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TMI Blog2025 (1) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the appellant regarding show cause but failed to appreciate that though show cause notice was issued but no show cause notice was issued to the assessee for above addition of Rs. 50,53,499/- showing the reason that interest expenditure is restricted to an amount of Rs. 82,64,051/- and that count only the addition is required to be deleted as addition is against the CBDT instructions. 3. The learned CIT(A) has erred in law and in facts in confirming the action of AO to restrict the interest expenditure to the rate of 5.22% i.e. the average rate at which the interest has been availed by the assessee herself as against actual interest expenditure incurred. 4. The learned CIT(A) has erred in law and in facts to held purely on the assumption and on suspicion basis that the funds taken on interest are being given to related firms at lower interest taken when in fact interest charged to firms at the rate which is higher. 5. The learned CIT(A) has erred in law and in facts to held purely on the assumption and on suspicion basis that the funds taken on interest are being given to family members at lower interest or without interest and claiming business expenditure on such fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and section 142(1) of the Act, the assessee submitted that she had incurred interest expenses amounting to Rs. 1,43,17,550/- on loans availed out of which an amount of Rs. 1,15,89,437/- was claimed as deduction under section 57 of the Act against the interest income of Rs. 1,17,15,147/- declared under the head "income from other sources". The balance interest expenditure of Rs. 27,28,113/- was claimed by the assessee as a deduction under the head "income from business and profession" against the interest income of Rs. 32,78,446/- which is an interest income earned on capital from assessee's partnership firm. 4. On perusal of the details filed by the assessee, during the assessment proceedings, it was observed that out of a total loan outstanding as on 31.03.2019 of Rs. 17,67,34,180/- an amount of Rs. 1,84,18,516/- was taken interest-free and the balance amount of Rs. 15,83,15,164/- was received on interest. Further, the interest of Rs. 1,43,17,550/- was paid by the assessee during the year on the net loan amount of Rs. 15,83,15,164/- which comes out to 9.04% of the loan amount. It was further observed that out of the total loan given of Rs. 22,67,62,305/- as on 31.03.2019, an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er evident from the record that the assessee gave interest-bearing loan of Rs. 22,43,39,972/-, on which she earned an interest of Rs. 1,17,15,090/-. Since, the assessee has declared the interest income of Rs. 1,17,15,417/- under the head "income from other sources", the amount of Rs. 1,15,89,437/- incurred as interest expenditure was claimed as a deduction under section 57(iii) of the Act. As per the assessee, the interest expenditure of Rs. 1,15,89,437/- was incurred wholly and exclusively for the purpose of earning the interest income of Rs. 1,17,15,147/- and therefore, should be allowed as the deduction under section 57(iii) of the Act while computing the income chargeable under the head "income from other sources". 7. On the other hand, as per the Revenue, there is no business exigency for which the loan was given at a lower rate of 5.22% which was availed by the assessee at a rate of 9.04%. Accordingly, the AO restricted the interest expenditure to a rate of 5.22%. Before proceedings further, it is relevant to note the provisions of section 57(iii) of the Act, which reads as follows: - "57. The income chargeable under the head "Income from other sources" shall be computed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned DR on the aforesaid decision is completely misplaced. 10. The learned DR also placed reliance upon the decision of the Hon'ble Kerala High Court in Mathew Joseph vs. ACIT, reported in (2017) 87 taxmann.com 317 (Kerala) and the decision of the Hon'ble Jurisdictional High Court in CIT vs. United Wire Ropes Ltd. reported in (1980) 121 ITR 762 (Bom). From the perusal of the aforesaid decisions, it is evident that the loan was given to the taxpayer for a specific purpose for which interest was payable and thus there was no permission by the bankers for the usage of the amount for a purpose other than for which it was given. Accordingly, the Hon'ble Courts denied the deduction claimed under section 57 of the Act. In the present case, no material has been brought on record to show that the assessee was barred by the loan lenders from further transferring the funds to the family members or related firms on loan. Thus, we are of the considered view that the transaction in this case stands entirely at a different footing and therefore, the aforesaid decisions relied upon by the learned DR are factually distinguishable. 11. Further, the learned DR placed reliance upon the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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