9911796707
TMI Blog2018 (6) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... off through a consolidated order for the sake of convenience. ITA No. 3998/Mum/2015 Assessment Year: 2011-12 2. The grounds of appeal raised by the assessee read as under: On the facts and in the circumstances of the case and in law, the Ld. CIT-A-17, Mumbai has erred in confirming the disallowance of Rs. 8,11,868/-, being the difference between the interest received and interest paid on the ground that the deduction of Interest u/s 57(iii) of the Act can be allowed only to the extent of interest received by the appellant. 3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2011-12 on 29.07.2011 declaring income at Rs. 18,768/-. The assessee is Director of M/s Milan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. As M/s Milan Décor Pvt. Ltd. continued to remain as a loss making until till date. The above advance amount of Rs. 81,05,200/- was given out of accumulated capital balance of Rs. 64,74,796/- as on 31.03.2011." However, the AO was not convinced with the above explanation of the assessee and held that a deduction u/s 57(iii) can be claimed if a particular expenditure has been incurred for the purpose of earning the income and the same is neither a capital expenditure nor personal expenditure of the assessee. A direct nexus of interest expenditure with interest income has to be established, beyond doubt, for grant of deduction u/s 57(iii). The AO allowed interest paid to the extent of Rs. 15,59,340/- and thus made a disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 594 Unsecured Loans-Interest Bearing 162,43,792 211,98,661 Unsecured Loans-Free of Interest 39,31,208 137,58,168 Total 201,75,000 349,56,829 Accumulated Capital 64,74,796 33,60,953 Interest Free Advances 39,31,208 137,58,168 Total Funds - Free of Interest 104,06,004 171,19,121 Interest Income 15,59,340 23,60,063 Interest Expenditure 23,71,208 31,01,339 Thus it is stated that in Vipul, interest-free advances are more than interest-free funds. And in Padanshi, the interest-free funds are more than interest-free advances. Reliance is placed by him on the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earned. In Rockman Cycle Industries (P.) Ltd. (supra), the assessee borrowed money from its sister concern and paid interest therein @ 18% per annum and purchased preferential shares from sister concern which carried dividend @ 4%. The Hon'ble High Court held that (i) while deciding whether any disallowance in respect of interest is called for, the AO/appellate authorities and even the Courts can determine the true legal relation resulting from a transaction, (ii) if some device has been used by the assessee to conceal the true nature of transaction, it is the duty of the taxing authority to unravel the device, (iii) however, the legal effect of the transaction cannot be displaced by probing into the substance of the transaction, (iv) ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed deposit. There is no difference in the eye of the law. The interest that the assessee received from the bank was income in his hands. It could stand diminished only if there was a provision in law which permits such diminution. There is none, and, therefore, the amount paid by the assessee as interest on the loan that he took from the bank did not reduce his income by way of interest on the fixed deposit placed by him in the bank." 7.3 In the case of Amritaben R. Shah (supra), the Hon'ble Bombay High Court has held that (i) section 57 (iii) provides for deduction only of expenditure incurred wholly and exclusively "for the purpose of making or earning such income", (ii) in order that an expenditure may be admissible u/s 57(iii) it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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