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TMI Blog2023 (12) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... loans availed and loans given and in view of the findings of the Assessing Officer that the interest bearing short term loan and advances given were out of own funds and interest free funds and therefore the interest expenditure is not incurred wholly and exclusively for carrying of interest income and therefore the same is not allowable u/s 57(iii) of the Act.? 2. The brief facts of the case are that, the assessee company is engaged in the business of leasing of commercial properties. The Assessee has disclosed income from house property, loss from business and income from other sources. The assessee has filed the return of income for the A.Y 2013-14 on 13.11.2014 disclosing a total income of Rs. 46,77,53,930/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/sec 143(2) and U/sec 142(1) of the Act along with the questionnaire are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and clarifications. The Assessing Officer (AO) on perusal of the audited financial statements found that the assessee has disclosed the interest income on loans of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la assisted the assessee company in identifying the allocable portion of the interest cost towards the interest income earned on loans given. Also, the assessee company would also like to bring to your notice that they had claimed interest deduction only for the period such funds were given as loan to different parties The perusal of the Annexure 10 submitted vide our earlier submission dated 29.11.2016 would also help to establish this fact.... In support of its claim, assessee has further submitted reply dated 20th December: "During the year under consideration the assessee had withdrawn its investment in Vijay Associates (Wadhwa) and received back Rs. 68,31,99,360/- from the investee Subsequently, the assessee company advanced this money to Bigdeal Infracon Pvt Ltd, Survivors Real Estates Pvt Ltd and Blissymbols Real Estates Pvt Ltd aggregating to Rs. 68.50,00,000/- out of the amount received as Security Deposit from MSD Pharma. The Fund Flow statement indicating Further, as regards the balance advance given of Rs. 1,00,00,000/to Blissymbols Real Estates Pvt Ltd the aforesaid transactions is attached herewith as Annexure-1. In addition to above, we are also attaching the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction of interest expense w/s 57 which shall be allowed." 4. Whereas the AO find that the assessee could not explain the nexus between the interest paid and interest received on loans and relied on the balance sheet for the F.Ys 2011-12 to 2013-14. Further the AO has dealt on the provisions of 57(iii) of the Act and observed that the assessee could not explain the nexus that the interest expenditure is incurred wholly and exclusive for the purpose of earning interest income and made disallowance of the claim of interest expenditure of Rs. 5,92,19,931/- U/sec 57(iii) of the Act and assessed the total income of Rs. 12,28,33,807/- and passed the order u/sec 143(3) of the Act dated 30.12.2016. 5. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO and has relied on the provisions of the Act, factual aspects and judicial decisions and has deleted the disallowance u/s 57(iii) of the Act and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the revenue has filed an appeal before the Hon'ble Tribunal. 6. At the time of hearing, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking or eaming such income. It is the case of the AO that one to one nexus between borrowed and deployed funds is not proved. As per the appellant, the funds are fungible and therefore it would be difficult to establish one to one nexus. The appellant has sought deduction on a proportionate basis. The appellant has applied an uniform ratio of apportionment of interest expenses for all its income and assets Out of the total interest expenses of Rs. 42,74,20,673/-, the appellant has not claimed interest expenses of Rs. 2,97,90,455/- as deduction. The details of interest cost claimed as deduction is as under:- Particulars Amount Total interest cost on term laon 42,74,20,673 Less: interest claimed as deduction u/s 24(B) (33,84,10,287) Less Interest claimed as deduction u/s 57(iii) (5,92,19,931) Interest cost not claimed as deduction 2,97,90,455 Since, the appellant has made the allocation on a reasonable and pro-rata basis, the same cannot be stated to be arbitrary or il logical In my view this would satisfy the requirement of condition laid down in S57(iii) 4.3.1 The appellant has also demonstrated that it has applied the same ratio uniformly, including for its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the details of interest income on advances and loans and deduction on interest on loans claimed under income from house property and income from other sources placed at page 28 to 44 of the paper book. Further the Ld.AR demonstrated the methodology and basis of claim of deduction of interest U/se 24(b) and U/sec 57(iii) of the Act and details of interest paid and interest received on loans filed before the A.O vide letter dated 9-12-2016 & 20- 12-2016 placed at page 45 to 60 of the paper book. We find that the assessing officer has not disputed on the genuineness of claim of interest, which are duly supported with the audited financial statements and books of accounts maintained as per the provisions of the Act. Whereas, the assessee has demonstrated with the material evidences, the nexus between the interest income earned and interest expenditure claimed based on the Audited financial statements. Further the interest expenditure claimed is wholly and exclusively for the purpose of earning the interest income on advances and loans based on the evidences filed before the revenue authorities. The CIT(A) has considered the facts, submissions and relied on the methodology of allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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