9911796707
TMI Blog2025 (4) TMI 1435X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 [hereinafter referred to as "the Act"] by the Deputy Commissioner of Income Tax, Circle 4(1)(2), Ahmedabad [hereinafter referred to as "Assessing Officer"], for the Assessment Year (AY) 2017-18. Facts of the Case: 2. The assessee, an individual, had filed his return of income for A.Y. 2017-18 on 03.08.2017, declaring a total income of Rs. 63,87,340/-. The case was selected for scrutiny assessment under the Computer Aided Scrutiny Selection (CASS) on the issue of "large deduction claimed under section 57 of the Act." During the course of assessment proceedings, the Assessing Officer observed that the assessee had earned interest income of Rs. 40,16,435/- from loans and advances and had simultaneously claimed int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... craves liberty to add, alter, amend any ground of appeal. 4. During the course of hearing before us, the learned Authorized Representative (AR) reiterated the facts as stated in the statement of facts and drew our attention to the detailed submissions filed before the Assessing Officer, including the replies dated 22.09.2019, 23.10.2019, and 15.11.2019, placed in the paper book. It was submitted that the assessee had duly furnished complete details of interest income earned, interest expenditure incurred, ledger accounts of the parties, merged balance sheet, computation of income, and bank statements during the course of assessment proceedings. The learned AR contended that the Assessing Officer had not questioned the authenticity or genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.02.2015 1,25,00,000 4.2. It was submitted that the above borrowings and advances were routed through banking channels and duly supported by bank statements placed on record. Thus, there was a clear one-to-one nexus established between borrowed funds and the loans advanced, which ultimately generated taxable interest income offered under the head "Income from Other Sources." 4.3. The AR also emphasized that any portion of the interest expenditure that pertained to amounts diverted for personal purposes, or capital account, had not been claimed as deduction, but was transferred to the capital account separately. Thus, only that portion of interest expenditure which was directly relatable to interest-earning loans was claimed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de. The Assessing Officer has, however, disallowed the deduction under section 57(iii) of the Act on the ground that the assessee failed to establish a direct nexus between the borrowed funds and the interest-earning advances. 6.3. Under section 57(iii) of the Act, for claiming deduction, it is not necessary that the expenditure must result in earning income. The only requirement is that the expenditure should have been incurred "wholly and exclusively" for the purpose of earning income. What is necessary is the purpose of the expenditure - namely, for making or earning income. Applying the above principle to the facts of the present case, we find that the assessee had borrowed funds from various parties including White Valley Pvt. Ltd., T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich interest income was earned and offered to tax. We find that the explanation offered by the assessee is duly supported by documentary evidence and has not been controverted by bringing any material on record to demonstrate diversion of funds for non-business purposes or for purposes other than earning taxable interest income. In the absence of any adverse material, the mere raising of a question regarding the purpose of borrowing and lending, without disproving the evidence furnished, cannot be a ground to deny the claim of deduction under section 57(iii) of the Act. 6.6. In the present case, the nexus, at least indirect if not direct, between the interest-bearing borrowings and the interest-earning advances is sufficiently established ..... X X X X Extracts X X X X X X X X Extracts X X X X
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