9911796707
TMI Blog2023 (4) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency to borrow fund to meet with urgent need in business and even after above interest there is net interest income though the same was explained. 3. That in the facts and circumstances of the case as well as in aw, the Ld. CIT (A) ought not to have upheld the addition of Rs. 6,00,000/- being disallowed out of total interest claimed. 4. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal." 3. The brief facts of the case are that the assessee is an individual deriving income from salary from M/s Rushabhdev Infra Projects Private Limited in which is he is a Director and also earned interest income. During the year under consideration, the assessee filed return of income declaring total income of Rs. 42,42,140/-. The assessee during the impugned assessment year earned gross interest income on unsecured loans given to various parties amounting to Rs. 1,23,84,617 /- and incurred interest expenses on funds borrowed from several parties in the form of unsecured loans amounting to Rs. 92,74,214/-. The case of the assessee was selected for limited scrutiny to examine the issue of "deductions from income from other sources". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the view that interest paid and claimed @ 21% to Shri Dharmesh kumar Vasudevbhai Patel amounting to Rs. 21,00,000/- should be restricted and to be allowed @15% p.a. for deduction purpose and interest paid to the extent of excessive rate of 6% to be disallowed. The quantum of such disallowance comes to Rs.6.00,000/- (2100000*6/21). Accordingly disallowance of Rs.6,00,000/- out of interest expense is made and added over and above the total income declared in the ITR by the assessee and total income of the assessee is assessed u/s 143(3) of the Income Tax Act, 1961 at Rs. 5 0,27,144/-" 4. In appeal before Ld. CIT(Appeals), the assessee reiterated the submissions made before the assessing officer, however, he rejected the appeal of the assessee on the ground that assessee has failed to demonstrate how the interest paid @ 21% on aforesaid loan taken from Shri Dharmesh Kumar Patel was having any nexus with earning interest income at the prevailing rate of 6 to 12% (maximum at rate of 15%). While passing the order, Ld. CIT(Appeals) made the following observations: "6. I have carefully considered the grounds of appeal, statement of facts, contents of assessment order and written submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest at higher rate on borrowed fund under the circumstances mentioned by the assessee, the assessee earned surplus interest income as is evident from statement of income. However, the AO did not take notice of this fact while concluding the assessment and making the impugned addition. In response, the DR relied on the observations made by the Ld. CIT(Appeals) and the AO in their respective orders. 6. We have heard the rival contentions and perused the material on record. We observe that the AO made disallowance of Rs. 6 lakhs on account of excessive interest expenses by restricting the amount of interest expenses to 15% as against 21% interest paid by the assessee to Shri Dharmesh Kumar Patel. However, the CIT(Appeals) while dismissing the appeal of the assessee held that the assessee has not been able to establish the nexus between the interest paid @ 21% to Shri Dharmesh Kumar Patel and interest income earned by way of giving unsecured loan to various parties. In our considered view, the same is erroneous, since if the assessee is unable to establish the nexus between interest bearing loans and earning of interest income itself, the entire interest expense is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es must not look at the matter from their own view point but that of a prudent businessman. In case, it is found that transfer of borrowed funds to a sister concern was on account of commercial expediency even if the same is interest free, the deduction claimed by the assessee cannot be disallowed. 14. We are of the view that it is not necessary that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income. 15. Further, clause (iii) to section 57 makes admissible the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head "income from other sources'). This means section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively 'for the purpose of making or earning such income". In order that expenditure may be admissible under section 57(iii), it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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