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2020 (3) TMI 955 - AT - Income TaxDisallowance on account of expenditure claimed by the assessee u/s 57(iii) - loss that the expenses incurred for the purpose of investment is not substantiated by placing any material on record except the FDR/Saving from which he earned the interest income - nexus between the loan taken from NBFCs and the amount invested in FDR - Disallowance of interest expenditure have been incurred wholly and exclusively for the purpose of earning the interest income - HELD THAT - It is a settled law that the deduction u/s. 57(iii) of the Act will be allowable even if no income is earned by the assessee u/s. 56 of the Act. The language of section 57(iii) of the act does not anywhere specifies that any income should have been earned as a result of the expenditure incurred. It only specified that the purpose of expenditure should be that of earning income, it is mandatory that income should have been earned by the assessee. Keeping in view the facts and circumstances of the present case, the addition in dispute is contrary to law and facts on the file and therefore, the same is hereby deleted Revenue authority has not doubted the nexus between the loan taken from NBFCs and the amount invested in FDR is not doubted by the Assessing Officer. It is a settled law that the deduction u/s. 57(iii) of the Act will be allowable even if no income is earned by the assessee u/s. 56 of the Act. The language of section 57(iii) of the act does not anywhere specifies that any income should have been earned as a result of the expenditure incurred. It only specified that the purpose of expenditure should be that of earning income, it is mandatory that income should have been earned by the assessee. Addition in dispute is contrary to law and facts on the file and therefore, the same is hereby deleted - See RAJENDRA PRASAD MOODY 1978 (10) TMI 133 - SUPREME COURT , VODAFONE SOUTH LTD (FORMELY KNOWN AS M/S. VODAFONE SOUTH ESSAR AND HUTCHISON ESSAR SOUTH LTD) 2015 (10) TMI 22 - DELHI HIGH COURT and RAJ KUMAR SHARMA VERSUS ACIT, CIRCLE 61 (1) , NEW DELHI 2019 (10) TMI 636 - ITAT DELHI - Decided in favour of assessee.
Issues:
1. Disallowance of expenditure under section 57(iii) of the Income Tax Act. 2. Nexus between loan taken and investment made. 3. Interpretation of section 57(iii) and applicability to the case. Issue 1: Disallowance of expenditure under section 57(iii) of the Income Tax Act: The appeal was filed against the order confirming the disallowance of an amount under section 57(iii) of the Income Tax Act. The Assessing Officer disallowed the expenditure, stating that the expenses incurred for investment purposes were not substantiated. The Ld. CIT(A) upheld the disallowance, resulting in an appeal to the Tribunal. The Tribunal reviewed the case and found that the revenue authority did not question the nexus between the loan taken and the investment made. It was established that the purpose of the expenditure should be for earning income, irrespective of whether income was actually earned. Citing relevant case laws, including CIT Vs. Rajendra Prasad Moody and Vodafone South Ltd. vs. CIT, the Tribunal concluded that the addition in dispute was against the law and facts, leading to its deletion. Issue 2: Nexus between loan taken and investment made: The assessee had taken loans from NBFCs for making investments, but due to non-materialization of the deal, the funds were invested in Fixed Deposits to earn interest income. The Assessing Officer disallowed a portion of the expenditure, leading to the appeal. The Tribunal noted that the Assessing Officer did not doubt the connection between the loan taken and the investment made. This connection was crucial in determining the allowability of the deduction under section 57(iii) of the Act. The Tribunal found that the purpose of the expenditure was indeed for earning income, even though no income was realized due to the deal not materializing. This established nexus supported the deletion of the disallowance. Issue 3: Interpretation of section 57(iii) and applicability to the case: The Tribunal analyzed the interpretation of section 57(iii) of the Act in light of the case facts. It emphasized that the purpose of the expenditure should be for earning income, without the requirement of actual income realization. The Tribunal referred to various judicial pronouncements, such as the case of Raj Kumar Sharma vs. ACIT, to support its decision. By aligning with the precedents and the legislative intent behind section 57(iii), the Tribunal allowed the appeal of the assessee, thereby deleting the addition made by the Assessing Officer and upheld by the Ld. CIT(A). In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the importance of establishing a nexus between the expenditure incurred and the purpose of earning income, as mandated by section 57(iii) of the Income Tax Act. The judgment emphasized the legal interpretation of the provision and the precedents supporting the deduction of such expenditure, even in cases where income was not realized.
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