TaxTMI 
TaxTMI 
2015 (6) TMI 207
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....ng disallowance of interest of Rs. 3585618 u/s 57(iii) vide para 3.2 of his order ( paragraph 6 of Assessment order). 4. The Ld. CIT (A) erred in law and on facts in not adjudicating one of the ground of appeal being ground no.4 which contested that Without prejudice to above, alternatively interest paid is to be allowed u/s 36 (1) (iii) or u/s 37. 5. The Ld. CIT (A) erred in law and on facts in not adjudicating one of the ground of appeal being ground no.5 which contested action of Ld. ACIT in assessing director remuneration as income from salary instead of Income from Business or Profession as claimed by Appellant. 6. The Ld. CIT (A) erred in law and on facts in not adjudicating one of the ground of appeal being ground no.6 which contested as an alternative ground, without prejudice to above, the Ld. ACIT has erred in law and on facts in including interest income of minor childs of Rs. 4123008.49 in stead of Rs. 1601095.49 (4123008.49 -2521913.00) in appellant income. 7. The Ld. CIT (A) erred in law in not considering any authorities cited by him in support of....
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....ther listed companies from which it could earn interest income, dividend income and capital gain on sale of such shares. The Ld. A.R. further pointed out that the investment in the shares of M/s. Sim Diam P. Ltd. which is a closed company of the assessee was in fact loan which was converted into the capital. The assessee has invested the amount by giving loan to the said company on which the assessee earned interest income in the earlier years. However, in the year under consideration the said loan was already converted into the share capital, therefore the interest which was earned in the earlier year could not be earned during the year under consideration. The Ld. A.R. has contended that earning income from the expenditure incurred is not a condition for allowing the deduction under section 57(iii) of the Act. It is only for the purpose of making or earning of income which is required for allowing the deduction under section 57(iii) and not the actual income earned by the assessee. In support of his contention he has relied upon the judgment of Hon'ble Supreme Court in the case of "CIT vs. R....
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.... Mercantile (P.) Ltd. vs. DCIT (2012) 26 Taxmann.com 43 (Mum.) 4. CIT vs. Darashaw & Co. (P.) Ltd. (2014) 49 Taxmann.com 143(Bom.) 5. M/s. Topstar Mercantile Pvt. Ltd. vs. ACIT (2011) 334 ITR 374 (Bom.) 6. ACIT vs. M/s. Delite Enterprises (P.) Ltd. (2011) 135 TTJ 663 (Mum.) 7. CIT v. M. Ethurayan (2005) 273 ITR 95 (Mad.) 6. On the other hand, the Ld. D.R. has submitted that the AO has recorded the fact that the assessee has taken loan from Shri Rohit Manhot which was given as a loan to Mrs. Tara Lodha & Jain Investment and also used for repayment of loan to Mrs. Purvi. As the assessee has no interest income from Mrs. Tara Lodha & Jain Investment and repayment of loan to Mrs. Purvi almost at the end of the year the interest payment to Shri Rohit Manhot is not allowable under section 57(iii) of the Act as the expenditure was not incurred for the purpose of earning the interest income. The assessee has also taken loan from Smt. Sohnidevi Sethia which was utilized for giving loan to M/s. Sim Diam P. Ltd. of Rs. 28,00,000/- and to Karvy Infrastructure of Rs. 90,00,000/-....
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....bsp; of Rs. 3,58,01,120/- was utilized for giving loan to M/s. Sim Diam P. Ltd. further to the extent of Rs. 3,06,00,000/- was utilized for investment in the shares of M/s. Sim Diam P. Ltd. As far as the other amounts of borrowed fund the same were used for investment in the shares of the listed companies as well as non listed companies. There is no dispute that as far as the loan amount to M/s. Sim Diam P. Ltd. the same has yielded interest income to the assessee. Therefore to that extent there is no question of the investment made for not earning any income. So far as the remaining investment is concerned, the AO has disallowed the corresponding interest expenditure on the ground that the assessee has not earned any income on the said investment. It is pertinent to note that what is required for allowing the deduction under section 57(iii) is the purpose of the expenditure incurred by the assessee and the said purpose is for making or earning the income. Therefore, it is the potential income from the expenditure incurred by the assessee and not the actual income earned by the assessee from such ex....
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....sp; Income from other sources ". But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate income or loss would be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt ....
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....the case of "CIT vs. Darashaw & Co. Pvt. Ltd." 226 Taxman 193 held in para 11 as under: "11. In our view, after this authoritative pronouncement by the Hon'ble Supreme Court, there is no scope for any other construction and particularly as suggested by Mr. Gupta. We are of the opinion that this judgment of the Hon'ble Supreme Court answers the issue of interpretation of Section 57(iii) squarely and in favour of the assessee. More so, when no contrary judgment of the Hon'ble Supreme Court has been brought to our notice, the argument that this judgment has been misinterpreted and misread by the Tribunal does not commend to us. The Supreme Court has held that the words in Section 57(iii) speak of purpose of the expenditure and that is relevant. The argument of Mr. Gupta is that the purpose of the expenditure and in the present case, has a relation with the income that is to be eventually earned from the MSRDS bonds. That the bonds were disposed of means the income by way of interest thereon would not accrue any longer. Therefore, the deduction by way of interest on borrowings and which is ....
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....and invested the same in Binny and Co. Ltd., to rehabilitate the said company under the BIFR scheme and to earn dividend therefrom, but however, the respondent/assessee did not receive any dividend from the company. Hence, the respondent/assessee claimed deduction of a sum of Rs. 60,00,000 as interest paid on the said borrowals under section 57(iii) of the Act. 10. Where the assessee borrowed moneys for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant to the assessment year, but did not receive any dividend on the shares purchased with those moneys, whether the interest on such moneys borrowed is admissible under section 57(iii) of the Act in computing income from other sources came for the consideration of the Full Bench of the apex court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, wherein the Full Bench held that the interest on moneys borrowed for investment in shares which had not yielded any dividend was admissible as a deduction under section 57(iii) of the Act. 11. The plain and natural construction of the language ....