2024 (10) TMI 584 - AT - Income Tax

Deduction u/s 57 - assessee has shown interest from saving bank account and interest from Thangamayil Jewellery Limited under the head income from other sources - whether direct nexus between the loan borrowed and loan given exist? - names on loan documents did not match with name of the assessee and deduction u/s 57 cannot be given as the said loans were availed for specific purposes i.e., home entity loan and agricultural loan - HELD THAT - On perusal of the order of the Tribunal in the case of ACIT v. Nishith Desai 2017 (8) TMI 364 - ITAT MUMBAI we note that the Tribunal upheld the order of the CIT(A) in allowing the interest expenditure as deduction u/s 57 of the Act by holding the said interest expenditure was for expending wholly and exclusively for the purpose of earning the interest income. Tribunal further observed that the order of the ld. CIT(A) is justified as the decision of the Hon ble Supreme Court in the case of CIT v. Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT supports the said view. Therefore, we find the facts and circumstances of the present case are similar to the facts and circumstances before the Mumbai Benches of the Tribunal in the case of ACIT v. Nishith Desai supra but, however, we find force in the arguments of the ld. DR regarding non-submissions of evidences such as bank statement showing credit of loan amount in the accounts of M/s. Thangamayil Jewellery Limited. It is clear from assessment order that there was no such evidence filed by the assessee except loan sanction letters from the above said three banks. Therefore, the issue requires examination in this regard and we deem it proper to remand the matter back to the file of the AO for fresh examination. The assessee is directed to file evidence as sought by the AO in respect of the claim made by the assessee u/s 57 of the Act. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Whether the disallowance of loan interest deduction under section 57 of the Income Tax Act is justified based on the direct nexus between the loan borrowed and loan given.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2017-18. The main issue was whether the disallowance of Rs. 40,57,125/- for loan interest deduction under section 57 of the Act was justified. The assessee, an individual and Director of a company, availed loans from various entities and gave them as loans to the company, claiming interest deductions. However, the Assessing Officer denied the deduction, stating that the loan purposes did not match, and the Commissioner upheld this decision.

The appellant argued that there was a direct nexus between the borrowed loans and the loans given to the company, justifying the interest deductions. Referring to a Tribunal decision, the appellant emphasized that the purpose of the loan availed was not relevant, but the utilization was. The appellant provided details and documents to support the claim, asserting that interest expenditure was incurred in earning interest income from the company. The appellant also cited a similar case where interest deductions were allowed.

The respondent contended that there was a lack of relevant documentary evidence supporting the appellant's claim. The respondent supported the Assessing Officer's decision to deny the deduction based on mismatched loan documents and lack of additional evidence. The respondent urged the dismissal of the appeal.

After hearing both parties and reviewing the evidence, the Tribunal noted the loan details and sanction orders, confirming the loan transactions between the assessee and the company. However, the Tribunal acknowledged the lack of specific evidence, such as bank statements, showing the credit of loan amounts to the company. Comparing the case to a precedent, the Tribunal decided to remand the matter back to the Assessing Officer for further examination. The Tribunal directed the assessee to provide the necessary evidence to support the claim under section 57 of the Act.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for additional evidence to substantiate the interest deduction claim. The decision was made in line with the Tribunal's approach in a similar case, highlighting the importance of providing comprehensive evidence to support tax deductions.