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TMI Blog2021 (8) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... tent, remains in existence-through in a different form because of the compulsion of a binding arbitration award rather than choice of the assessee. In this view of the matter, the disallowance is devoid of legally sustainable and factually correct basis. Therefore, direct the Assessing Officer to delete the impugned disallowance - ITA No. 4479/Mum/2019 - - - Dated:- 6-8-2021 - Pramod Kumar (Vice President)] For the Appellant : Mehul Shah For the Respondent : Nijaykumar Menon ORDER Per Pramod Kumar, VP: 1. By way of this appeal, the assessee-appellant has challenged the correctness of the order dated 20th May 2019, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) of the Income Tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f return of income, it is seen that the assessee has claimed interest expenses of Rs.30,92,631/- against interest income of Rs.1,24,229/-, LIC pension of Rs.58,044. Thus the assessee has declared loss under the income from other sources at Rs.29,10,358/-. On further perusal of the business income it is seen that the assessee is deriving interest on his capital with partnership firm of M/s. AM Developers and M/s Manmantra Infra Com LLP. It has been further observed that the assessee has borrowed fund to the tune of Rs.5,12,10,068/-. However the assessee's capital in the partnership firm which inclusive of current year's interest amounts to Rs.3,41,47,071/-. In view of this during the course of assessment proceedings vide notice u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to certain dispute in the project the work of the firm to stand still and matter was referred to arbitration before the sole arbitrator Mr. A.V. Potdr, Retd., Judge and the award was given by him in terms of concerned term. As per the terms of the award he has been paid an amount of Rs.4,23,61,576/- on 09/12/2013 and the balance capital was repaid to him by way of right in the flat bearing No. 1004/1101 and 1102. The total cost of the three flats amounts to Rs. 3,25,00,000/-. It is a contention of the assessee that the borrowed funds have been utilised for the purpose of introduction of capital in the partnership firm of M/s. Avi Housing Realtors. Since the entire capital have been repaid to the assessee during the F.Y 2013-14 by way of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) and pointed out that, under the arbitration settlement with the partners, the assessee had to accept rights in respect of three flats in an under construction project at a somewhat high value of Rs. 3.25 crores. This right, according to the assessee, was a part and parcel of his investment in the firm. Accordingly, he should not be declined interest on borrowings to that extent. These submissions, as also assessee s other submissions, were rejected by the CIT(A). Dismissing the arguments raised by the assessee, learned CIT(A) observed as follows:- 5. The facts of the case are very clear. The issue at hand is the allowability of interest u/s 57(iii) of the I. T. Act. Before section 57 can apply, the following general conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of expenses relating to earning of the particuiar income only, In the case law of Seth R. Dalmia v. CIT [1977] 110 TTR 644 (SC) it was held that the dominant purpose of the expenditure incurred must be to earn income. The connection between the expenditure and the earning of income need not be direct, even an indirect connection could prove the nexus between the expenditure incurred and the income. It is also to be seen that the 'purpose' contemplated by section 57(iii) points to a precise and specific object of making or earning income. This is not to be confused with 'motive'. The motive with which the expenditure is incurred is irrelevant. The purpose of making or earning this income must be the sole purpose for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position. 7. I am of the view that the rights held by the assessee in respect of three flats, which are valued by the arbitrator at Rs. 3.25 crores, cannot be considered in isolation with assessee s investment in the firm. The investment made by the assessee in the firm, to that extent, remains in existence-through in a different form because of the compulsion of a binding arbitration award rather than choice of the assessee. In this view of the matter, the disallowance of Rs. 19,62,170/- is devoid of legally sustainable and factually correct basis. I, therefore, direct the Assessing Officer to delete the impugned disallowance of Rs. 19,62,170/- 8. As I have decided the appeal on the above short ground, I see no need to deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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