TMI Blog2016 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... me and interest is forthcoming. Thus, we accept Revenue’s arguments. The Assessing Officer’s findings disallowing the impugned interest expenditure are accordingly restored. - Decided in favour of revenue - ITA No. 831/Ahd/2012 - - - Dated:- 21-10-2015 - Shri Anil Chaturvedi, Accountant Member and Shri S. S. Godara, Judicial Member For The Revenue: Shri Dinesh, Sr. D.R. For The Assessee : None ORDER PER : S. S. GODARA, JUDICIAL MEMBER:- This Revenue s appeal for A.Y. 2001-02, arises from order of the CIT(A), Valsad dated 13-01-2012 in appeal no. CIT(A)- VLS/400/09-10, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The Revenue s sole substantive ground challenges the lower appellate order deleting disallowance of interest expenditure of ₹ 10,38,237/- made by the Assessing Officer in order dated 24-12- 2009. The case file indicates that this is second round of litigation between the parties on the very issue before the tribunal. Case called twice. None appears at assessee s behest. The Revenue places on record the hearing notice dated 26th August, 2015 containing assessee s signature having received the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is made and interest income on FDR with OBC, Surat. However, the assessee not shown any interest income or charged interest on the loans given as mentioned on Page No.2 of the assessment order. The assessee claimed interest expenses of ₹ 5,22,986/- being interest paid on the unsecured loans. However, he has not charged interest from the parties to whom huge amount was given as interest-free loan. As per section 36(i)(iii) of the Act, the assessee has not fulfilled the conditions that the money borrowed must have been used for the purpose of business . Therefore, it is crystal clear that the deduction in respect of interest expenses can be given only if the amount borrowed is utilized for the business or profession. In the instant case, the assessee is nowhere engaged in the business or profession and no income is shown under the head income from business or profession. During the course of assessment proceedings, the assessee failed to prove the nexus of interest income earned and interest expenses. Therefore, considering the entirety facts and circumstances of case and various judicial pronouncements, the AO disallowed interest expenses of ₹ 10,38,237/- and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in subsequent judgment i.e. in the case of Navpad Textile Industries Ltd.(ITA No. 2311/Ahd/95 dtd. 30.01.2002) wherein also no disallowance of interest has been made to the extent the assessee had interest-free funds available with it. (ii) Expenditure hyas been incurred for earning income :- Your goodself may note that I had made business investment in my companies as a promoter in anticipation of earning income from which I had incurred interest expenses only on some of the borrowings. During the year under consideration, there was no immediate realization of income from these investments, however, in the subsequent years i.e. A.Y. 2003-2004, I have earned income from some of these investments which have been offered for tax. However, the erstwhile AO was of the opinion that since the investments have not earned any income in the year under consideration, the interest paid cannot be allowed as expenses. In this regard, I would like to bring to the kind notice of your honour the direct decision of the Hon.ble Supreme Court in the case of CIT v/s. Rajendra Prasad Moody (1978) 115ITR 519 CSC), wherein, it has been held that section 57(iii) does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the bank and to discharge the estate duly liability. Thus, the nexus between the expenditure incurred and the earning of the income has been established. By raising loan on the security of the fixed deposits, the executors were paying only 2% extra interest and preserved the income earning asset. The expenditure incurred by way of interest on loan raised to discharge the estate duty liability is allowable deduction u/s. 5(iii) as there is nexus between the expenditure incurred and the earning of the income. The CIT was not right in directing the ITO to disallow the interest paid to the bank . (b)The Hon.'ble Hyderabad Bench of the Tribunal once again in a recent judgement in the case of Ashok Brothers v. ITO (2002) 76 TTJ 427 (Hyd) has held as follows:- No part of interest paid by the assesses on its overdraft account could be disallowed on the ground that assessee had made interest-free advances to its sister-concern by issuing cheques from its cash credit account when it has sufficient interest-free funds available to match the interest-free advances . Hence, in view of the aforesaid contentions and the direct judicial pronouncements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y like partnership/company. (iii) The erstwhile AO has also held that the amount borrowed has been utilized in the investment of assets exempt from tax and in nonassessable income. The said finding of the erstwhile AO is also incorrect since I have made the investment in partnership firm and in private limited companies from which taxable income in the form of interest, dividend etc. have in fact have been earned though not in the year under consideration but in the subsequent year and thus, it is not a case where the amount of borrowed has been utilized in exempted assets. Thus, the erstwhile AO's argument that the investments have been made in exempted assets also does not hold true. (iv) The AO has placed reliance on the judicial pronouncement in the case of Amna Bai Hajee Issa v. CIT( 1964) 51 ITR 835 (Mad) and H.T. Conville v. CIT (1936) 4 ITR 137 (Lahore), which is absolutely misplaced since both these decisions are in respect of section 36(i)(iii) and not section 57(111). Hence, this stand of the erstwhile AO is in fact self defeating since he himself held that my case is covered by section 57(iii) and not by section 36(i)(iii). DECISI ..... 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