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TMI Blog2019 (12) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... st is disputed by either of the subordinate authorities or adversely commented by the ld. CIT (A) or controverted by the ld. DR and therefore, such interest expenditure, deductible under section 57(iii) can be allowed even if it is not claimed in full by the assessee in the peculiar facts of the case at hand. Considering the factual matrix of the case and legal precedents, we accept the grievance of the assessee justified. Accordingly, we allow the claim u/s 57(iii) of the Act, as legally justified - Decided in favour of assessee. - I.T.A No. 234/Agra/2018 - - - Dated:- 4-11-2019 - Shri Laliet Kumar, Judicial Member, And Dr. Mitha Lal Meena, Accountant Member For the Appellant : Shri Navin Gargh, Adv. For the Respondent : Shri Waseem Arshad, Sr. DR. ORDER PER DR. M. L. MEENA, A. M.: This appeal is directed by the assessee against the order dated 31.01.2018 passed by the Commissioner of Income Tax, (Appeals)-1, Agra, [herein after referred to as the CIT(A) ], in respect of Assessment Year 2015-16, challenging the confirmation of addition of ₹ 49,38,149/- in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for allowability of deduction under section 57(iii) is that the said expense should be laid out or expended wholly and exclusively for the purpose of making or earning income against which it is claimed as deduction. In the present case, the borrowed funds have been given to four private limited companies, in all of which he and/or his family members are directors or major stakeholders. No purpose of giving the loans to the four companies has been specified by the appellant during the assessment proceedings or during the present proceedings But, on an appreciation of the fact that all these companies are part of his group, it can be fairly concluded that the provision of funds was made by him so as to allow them to conduct their respective business activities. This would mean that the interest expenses, in question incurred by the appellant were not expended wholly and exclusively for the purpose of making or earning interest income. Further, as in the case of Commissioner of Income Tax vs Smt. Swapna Roy (supra), in the appellant s case, too, the condition precedent to avail the benefit of s. 57(iii) of the Act viz. the investment must be proper and justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any merit in this argument because the question of allowability of an expense under section 57{iii) has to be decided on the basis of facts pertaining to the year in question, and also if any mistake has been committed in the assessment order in an earlier year, the A.O. is well within his powers to rectify it or initiate action for rectification taking resort to sections 154/148 or section 263 of the Act. 7.8 The last argument of the appellant (contained in his ground no. 1.3), is that the claim of deduction under section 57(iii) is less than the quantum of interest earned by the appellant and so no disallowance out of it can be made This argument has not been elaborated upon by the appellant. However, in the context of section 57(iii), I do not find any relevance of the fact that the claim of deduction of interest under section 57(iii) was lower than the quantum of income earned by the appellant. 7.9 Hence, in light of the above discussion and in respectful compliance of the judicial precedents, particularly those rendered by the Hon ble jurisdictional High Court in the case of Commissioner of Income Tax vs Smt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer rates. The ld. CIT(A) has mentioned that the conditions for allowability under section 57(iii) is that whether the said expense was expended or laid down for the purpose of making or earning income against which it was claimed as deduction, and since the loans were given to the sister concerns either at either equal rates or less than the rate at which funds were borrowed by the assessee and therefore, there can be no question of earning any positive income out of the loan transactions entered into by the appellant assessee. The Ld. CIT(A) has further observed that for allowability of deduction under section 57(iii) it is essential that the said expense should be laid out or expended wholly and exclusively for the purpose of making or earning income against which it is claimed as deduction where in the present case the borrowed funds have been given to four private limited companies, in all of which he and/or his family members are directors or major stakeholders and that no purpose of giving the loans to the four companies has been specified by the appellant either before the authorities below or during the present proceedings. However, on an appreciation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had utilized the loan amount for its personal use or claimed bogus expenditure in the garb of interest expenses. 10. We are of the view that it is not necessary that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not necessary with a view to an immediate benefit to the assessee but voluntarily and on the ground of necessity and in order indirectly to facilitate the making or earning of the income. (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head income from other sources'). This means section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively 'for the purpose of making or earning such income . In order that expenditure may be admissible under section 57(iii), if it is proved that the primary motive of incurring such interest expenses is directly to earn income under the head income from other sources . 11. The natural construction of the language of section 57(iii) of the Act, irresistibly leads to the conclusions that to brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich will be assessed under the head Income from other sources in the year when it is earned. It is immaterial whether the assessee has made profit out of such expenditure or not. For claiming deduction u/s 57(iii) of the income tax act it would be sufficient to prove that there is nexus between the income earned and amount expended. In view of that matter, all the requirements for claiming deduction u/s 57(iii) of the income tax act, 1961 are fulfilled and therefore assessee s claim of interest of ₹ 49,38,149/- laid out wholly and exclusively for the purpose of earning interest shown under the head Income from Other Sources can be legally allowed u/s 57(iii) of the Act. 14. The Ld. CIT(A) while over ruling the judgement of Commissioner of Income Tax vs Smt. Swapna Roy (supra), has over stretched the interpretation of the condition precedent to avail the benefit of s. 57(iii) of the Act viz. the investment must be proper and justified to be satisfied. In paragraph no. 68 of its order, after referring-to and relying upon the judgment of the apex court in the case of CIT vs Rajendra Prasad Moody (supra), Hon ble Allahabad High Court has concluded that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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