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TMI Blog2023 (4) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... earning of interest income by the assessee. Both the AO and CIT(Appeals) have not been able to controvert the commercial expediency demonstrated by the assessee for incurring a higher rate of 21% interest on loan taken from Shri Dharmesh Kumar Patel, given the facts of the instant case. Therefore, assessee has been able to establish both the commercial expediency for taking the interest at higher rate of 21% (since the same was required by the assessee on urgent basis to be given to the firm in which the assessee was a Director) and has also been able to establish the nexus as required under section 57 of the Act. As decided in CIT v. Darashaw Co. (P.) Ltd. [ 2014 (5) TMI 940 - BOMBAY HIGH COURT ] held that It cannot be said that interest expenditure on borrowed capital shall be debited, only if any income is made or earned. In the case of CIT v. Rajendra Prasad Moody [ 1978 (10) TMI 133 - SUPREME COURT ] held that to bring a case within section 57(iii), it is not necessary that any income should in fact have been earned as a result of expenditure. Therefore, interest paid on money borrowed for investment in shares, which had not yielded any dividend, was admissible unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had taken loan of ₹ 1 crore from one party Shri Dharmeshkumar Patel to whom interest @ 21% per annum was given. Before the AO, the assessee submitted that the purpose of incurring such high interest on loan taken from Shri Dharmesh Kumar Patel was owing to commercial expediency. The assessee is a Director in M/s Rushabhdev Infra Projects Private Limited, which was engaged in construction business and such concern was in urgent need of funds since it was required to make payment of ₹ 2.05 crores to the Ahmedabad Municipal Corporation for getting plan approved in respect of new site of the company. Accordingly, the assessee took loan from Shri Dharmesh Kumar Patel on 07-01-2017, which was given to M/s Rushabhdev Infra Projects Private Limited, which, in turn made payment of ₹ 2.05 crores to Ahmedabad Municipal Corporation on 09-01-2017. Therefore, the above flow of events shows that the loan that was taken from Shri Dharmesh Kumar Patel owing to commercial expediency and further the aforesaid loan was taken without any deposit of any security and hence higher rate of interest @ 21% was paid for such unsecured loan. However, the AO rejected the contentions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Income -tax Act, deduction of any other expenditure not being in the nature of capital expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income is allowed as deduction. In the instant case, the assessee borrowed Rs. 2,05,88,000/- on 07/01/2017 from Dharmeshkumar V. Patel and gave the same on 09/01/2017 to the company Rushabhdev Infraprojects Pvt. Ltd. wherein he was a Director for making urgent payment to Ahmedabad Municipal Corporation. The appellant has failed to demonstrate how the interest paid @ 21% on aforesaid loan was having any nexus with earning interest income at the prevailing rate of 6 to 12 % (maximum at the rate of 15% ) which has been assessed to tax. The prevailing market rates for loans taken were also as indicated above. In view of above, the disallowance of Rs. 6,00,000/- made by the AO is found to be justified and the same is upheld. All the grounds of appeal are hereby dismissed. 7. Accordingly, the appeal is treated as dismissed. 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) dismissing the appeal of the assessee. Before us, the counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld by Ld. CIT(Appeals). Further, even in the assessment order, the assessing officer has not challenged the fact that assessee has not been able to establish the nexus between interest taken @ 21% and the earning of interest income by the assessee. Further, both the AO and CIT(Appeals) have not been able to controvert the commercial expediency demonstrated by the assessee for incurring a higher rate of 21% interest on loan taken from Shri Dharmesh Kumar Patel, given the facts of the instant case. Therefore, in our considered view, the assessee has been able to establish both the commercial expediency for taking the interest at higher rate of 21% (since the same was required by the assessee on urgent basis to be given to the firm in which the assessee was a Director) and has also been able to establish the nexus as required under section 57 of the Act. In the case of Shri Kailash Chand Soni v. ACIT in ITA No. 960/JP/2019 , the Jaipur ITAT while allowing the appeal of the assessee on similar facts, observed as under: 12. In the present case M/s Finesse jewels is engaged in the business of manufacturing of gems and jewellery. The assessee is a director and shareholder in suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he primary motive of incurring it is directly ITA No. 960/JP/2019 Shri Kailash Chand Soni, Jaipur Vs. ACIT, Jaipur to earn income falling under the head income from other sources . The plain natural construction of the language of section 57(iii) of the Act, irresistibly leads to the conclusions that to bring a case within that section it is not necessary that any income should in fact have been earned as a result of the expenditure. 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. The section does not require that this purpose must be fulfilled in order to qual0, the expenditure for deduction it does not say that the expenditure shall be deductible only if any income is made or earned (CIT vs. Rajendra Prasad Moody (1978), Taxation 51 (3)-52, 115 ITR 519 (SC) : CIT vs. MurliManohar (1998) IX SITC 673 (All): CIT vs. Rampur Tirnber Turney Co. Ltd. (1981) 129 ITR 58 (All.) : CIT vs. Administrator General of Madras (1998) 142 Taxation 85 (Mad)). 6.1 In the case of CIT v. Darashaw Co. (P.) Ltd.49 taxmann.com 143 (Bombay) , the Bombay High Court held that It cannot be said that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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