Only Requirement To Be Fulfilled For Claiming Expenses U/s 57(Iii) Is That They Must Be Incurred Wholly For Earning Income From Other Sources: Ahmedabad ITAT
Pankaj Bajpai
3 May 2024 11:45 AM GMT
The Ahmedabad ITAT held that in the absence of the Assessing Officer pointing out as to how despite the assessee's explanation, there was no nexus between the interest-bearing funds and their utilization for making advances for earning interest income, no disallowance u/s 57(iii) of the Income tax Act was tenable. The ITAT explained that the only requirement to be fulfilled for...
The Ahmedabad ITAT held that in the absence of the Assessing Officer pointing out as to how despite the assessee's explanation, there was no nexus between the interest-bearing funds and their utilization for making advances for earning interest income, no disallowance u/s 57(iii) of the Income tax Act was tenable.
The ITAT explained that the only requirement to be fulfilled for claiming expenses u/s 57(iii) is that they must have been incurred wholly and exclusively for the purpose of earning income from other sources.
The Bench of Annapurna Gupta (Accountant Member) and Madhumita Roy (Judicial Member) observed that “There is no question of interpreting the term “income as profits”. The moment expenditure has been incurred for earning income, the expenditure incurred for the same qualifies for deduction u/s.54(iii) of the Act”. (Para 5.3)
As per the brief facts of the case, the assessee had shown interest income of Rs.1,08,39,837/- under the head “income from other sources” and claimed expenses against the same of Rs.1,08,52,717/-. Thus, the assessee has returned the loss of Rs.12,880/- under the head “income from other sources”. Out of this claim of Rs.1.08 crores of interest expenses the Assessing Officer disallowed expenses to the tune of Rs.54,32,948/- which were in relation to loans taken by the assessee on which the rate of interest paid was found to be more than the rate at which the loans were advanced. The Assessing Officer noted that while the assessee had charged interest @12%, the same had been advanced by charging lower rate of interest, i.e. ranging from 6% to 10% and the difference accordingly was worked out and was disallowed in terms of section 57(iii) of the Act.
The Bench observed that what section 57(iii) requires is that expenses must have been incurred for the purpose of earning income to be eligible to claim the same against the said income.
“In the present case, it is not disputed that the assessee has earned interest income of Rs.1,08,39,837/-. Therefore, the Assessing Officer's finding that there is no income is factually incorrect and this basis of the Assessing Officer is, therefore, for denying the assessee's claim of expenditure u/s.57(iii) of the Act is liable to be quashed”, added the Bench.
The Bench explained that if no income was earned by the assessee, as is the case of the Revenue authorities, then the entire interest expense ought to have been disallowed.
The ITAT therefore allowed the assessee's appeal and concluded that the disallowance of interest expenses u/s.57(iii) of the Act confirmed by the CIT(A) was incorrect and unwarranted.
Counsel for Appellant/ Assessee: Jaimin Shah
Counsel for Respondent/ Revenue: Saumya Pandey Jain
Case Title: Shri Girishbhai Vadilal Shah verses DCIT
Case Number: ITA No.429/Ahd/2018
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