ITAT allows appeal, deletes disallowance under Section 57(iii), deems interest expenditure justifiable.

The ITAT allowed the appeal, directing the deletion of the disallowance made under Section 57(iii), affirming that the interest expenditure was justifiable and related to earning interest income. The order was pronounced in the open court on 10/10/2023.

---

---

Issues Involved:
1. Disallowance of interest expense claimed under Section 57.
2. Non-appreciation of submissions by the assessee regarding disallowance.
3. Lack of cogent reasons by CIT(A) in upholding the disallowance.
4. Partial allowance of appeal by CIT(A) with no relief granted.

Summary:

1. Disallowance of Interest Expense Claimed Under Section 57:
The assessee, an individual deriving income from house property and business, filed a return for A.Y. 2017-18. The case was selected for scrutiny to examine a "large deduction claimed u/s.57." The Assessing Officer (A.O) observed that the assessee received interest income and paid interest to different entities, claiming a deduction under Section 57. The A.O found discrepancies in the interest rates received versus those paid, leading to a proposed disallowance of Rs. 5,58,088. This disallowance was confirmed by the CIT(A).

2. Non-Appreciation of Submissions by the Assessee Regarding Disallowance:
The assessee contended before the CIT(A) that the interest received was offered as income from other sources and the corresponding interest payable was duly reflected in the computation of income. The A.O allowed interest up to 9%/9.7%, and there was no dispute that the expenditure was related to earning the interest income. The assessee argued that partial disallowance was unjustified in the absence of any specific provision in the Act.

3. Lack of Cogent Reasons by CIT(A) in Upholding the Disallowance:
The CIT(A) upheld the A.O's disallowance without providing cogent reasons. The assessee cited the Supreme Court's judgment in CIT Vs. Rajendra Prasad Moody, which held that expenditure laid out for earning income is deductible under Section 57(iii), regardless of whether income was actually earned.

4. Partial Allowance of Appeal by CIT(A) with No Relief Granted:
Despite partially allowing the appeal, the CIT(A) granted no relief. The assessee further appealed to the ITAT, arguing that the interest expenditure was incurred wholly and exclusively for earning interest income and should be allowed as a deduction under Section 57(iii).

ITAT's Decision:
The ITAT, considering the factual matrix and legal precedents, held that the expenditure incurred by the assessee was allowable under Section 57(iii). The Tribunal referenced the Supreme Court's ruling in Rajendra Prasad Moody and a similar case dealt with by the ITAT, Raipur, concluding that the disallowance was unsustainable. The ITAT set aside the CIT(A)'s order and directed the A.O to delete the addition, allowing the assessee's appeal.

Conclusion:
The ITAT allowed the appeal, directing the deletion of the disallowance made under Section 57(iii), affirming that the interest expenditure was justifiable and related to earning interest income. The order was pronounced in the open court on 10/10/2023.

---