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2022 (1) TMI 1046 - AT - Income TaxDisallowance of interest expense - interest expense not attributable to the business shown u/s 44AD - claiming separate deduction under section 57(iii) - whether interest expense is not attributable to the business shown u/s 44AD? - HELD THAT - If the assessee has shown the income under the head income from other sources (in addition to the income declared u/s 44AD then the assessee is entitled to claim the deduction of interest expenses or other expenses which the assessee has incurred to earn said income shown by him under the head income from other sources . As abundantly clear that expenditure incurred by the assessee for the purpose of earning the income under the head income from other sources should be allowed as a deduction under section 57(iii). The disallowance sustained by ld CIT(A) is in fact the expenditure incurred by the assessee for earning income under the head income from other sources hence respectfully following Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT we delete the disallowance sustained by ld CIT(A) - Decided in favour of assessee.
Issues Involved:
1. Disallowance of interest expense under Section 44AD of the Income Tax Act, 1961. 2. Entitlement to claim deduction of interest expenses under Section 57(iii) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of interest expense under Section 44AD of the Income Tax Act, 1961: The primary issue in this case was whether the interest expense of ?5,40,627 claimed by the assessee could be allowed when the income was declared under Section 44AD of the Income Tax Act, 1961. The assessee, engaged in the business of jarikasab, declared income under Section 44AD, which allows for presumptive taxation. The Assessing Officer disallowed the interest expense on the grounds that no additional expenses can be claimed after adopting Section 44AD. Upon appeal, the CIT(A) partly allowed the appeal by reducing the disallowance to the extent of the interest income earned (?1,96,111), disallowing the balance of ?3,44,516. The assessee further appealed against this decision. 2. Entitlement to claim deduction of interest expenses under Section 57(iii) of the Income Tax Act, 1961: The second issue was whether the assessee could claim the interest expenses under Section 57(iii) of the Income Tax Act, 1961, for income shown under the head "income from other sources." The assessee argued that in addition to business income under Section 44AD, he had commission income, rental income, and interest income, which were declared under relevant heads. The interest expense was incurred to earn the interest income and should be deductible under Section 57(iii). The Tribunal considered the facts and submissions, including the Profit and Loss Account and balance sheet of Sunshine Corporation, and the personal balance sheet of the assessee. The Tribunal referenced the Supreme Court judgment in CIT vs. Rajendra Prasad Moody (1978) 115 ITR 519 (SC), which clarified that expenditure incurred wholly and exclusively for the purpose of making or earning income is deductible under Section 57(iii), irrespective of whether the expenditure resulted in income in that assessment year. The Tribunal concluded that since the assessee had shown income under the head "income from other sources," he was entitled to claim the deduction of interest expenses incurred to earn that income. Consequently, the disallowance sustained by the CIT(A) to the tune of ?3,44,516 was deleted. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the interest expenses incurred for earning income under the head "income from other sources" should be allowed as a deduction under Section 57(iii). The disallowance sustained by the CIT(A) was deleted, and the appeal was decided in favor of the assessee. The order was pronounced on 21/01/2022 by placing the result on the notice board.
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