TMI Blog2015 (6) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming the assessment of the total income of the Appellant at ₹ 5835,060/- as against ₹ 2249398/- returned by the Appellant. 2. Order dt. 27/07/12 passed by Ld. CIT(A) as well as order dt. 31/10/11 passed by Ld. ACIT are bad in law as the same are not based on facts and based on assumptions or surmises or erroneous findings and has not considered submissions made by appellant. 3. The Ld. CIT (A) erred in law and on facts in confirming disallowance of interest of ₹ 3585618 u/s 57(iii) vide para 3.2 of his order ( paragraph 6 of Assessment order). 4. The Ld. CIT (A) erred in law and on facts in not adjudicating one of the ground of appeal being ground no.4 which contested that Without prejudice to above, alternatively interest paid is to be allowed u/s 36 (1) (iii) or u/s 37. 5. The Ld. CIT (A) erred in law and on facts in not adjudicating one of the ground of appeal being ground no.5 which contested action of Ld. ACIT in assessing director remuneration as income from salary instead of Income from Business or Profession as claimed by Appellant. 6. The Ld. CIT (A) erred in law and on facts in not adjudicating one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 57(iii) only if the assessee earned interest from such borrowed fund. 5. Before us, the Ld. A.R. of the assessee has submitted that the assessee has borrowed fund and invested the same by either giving loan or investment in the shares of the group concern as well as shares of the other listed companies from which it could earn interest income, dividend income and capital gain on sale of such shares. The Ld. A.R. further pointed out that the investment in the shares of M/s. Sim Diam P. Ltd. which is a closed company of the assessee was in fact loan which was converted into the capital. The assessee has invested the amount by giving loan to the said company on which the assessee earned interest income in the earlier years. However, in the year under consideration the said loan was already converted into the share capital, therefore the interest which was earned in the earlier year could not be earned during the year under consideration. The Ld. A.R. has contended that earning income from the expenditure incurred is not a condition for allowing the deduction under section 57(iii) of the Act. It is only for the purpose of making or earning of income which is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises (P.) Ltd. ITXA No.110 of 2009 dated February, 2009 (Bom.) 3. M/s. Avshesh Mercantile (P.) Ltd. vs. DCIT (2012) 26 Taxmann.com 43 (Mum.) 4. CIT vs. Darashaw Co. (P.) Ltd. (2014) 49 Taxmann.com 143(Bom.) 5. M/s. Topstar Mercantile Pvt. Ltd. vs. ACIT (2011) 334 ITR 374 (Bom.) 6. ACIT vs. M/s. Delite Enterprises (P.) Ltd. (2011) 135 TTJ 663 (Mum.) 7. CIT v. M. Ethurayan (2005) 273 ITR 95 (Mad.) 6. On the other hand, the Ld. D.R. has submitted that the AO has recorded the fact that the assessee has taken loan from Shri Rohit Manhot which was given as a loan to Mrs. Tara Lodha Jain Investment and also used for repayment of loan to Mrs. Purvi. As the assessee has no interest income from Mrs. Tara Lodha Jain Investment and repayment of loan to Mrs. Purvi almost at the end of the year the interest payment to Shri Rohit Manhot is not allowable under section 57(iii) of the Act as the expenditure was not incurred for the purpose of earning the interest income. The assessee has also taken loan from Smt. Sohnidevi Sethia which was utilized for giving loan to M/s. Sim Diam P. Ltd. of ₹ 28,00,000/- and to Karvy Infrastructure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,00,000/- was utilized for investment in the shares of M/s. Sim Diam P. Ltd. As far as the other amounts of borrowed fund the same were used for investment in the shares of the listed companies as well as non listed companies. There is no dispute that as far as the loan amount to M/s. Sim Diam P. Ltd. the same has yielded interest income to the assessee. Therefore to that extent there is no question of the investment made for not earning any income. So far as the remaining investment is concerned, the AO has disallowed the corresponding interest expenditure on the ground that the assessee has not earned any income on the said investment. It is pertinent to note that what is required for allowing the deduction under section 57(iii) is the purpose of the expenditure incurred by the assessee and the said purpose is for making or earning the income. Therefore, it is the potential income from the expenditure incurred by the assessee and not the actual income earned by the assessee from such expenditure. The Hon ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (supra) while considering the question of allowability of the expenditure under section 57(iii) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended 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 income 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 of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought to our notice, the argument that this judgment has been misinterpreted and misread by the Tribunal does not commend to us. The Supreme Court has held that the words in Section 57(iii) speak of purpose of the expenditure and that is relevant. The argument of Mr. Gupta is that the purpose of the expenditure and in the present case, has a relation with the income that is to be eventually earned from the MSRDS bonds. That the bonds were disposed of means the income by way of interest thereon would not accrue any longer. Therefore, the deduction by way of interest on borrowings and which is stated to be a liability was not a permissible deduction. That is the precise argument which has been dealt with and the Hon'ble Supreme Court has clarified that the argument of the revenue that the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. The Hon'ble Supreme Court gave an illustration in that regard and held that the when a profit and loss account is cast in respect of any source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in computing income from other sources came for the consideration of the Full Bench of the apex court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, wherein the Full Bench held that the interest on moneys borrowed for investment in shares which had not yielded any dividend was admissible as a deduction under section 57(iii) of the Act. 11. The plain and natural construction of the language of section 57(iii) of the Act, irresistibly leads to the conclusion 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) of the Act 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 qualify the expenditure for deduction : it does not say that the expenditure shall be deductible only if any income is made or earned, vide CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). 12. In view of the above discussion as well as the following judgment of Hon ble Supreme Court in the case of CIT vs. Rajendra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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