TaxTMI 
TaxTMI 
2017 (6) TMI 1149
X X X X Extracts X X X X
X X X X Extracts X X X X
....the circumstances of the case and in law the Hon. CIT (Appeal)-3 erred in confirming the ld. AO's action of invoking provisions of S.145(3) of the Act for rejecting appellants' books of accounts and further in making the arbitrary estimate and disallowances under section 144 of the Act. 2. On the facts and in the circumstances of the case and in law the Hon. CIT (Appeal) - 3 has erred in treating the Interest Income of Rs. 16,22,79,443/- as Income from Other Sources instead of Business Income as claimed by the appellants. 3. On the facts and in the circumstances of the case and in law the Hon. CIT (Appeal) - 3 has erred in confirming the disallowance of the interest expenses of Rs. 16,70,331,580/- without considering their submissions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s treated as business income by the assessee on the ground that, in view of the press release No. 1998-99/1269, dated 08.04.1999 issued by RBI,if the interest income is more than 50% of the gross receipts of the business of the company, then it need not be required to register as an NBFC with the Reserve Bank of India. As an alternative, it was contended that if the assessee's income is treated as "income from other sources" u/s. 56, then the interest expenditure directly attributable for earning of such an income should be allowed as deduction u/s. 57(iii). However, the ld. AO has rejected the assessee's s first contention on the ground that the press release does not ipso facto give license to the assessee company to be deemed NBFC, rathe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... advanced vis-a-vis bank statement filed by the assessee company are totally fungible in nature and that it cannot be said here that the funds so raised are diverted fully towards advancing loans to parties and, thus, the expenditure so incurred cannot be said to have been incurred wholly and exclusively in connection with the income earned on loans & advances given. For claiming deduction u/s. 57(iii) of the Act, there has to be direct nexus of expenditure so incurred with the income so earned i.e. it has to have arisen directly from the said source but here in the instant case, the assessee has not been able to substantiate the direct nexus of its interest expenditure with its interest income and, therefore, the assessee's alternate plea ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....111.80 crores. Out of these funds the assessee has given loans and advances of Rs. 222.9 crores to various parties. Thus, there was a direct nexus of utilization of fund for giving advances to various parties from whom the assessee had earned interest income and also paid interest on loans. Hence, u/s. 57(iii) such an interest should be allowed. 5. On the other hand, learned DR strongly relied upon the orders of the AO and CIT(A). 6. We have considered the rival submissions and perused the relevant findings given in the impugned orders as well as material referred to before us. So far as allowbility of interest expenditure of Rs. 16,70,71,580/- u/s. 57(iii) is concerned, which has been raised vide ground no.3, we find from the perusal of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds are evident from the balance sheet, then there is apparently direct nexus between earning of income from deployment of funds and expenses incurred on cost of funds. Accordingly, the assessee is eligible for claim of interest expenditure of Rs. 16,70,31,580/- u/s. 57(iii) and the same is directed to be allowed. 7. In view of our finding as above, we are not adjudicating ground no.2, as the ld counsel submitted that this issue will be purely an academic exercise.Accordingly, ground nos. 3 and 4 are allowed and ground no. 2 is treated as infructuous. 8. Regarding the second issue, which has been raised vide ground nos. 1, 5 and 6, learned counsel before us submitted that the assessee is engaged in the business of purchase and sale of fab....