TaxTMI 
TaxTMI 
2019 (10) TMI 393
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....apital gain income and interest income during the year under consideration. The assessee filed its return of income declaring total income of Rs. 17,04,990/- on 27.12.2014. Subsequently, the case was selected through cash for limited scrutiny u/s 143(3) of the Act and after serving statutory notices and seeking reply of the assessee. The additions/ disallowance u/s 57(iii) of the Act was made in respect of interest expenditure amounting to Rs. 7,79,478/-. 3. Aggrieved the order of AO, the assessee preferred an appeal before the ld. CIT(A) and ld. CIT(A) considering the case of both the parties dismissed the appeal of the assessee. 4. Aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us on the ground mentioned hereinabove. 5. Regarding Ground No. 1, this ground raised by the assessee relates to challenging the order of ld. CIT(A) in confirming the additions of Rs. 7,79,478/- on account of disallowance of interest expenses u/s 57(iii) of the Act. 6. The ld. AR appearing on behalf of the assessee reiterated the same arguments as raised by him. The ld. AR also relied up on the written submissions submitted by him before ld. CIT(A) as wel....
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....o 8. In such details it can be clearly seen that the rate of interest on interest received by the assessee on loans advanced is no lower than rate of interest on interest paid to unsecured loan parties. The rate of interest on interest received varies from 14.40 % to 15% whereas the rate of interest on interest paid to parties varies from 12% to maximum of 15.60%. This means that the assessee has not advanced loan to parties at lower rate or with an intention to incur loss.However the Learned A.O. while passing the order u/s 143(3) has not considered the details of interest paid and interest received provided by the assessee and concluded that the assessee has advanced loans to various parties at low rate or nil rate of interest as the interest expenditure is higher than the interest income. Therefore the contention of the assessing officer is not maintainable as it is not based on correct facts. Therefore such an addition which is based on assumptions or surmises or erroneous findings needs to be deleted. Further the assessing officer has stated in its order that 'no prudent man intentionally incur a loss by obtaining loans at higher rate of interest and advancing loans o....
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....ee (ITA No. 915/Chd/2008)A.Y. 2005-06the supreme court has observed that "The expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency." In the present case M/s Finesse jewels is engaged in the business of manufacturing of gems and jewellery. The assessee is a director and shareholder in such company and derives salary and commission income from such company. It has made investment in the company for the purpose of earning the income from the investment either in the form of interest or in the form of dividend or capital gain. Therefore such an advance was clearly given by the assessee for the purpose of commercial expediency. Further it is to be noted that any advance made to the related/sister concern out of commercial expediency is allowable under the income tax return and any expenses claimed in respect of such advance given can be claimed as deduction u/s 57(iii) 137 of th....
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....ction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction; (5) It is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income; (6) If, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred diZilieeMayne earned, the expenditure must be treated as an allowable deduction; (7) It would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on the activity which is the source of the income; and nexus must necessaril....
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....similar to the present case:- Here in this case the assessee disclosed interest income of Rs. 23,64,399/- under the head "Income from other sources" whereas the assessee has debited the interest paid to various parties amounting to Rs. 43,88,240/- and clubbing interest income of Rs. 41,23,008/-. The AO disallowed interest expenditure to the extent of Rs. 35,88,438/- on the ground that the assessee has used the interest bearing fund for giving interest free loan to Mrs. Tara Lodha as well as for making investment in shares. The AO also observed that the loans were utilized for acquiring controlling interest in M/s. SimDiam P. Ltd and therefore the interest is not allowable in view of the judgment of Hon'ble Jurisdictional High Court in the case of "CIT vs. Amritaben R. Shah" 238 ITR 777. It is to be noted that the assessee has borrowed fund and invested the same by either giving loan or investment in the shares of the group concern as well as shares of the other listed companies from which it could earn interest income, dividend income and capital gain on sale of such shares. The investment in the shares of M/s. SimDiam P. Ltd which is a closed company....
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....r claiming deduction u/s 57(iii) of the income tax act, 1961 are fulfilled, assessee can avail the full deduction u/s 57(iii). The bank statement of the assessee showing the inflow of funds from unsecured loan parties and outflow of funds to loans and advances parties is available herewith on paper book page no. 9 to 14. However the Learned A.O. has not considered section 57(iii) of the income tax act and term commercial expediency together and has contended that the expenditure is not related wholly and exclusively for earning income of Rs. 4,21,667/- only because the assessee has advanced loan to one party at nil rate of interest out of commercial expediency. In actual such loans and advances which are provided at low or nil rate of interest out of commercial expediency does not affect the nature of transaction and the interest expense would still be eligible to be claimed by the assessee u/s 57(iii) if such expenditure is wholly and exclusively laid out for earning the income under 'income from other sources". In the present case also since the advance to M/s finesse jewels Pvt. Ltd. are made at nil rate of interest out of commercial expediency, it won't affect ....
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....not advanced loan to parties at lower rate or with an intention to incur loss. However the Learned A.O while passing the order u/s 143(3) has not considered the details of interest paid and interest received provided by the assessee and concluded that the assessee has advanced loans to various parties at low rate or nil rate of interest as the interest expenditure is higher than the interest income. Thus contention of the assessing officer is not maintainable as it is not based on correct facts. 10. As per the contentions of the assessee, it has even not advanced money to the parties at lower rate of interest except of M/s Finesse Jewels Pvt. Ltd. which is related concern of the assessee and such advances have been made out of commercial expediency by the assessee. It is admitted fact that nowhere, AO had pointed out that the assessee had utilized the loan amount for its personal use. As per the decisions of Hon'ble Delhi High Court in the case of CIT vs. Dalmia Cement (Bharat) Ltd (2002) 254 ITR 337 (Del), CIT vs. Rockman Cycle Industries Pvt. Ltd. reported in 331 ITR 401 and CIT vs. Special Prints Ltd. reported in 356 ITR 404 wherein it has been held as under:- "th....
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....nother case ofDelhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 337 (Del) * In another case of Commissioner of Income Tax V/s. PankajMunjal Family Trust reported in 326 ITR 286, * The decision of the Hon'ble Apex Court rendered in the case of Vodafone International Holdings B. V. V/s. Union of India &Anr. reported in 341 ITR 1 (SC) * Hon'ble the Supreme Court in the case of Commissioner of Income Tax v. Rajendra Prasad Moody, (1978) 115 ITR 519." 14. We are of the view that it is not necessary that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income. 15. Further, clause (iii) to section 57 makes admissible the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head "income from other sources'). This means section 5....
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....ompanies from which it could earn interest income, dividend income and capital gain on sale of such shares. The investment in the shares of M/s. SimDiam P. Ltd which is a closed company of the assessee was in fact loan which was converted into the capital. The assessee had 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 ShriRoshanSethia 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. He relied upon the decision of "CIT vs. Rajendra Prasad Moody". 19. After hearing the plea of both the parties the honorable ITAT, Mumbai has given the decision in favour of the assessee by relying on the decision of the judgmen....