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2015 (12) TMI 1169 - ITAT MUMBAI

2015 (12) TMI 1169 - ITAT MUMBAI - TMI - Disallowance of excess expenditure - Interest expenditure on borrowed capital not generating adequate revenue - Held that:- The assessee as well as the lendee-company being only aware of the going interest rate (in the market), the same (arrangement) only amounted to the assessee bearing the interest burden (of the company) to that extent (i.e., to the extent of difference), or the company diverting by way of curtailing, its losses to that extent. The l .....

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to him that is to be seen. Reference to the decision in the case of Rajendra Prasad Moody (1978 (10) TMI 133 - SUPREME Court ) by the assessee is, again, misplaced. The same nowhere approves of premeditated losses. It has already been clarified that no other benefit enures to the assessee from the said loan/s. A company cannot oblige the shareholders to extend loans, much less at a concessionary rate of interest. It is only where the actual earning of income is not certain, with the purpose of e .....

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SHRI SAN JAY ARORA, AM For The Appellant : Shri Jay Gala For The Respondent : Shri Bharati Singh ORDER Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-21, Mumbai ( CIT(A) for short) dated 08.10.2014, dismissing the assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2011- 12 vide order dated 30.12.2013. 2. The background facts of .....

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ulted in a loss of ₹ 8,87,532/-; the assessee also earning some bank interest. It is the claim for deduction of this excess expenditure, which is u/s. 57(iii), which is the subject matter of dispute. The assessee claims that the nexus of the borrowed funds with that advanced to the lendee-company and, thus, the purpose for which the loans were undertaken and expenditure on interest (as well as brokerage) incurred in its respect, is not in doubt. The ld. CIT(A) is wrong in doubting the same .....

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e interest income is pre-defined, being admittedly in pursuance to an arrangement whereby the company allows interest to its shareholders - the assessee being a director and shareholder in the borrower company, at 12% p.a., the loss is self inflicted. No prudent person could incur a higher expenditure to earn a known, lower income. This was also the sum and substance of the arguments of the parties before the Bench; this being the only issue arising in this appeal. 3. The parties were heard, and .....

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apex court in Rajendra Prasad Moody (supra), is misconceived. Surely, where the quantum of receipt is a function of several variables and, thus, uncertain, the same cannot govern the extent to which the expenditure incurred is to be allowed, being incurred in its totality for the stated purpose, i.e., earning of income. There is also no doubt with regard to the expenditure claimed being incurred bona fide. The concurrence with the assessee s argument, however, stops here. The answer is simple. T .....

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suffered for earning income - it (income) by definition being only after setting off/adjusting all the related expenditure? The Revenue, after all, has disallowed only the excess expenditure and not the entire of it. It is not the assessee s case that any other benefit, apart from interest income, flows to him on the said loan/s. There is no contention to that effect, much less being proved or substantiated. Rather, as observed by the Bench during hearing, that the assessee as well as the lendee .....

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