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TMI Blog2022 (3) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction @30% u/s 24(a) of the Act however the assessee did not claim any interest expenses u/s 24(b) of the Act. Based on the above facts, we note that interest expense is allowable u/s 57(iii) of the Act. Assessee has not claimed the interest expenses against the interest on refund received from the income tax department. Interest on refund has been shown in the computation of total income only for disclosure purposes and not for the purpose of set off. This is because the assessee has not lent the money to the income tax department. The assessee in fact claimed the interest expenses against the Nil return on investment made in Affem Rolling Pvt. Ltd. We note that such interest expense is allowable under section 57(iii) as relying on RAJENDRA PRASAD MOODY [ 1978 (10) TMI 133 - SUPREME COURT] - Thus we allow the interest expenses - Decided in favour of assessee. Disallowance of expenses - assessee had claimed expenses of ₹ 9,02,504/- on account of fees of Accountant, audit fees, and general expenses etc. - HELD THAT:- So far disallowance of these other expenses are concerned, we note that assessee is claiming the deduction u/s 57(iii) of the Act. The ld Counsel sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has filed additional grounds of appeal which reads as follows:- I. On interests expenses 1) (a) The Ld. CIT(A) has erred both in Law and in Fact in not allowing deduction of ₹ 14,74,654/- u/s 57 and or other provisions of Act being interest paid for the Loan advance given to Affem Rolling Pvt Ltd., for Commercial expediency a sister concern company of your assessee as held by Hon. Supreme Court in the case of Pr.CIT Vs. E.City Investments a Holdings Co.(Pr.) Ltd., (2020) 117 taxmann.com 124 (SC). 2) Your assessee respectfully alternatively and without prejudice submit that interest expenditure of ₹ 14,74,654/-/ be allowed u/s 36(i)(iii) or Section 28 of the Act or under Section 37(1) it being incurred during course of business and for purposes of business. 3) It is further submitted by your assessee that he had enough hand sufficient own funds more than the interest free loan /advance given to its sister concern Affem Rolling Pvt Ltd., and hence no part of interest of ₹ 14,74,654/- is liable to be disallowed is computing total income. II. On other expenses 1) The CIT(A) has erred both in law and in facts in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such interest expenses of ₹ 14,74,654/- may be allowed u/s 57 of the Act. 7. On the other hand, Learned DR for the Revenue submits before us that assessee company had failed to prove the nexus between interest expenses and interest income. Therefore, the addition made by AO should be affirmed. 8.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that it is not disputed by the assessing officer that interest expenses has not been incurred by the assessee. The assessee had filed its return of income for the year under consideration on 23.11.2012 declaring total income at ₹ 10,58,040/-. The said return was processed u/s 143(1) of the Act accepting the returned income by CPC. Thereafter, this case was selected for scrutiny under CASS. During the year under consideration, the assessee company has earned rental income. Besides, it has earned interest on Income Tax refund. In the computation of total income of assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able u/s 57 of the Act, as assessee has already claimed the expenses u/s 24 of the Act against the rent income. 10.We note that assessee made the investment in Affem Rolling Pvt Ltd out of the amounts borrowed from Bank of Baroda on which assessee incurred the interest expenses. The assessee has proved complete nexus between the amount borrowed and amount invested. We note that assessing officer has not pointed out that the fund borrowed was not diverted for the purpose of making investment with Affem Rolling Pvt Ltd. We note that before lower authorities, the assessee claimed both alternatives that interest expenses is allowable u/s 36(1)(iii) or u/s 57(iii) of the Act. However, we note that assessee has not derived any business income. Therefore, assessee s claim u/s 36(1)(iii) of the Act should not be allowed, and interest expense should be allowed under section 57(iii) of the Act.We note that assessing officer has erred in holding that assessee claimed such expenses u/s 24 of the Act. It is to be noted that assessee claimed only the standard deduction @30% u/s 24(a) of the Act however the assessee did not claim any interest expenses u/s 24(b) of the Act. Based on the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , said the Revenue, was a sine qua non to the admissibility of the expenditure under section 57(iii) and, therefore, if in a particular assessment year there was no income, the expenditure would not be deductible under that section. The Revenue relied strongly on the language of section 37(1) and contrasting the phraseology employed in section 57(iii) with that in section 37(1), pointed out that the Legislature had deliberately used words of narrower import in granting the deduction under section 57(iii). Section 37(1) provided for deduction of expenditure laid out or expended wholly and exclusively for the purpose of the business or profession in computing the income chargeable under the head 'Profits or gains of business or profession'. The language used in section 37(1) was laid out or expended-for the purpose of the business or profession and not laid out or expended-for the purpose of making or earning such income as set out in section 57(iii). The words in section 57(iii) being narrower, contended the Revenue, they cannot be given the same wide meaning as the words in section 37(1) and hence no deduction of expenditure could be claimed under section 57(iii) unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the Legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate profit or loss would be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective whether there is receipt of income or not. That is the plain requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, respectfully following the judgment of Hon`ble Supreme Court in the case of Rajendra Prasad Moody (supra), we allow the interest expenses for both assessment years, 2012-13 ( ₹ 14,74,654) and 2013-14 ( ₹ 13,96,831). 13.Second issue, as raised by the assessee, as per its grounds of appeal is related to disallowance of expenses of ₹ 9,02,504/-. We have heard both the parties and note that assessee had claimed expenses of ₹ 9,02,504/- on account of fees of Accountant, audit fees, and general expenses etc. So far disallowance of these other expenses are concerned, we note that assessee is claiming the deduction u/s 57(iii) of the Act. The ld Counsel submits that these expenses are not relating to the property on which the assessee is deriving the rent income, but these expenses are related to the investment made in Affem Rolling Pvt. Ltd. We note that to maintain the investment portfolio the assessee has incurred expenses therefore, we are of the view that it is quite reasonable to allow 50% of these expenses. Accordingly, we allow 50% of these expenses for both the assessment years, 2012-13, ₹ 4,51,252/-( 50% of ₹ 9,02,504) and 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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