of Interest Income
The AO had made an addition of Rs. 22,30,079 as interest income in the assessment order. However, the ITAT observed that this interest income was already included in the total income of the assessee, resulting in double taxation of the same item. Consequently, the ITAT deleted the addition of Rs. 22,30,079 made by the AO.

Conclusion
The ITAT allowed the appeal, directing the AO to re-examine the deductions claimed under section 57 and deleting the addition of interest income. The appeal was allowed on the grounds discussed above, and the order was pronounced on 07.08.2024.