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TMI Blog2024 (2) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... the query raised by the Assessing Officer during the course of assessment proceedings. Even before PCIT, the assessee had filed written submissions giving the basis for claim of deduction of interest expenses u/s 57 by stating that the aforesaid interest income had been incurred exclusively for the purpose of earning interest income and accordingly the order passed by the AO was not erroneous and prejudicial to the interest of the Revenue. Assessee had filed detailed written submission before Ld. PCIT explaining that the notice issued u/s 263 was on an incorrect understanding / appreciation of the facts of the assessee s case and the assessee had submitted that the interest expenditure had been incurred wholly for the purpose of earning interest income. Assessee had also submitted that only that part of interest expenditure had been claimed by way of deduction u/s 57 which had been incurred for earning interest income and the proportionate part of the interest expenditure which was not utilized for earning interest income had not been claimed by the assessee as deduction under Section 57 of the Act. As PCIT did not give any specific finding to controvert the written submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal anytime up to the hearing of this appeal. 3. The brief facts of the case are that the assessee filed return of income for A.Y. 2016-17 on 02.08.2016 declaring income of Rs. 9,50,750/-. The case of the assessee was selected for complete scrutiny and assessment was finalized under Section 143(3) of the Act accepting the returned income of Rs. 9,50,750/-. 4. Subsequently, the PCIT initiated 263 proceedings on the ground that on verification of profit and loss account, it is noticed that interest of Rs. 10,34,960/- has been paid by the assessee on loan taken from Central Bank of India, and the amount of loan was invested in M/s. J. K. Industries of which the assessee is a proprietor and the assessee utilized the loan to earn profit in the proprietary concern and not for earning interest income. Therefore, the same is required to be disallowed under Section 57 of the Act. Further, the PCIT observed that assessee has paid interest of Rs. 11,40,985/- on Bank loan from ICICI Bank and the amount of loan was utilized for purchase of property and not for earning interest income and therefore, the same is also required to be disallowed under Section 57 of the Act. The PCIT wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue. 6. However, Ld. PCIT rejected the arguments of the Ld. Counsel for the assessee and held that the assessment order is erroneous and prejudicial to the interest of the Revenue with the following observations:- 8.1 Having considered the assessee's, submissions, and facts of the case in light of the provisions of section 57(iii) and the interpretation of the same by some of the highest judicial authorities, it is concluded that no deduction under section 57(iii) is allowable to the assessee. It is true that no question has been raised by the A.O. as regards the nexus of the interest expenses with the interest income earned by the appellant. But a mere perusal of the provisions of that section reveals that fulfilment of this condition, in itself, is not sufficient to make an expense deductible under section 57(iii). 8.2 The basic and foremost condition for allowability of deduction under section Jj7(iii) is that the said expense should be laid out or expended wholly and exclusively for the purpose of making or earning income against which it is claimed as deduction. In the present case, the borrowed funds have been given to other parties, prima facie a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which Rs. 1,50,00,000/- (i.e. 55% approx..) have been invested in Amee Reality Investment as long term investment and hence the assessee has not been able to establish the purpose of acquiring the loan whether for long term investment or for the purpose of lending funds to other parties. Hence, it can be easily observed that the claim of interest of Rs. 11,40985/- that was in relation to the loan from ICICI Bank cannot be allowed as deduction under section 57(iii) because its intent, purpose and use was not to earn interest-income. However, there is nothing on record that can substantiate his contention that these loans were taken by the assessee for the purpose of lending funds to other parties. 12. The assessee placed reliance on the various judgments, is not supported by the facts of his case. In none of the judgments the ratio supports the argument that if the appellant has incurred any expense that has not been made for the purpose of making or earning of income, the same should be allowed as deduction under the provisions of section 57. 13. It would be pertinent to mention here that the appellant had incurred interest expenses not with the purpose of earning or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, the Assessing Officer had accepted the version of the assessee regarding the claim of deduction u/s. 57 of the IT Act i.e. interest expenses of Rs. 10,34,9607- and 11,40,9857-without conducting any inquiry. The AO was required to disallow interest expenses to the tune of Rs. 21,75,945/- claimed as deduction u/s. 57 of the IT Act. 17. Thus, in the interest of justice and since the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied, the impugned assessment order is set aside for fresh assessment only to the extent of the issues discussed supra. 18. Keeping in view these facts, I am of the considered view that this is a fit case for invoking section 263 of I. T. Act as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. Accordingly the impugned assessment order is set aside for fresh assessment only to the extent of the issue discussed supra. The AO is directed to examine the issue regarding interest expenses claimed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under Section 57 of the Act with respect to interest expenses incurred by the assessee and secondly, it was submitted that the Ld. PCIT has not controverted the factual submissions made by the assessee during the course of 263 proceedings giving the basis of claim of deduction of interest expenses under Section 57 of the Act. The Counsel for the assessee submitted that Ld. PCIT has not given any specific finding to controvert the submissions made by the assessee during the course of 263 proceedings and has simply proceeded to hold that the assessment order is erroneous and prejudicial to the interest of the Revenue without controverting the submissions made by the assessee before him. 9. In response, Ld. D.R. placed reliance on the observations made by Ld. PCIT I the 263 order. 10. We have heard the rival contentions and perused the material on record. 11. On going through the contents of the 263 order and the assessment records, we observe that firstly there was no evidence lack of enquiry on part of the Assessing Officer on the aspect of allowability of claim of deduction under Section 57 of the Act. We observe that the case of the assessee was opened under limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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