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TMI Blog2010 (2) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Rules 1962 (hereinafter IT Rules ) which empowers the CIT(A) to take the additional evidence on record, if the same goes to the roots of the matter. (b) The CIT(A) failed to appreciate that in appellate proceedings these power are co-terminus to that of the Assessing Officer and hence it was well within his powers to entertain the additional evidence produced by the appellant at the time of hearing. (iii) (a) The CIT(A) erred in confirming the Assessing Officer s order in disallowing expenses of ₹ 15,00,000/- under section 57(iii) of the Income-tax Act, 1961 (hereinafter the Act) towards unrecoverable loan by concluding that unrecoverable loans is not an allowable deduction as per the provision of section 57 of the Act and law does not permit any deduction on account of irrecoverable loan against income from other sources; (b) The CIT(A) erred in not appreciating that the claim of ₹ 15,00,000/- made by the Appellant could be allowed as a deduction under the provisions of section 57(iii) of the Act, inasmuch as all the conditions specified in section 57(iii) were satisfied by the Appellant. (c) The CIT(A) erred in not appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sec. 57(iii) had disallowed the claim of bad and doubtful debts debt against the income from other sources being not eligible expenses. Feeling aggrieved by the order passed by the A.O the assessee filed an appeal before the learned CIT(A). 4. The learned CIT(A) considered the submissions of the assessee but was not able to grant any relief to the assessee. He accordingly confirmed the order of the A.O. The paragraph 5.2.1 of the CIT(A) s order provides as under Having considered the facts, I note that the investment in the Kalpak group has never yielded the appellant any interest income. As admitted by the appellant, this was invested in the form of an advance to Kalpak, but for reasons best known to the parties, no interest was ever paid to the appellant, It is therefore not known whether this advance was interest free or was interest bearing. No agreement for the same exists as admitted by the appellant. The arguments canvassed by the appellant tare self serving and one sided. Apart from a confirmation of loan from Kalpak, there is no other evidence to show that the advance would bear interest. It is only the appellant who is claiming that the advance was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned from that investment and there is no proof that the investment was ever intended to earn interest income. I therefore dismiss the claim of the appellant for deduction of ₹ 15,00,000 and the action of the A.O in disallowing the same is upheld. 5. Feeling aggrieved by the order passed by the learned CIT(A) the assessee is in appeals before us on the grounds reproduced hereinabove. Before us, the learned authorized representative of the assessee has submitted that the amount was given as advance to M/s. Kalpak Group which was not recoverable and therefore, the assessee wrote off ₹ 15,00,000/- out of the total amount of ₹ 4,15,88,223/- as eligible expenses u/s 57(iii) of the Act. 5.1 Per contra, the learned departmental representative submitted that from the bear reading of the provisions of sec. 57 of the Act, it is abundantly clear that the advance given by the assessee was not allowable/eligible expenditure u/s 57(iii) if the Act as it was not incurred for earning the income from any other sources. 6. We have heard the rival contentions and perused the record. As mentioned by the learned CIT(A) in his order that the advances were given to M/s. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing the income under this head the assessee is entitled to deduction in respect of the expenditure incurred solely for the purpose of earning such income, provided the expenditure is not of a capital nature and does not include any personal expenses incurred by the assessee. In other words, before this provision could apply, the following conditions must be fulfilled: (i) the expenditure must have been incurred solely and exclusively for the purpose of earning income or making profit; (ii) the expenditure should not be in the nature of a capital expenditure ; (iii) the amount in question should not be in the nature of personal expenses of the assessee; (iv) that the expenditure should be incurred in the accounting year; and (v) there must be a clear nexus between the expenditure incurred and the income sought to be earned. 27. Further, the Hon'ble Bombay High Court in H.H. Maharani Shri Vijaykuverba Saheb of Morvi (supra) had also while considering the provisions of section 12(2) of 1922 Act held that If with the borrowings that were made, a source of income like shares or securities was acquired, then obviously the interest paid on such borrowings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of expenditure admissible under section 12(2) of 1922 Act had held that the same must be incurred directly or indirectly to facilitate earning of income, while interpreting the terms in order indirectly to facilitate carrying on their business . The learned Authorized Representative for the assessee has placed heavy reliance on all these decisions which related to interpretation of terms used in section 12(2) of the old Act, except the decision of Hon'ble High Court of Punjab Haryana in the case of Maruti Employees Co-operative House Building Society (supra). However, the claim of assessee is under the 1961 Act, wherein the terms used in sub-section (iii) to section 57 of the Act are at variance to the terms used in earlier section. The requirement of section 57(iii) of the Act is that expenditure should be laid out or expended wholly and exclusively for the purpose of making or earning such income. 30. The Hon'ble Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 had observed as under:- What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional ground of appeal raised before the CIT(A), the assessee wants to change the ground position i.e. it has now argued at length that certain percentage of expenditure incurred by the assessee club is attributable to the interest income earned. The case of assessee has already been dealt with in the paras hereinabove. However, we find no merit in the plea of assessee as under the provisions of section 57(iii) of the Act, the eligibility for deduction arises only if the expenditure has been laid out wholly and exclusively for the purpose of making or earning the income which is chargeable under the said head. There is no merit in the claim of assessee that the expenditure which it is incurring for upkeep of the club and other facilities including the depreciation charged on various assets is to be proportionately allowed as expenditure under section 57(iii) of the Act since the interest earned on FDRs is linked to the membership fees charged at the time of joining of members. The learned Authorized Representative for the assessee has time and again pointed out that since it was providing such facilities it could attract more members and hence, more membership fees can incr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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