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TMI Blog2020 (8) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 37 of the Act. Since, we hold in principle that the expenditure is allowable either way u/s 57, if the income is treated under the head income from other sources as per the provisions of Section 56 or u/s 37, if the income is treated under the head profits and gains of business or profession as per the provisions of Section 28, at this juncture, we refrain from determining issue of the claim of preclusion or collateral estoppel under which head the income earned by the assessee is taxable. - Appeal of the assessee is allowed. - ITA No. 9683/Del/2019 - - - Dated:- 17-7-2020 - Ms. Sushma Chowla, Vice President AND Dr. B. R. R. Kumar, Accountant Member For the Assessee : Sh. K. Sampath, Adv. For the Revenue : Sh. Jagdish Singh Dahiya, Sr. DR ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order of the ld. CIT(A)-16, New Delhi dated 27.11.2019. 2. Following grounds have been raised by the assessee: 1. Ld. CIT (A)-16, Delhi is not justified in law and facts and circumstances of the case in confirming addition of ₹ 1,59,37,109/- made by the AO. 2. ld. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived interest income @ 12% on loan advanced and paid interest on loans @ 12-15 50% on loan taken In this regard the assessee was asked to furnish the details of the persons to whom interest was paid during the F.Y. 2015-16. After examining the submissions of the assessee, the AO recorded a finding that the assessee did not file any justification for the amount of interest paid as deduction nor produce any evidence regarding identity of the parties, genuineness of transaction and creditworthiness of parties who have advanced such loans to the assessee and to whom interest amount has been paid. The assessee has not explained the correct nature of such interest expenditure and has also failed to prove the nexus between such expenditure incurred the income sought to be earned. Accordingly, the AO recorded a finding that the assessee has not fulfilled the condition laid down in section 57(iii) of the I.T Act, 1961 and hence disallowed the claim of ₹ 1,59,37,109/- and added it back to the income of the assessee. Without prejudice to the aforementioned finding, the AO also concluded that the assessee is engaged in the business of financing by taking loans and further grantin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts so produced was made and my observations in this regard are as under: Although the amounts of ₹ 20,00,000/- ₹ 25,00,000/- and ₹ 20,00,000/ have been debited on 27.03.2015, 28.03.2015 and 30.03.2016 in the account of Ram Kishor Nagar Mal account, the concomitant credit in the account of Anil Kumar (HUE) is not reflected. That the loans given out are sourced from loans taken as claimed by the appellant, is not established from any of the accounts filed by the appellant. A perusal of the ITR shows a list of parties from whom loans have been taken and to whom interest has been paid on account of loan taken However, the list does not include the name of Ram Kishore Nagar Mal marketing (P) Ltd. In fact, the appellant has received interest from the said party which completely repudiates the claim of the appellant. The appellant has paid interest on loans to 11 parties and received interest from 7 parties. However, the appellant, neither during course of assessment proceedings nor during appellate proceedings was able to establish that interest paid of ₹ 1,59,37,109/- was expended to earn interest income of ₹ 1,34,39,809/-. A scann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1.59 crore has been incurred wholly or exclusively for purpose of business. Here, it is pertinent to observe that onus with regard to any expense claimed under section 37 squarely lies upon the person claiming such an expense. So, it is also clear that the onus is upon the assessee to substantiate claim of expenses with requisite evidence and also to establish that it was for business or on account of commercial expediency. This onus has not been discharged by the appellant company. Here, reliance is being place on the principles enunciated by the Hon'ble ITAT New Delhi Dharmendra Kumar Vs ITO, ITA No 1121/Del/17, wherein the Hon'ble ITAT New Delhi held as under: 4.2.4 From the above, it is evident that before allowing a claim of expenditure made by the assessee, it is necessary to examine that appellant has discharged his onus to establish that the claim has been made considering the above proposition of the specific Section 37(1) of the Act. However from the facts of the present case and non-compliance of the statutory notices issued during assessment and appellate stage, it is not discernible whether the claim of expenses made in respect of above heads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO has done. I uphold the finding of the AO in this regard. The claim of the appellant that the AO has violated consistency in not accepting the accounting treatment applied by the AO. Here, it is pertinent to appreciate that perpetuating an error does not become a quasi judicial authority and if on the basis of evidences on record, the AO ascertains the error in the claim of the appellant, he is empower to redress the error. Thus, the claim of the appellant has no locus standi and is rejected. Here I would like to draw strength from the principle enunciated by the Apex Court, that there is no valour in perpetuating an error. Here, I would like to draw strength from the order of the Apex Court in the case of Distributors (Baroda) (P) Ltd. vs. UOI (1985) 155 ITR 120 (SC) wherein it was held that to perpetuate an error is no heroism, to rectify it is the compulsion of the judicial conscience. 4. Thus, we find two issues arise out of the order of the ld. CIT(A). (A) Whether the assessee is eligible to claim the expenditure incurred in earning of the interest income as per the provisions of Section 57 of the Act. (B) Whether the assessee is eligible to claim deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,59,37,109.00 7. But for the amount received on interest, the assessee would not be in a position to lend the amount on interest to earn interest income. Hence, netting of the interest income on the interest expenditure is a prerequisite for correct determination of taxable income. Keeping in view, the facts narrated above, the decision of the ld. CIT (A) that there is no nexus between the interest earned and the interest paid cannot be upheld. As a result, the assessee is allowed to claim the interest expenses. 8. Regarding the alternate decision of the ld. CIT (A) that the interest income constitutes the business income, even in those circumstances, the interest paid to earn such interest income is to be allowed as deduction u/s 37 of the Act. 9. Since, we hold in principle that the expenditure is allowable either way-: u/s 57, if the income is treated under the head income from other sources as per the provisions of Section 56 or u/s 37, if the income is treated under the head profits and gains of business or profession as per the provisions of Section 28, at this juncture, we refrain from determining issue of the claim of preclusion or coll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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