TaxTMI 
TaxTMI 
2021 (6) TMI 530
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....onsidering the submissions filed by the appellant during the course of appellate proceedings as per as in Assessment Proceedings. Therefore, addition of Rs. 40, 53,426 /- made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals)- 3, Ludhiana is illegal, uncalled for and needs to be deleted. 3. That the appellant craves to leave or to amend the Ground of appeals before or at the time of hearing. 3. As is evident from the grounds of appeal raised before us, the solitary issue in the present appeal relates to disallowance of deduction claimed by the assessee u/s 57 (iii) of the Act amounting to Rs. 40, 53,426 /-. The impugned disallowance, as is emanating from the orders of the authorities below, relates to interest expenses incurred which were claimed against interest income earned by the assessee and returned under the head " income from other sources". Taking us through the facts of the case, the Ld. Counsel for the assessee first drew our attention to the assessment order made on the assessee dated 21. 12. 2016 and pointed out that the case of the assessee was selected for limited scrutiny under CASS for one of the reason being larg....
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....tion has been picked by your goodself under Section 143(3) of the Act. We have already furnished Replies to your goodself's Questionnaire. Further, it is submitted that your goodself has asked to explain that how the expenses claimed under Section 57 of the Act are eligible for deduction against Income from Other Sources. Regarding the above, it is submitted that the Assessee has earned an interest from M/s Rahul Sales amounting to Rs. 30,82,235/- and Income from Mutual Funds amounting to Rs. 50,752/- and total of above stated figures come to Rs. 31,32,987/-. It is submitted that the Assessee had taken Loans from the Cholamandalam Investment and Finance Company Limited and TATA Capital Housing Finance Limited and invested the same as Loan in the Firm named M/s Rahul Sales and in the Mutual Funds Due to this reason, the Assesses has claimed the Interest paid on the above said Loans as an expenditure under Section 57 of the Act The Copy of Account of the Assesses in the Books of Accounts of M/s Rahul Sales for the year under consideration is enclosed herewith as Annexure-I. It can be seen that the opening balance in the above said Bank Account is Rs. 2,36,18,987/-. We are also ....
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....82, 235/- from loan given to a firm named M/s Rahul Sales and had also earned income from mutual funds amounting to Rs. 50, 752 /- and the entire aforesaid income of Rs. 31, 32, 987/- had been returned under the head " income from other sources". That the aforesaid investments, it had been explained, had been made from loans taken from M/s Cholamandlam Investment Finance Company Limited and M/s Tata Capital Housing Finance Limited and interest paid thereon had accordingly been claimed as deduction as per section 57 of the Act against the income earned from investments so made. The Ld.Counsel for the assessee contended that even copies of account of the assessee in the books of M/s Rahul Sales for the year under consideration had been filed to the AO reflecting opening balance of Rs. 2, 36,18,987 /- as also copy of account of M/s Cholamandlam Investment Finance Company Limited in the books of the assessee reflecting opening balance of Rs. 2, 19,56,375 /- and it had also submitted to the AO that the loan from M/s Tata Capital Housing Finance Limited had been raised in the earlier years. The Ld. Counsel for the assessee contended that despite the explanation and submissions so made by....
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.... from Tata Housing Finance and paid interest at Rs. 11,30,430/-. However the assessee has extended loan to M/s Rahul Sales and invested in the mutual funds. The AO observed that the assessee has failed to establish nexus between loan taken, and interest paid thereupon and how expenditure incurred, relates to income earned as interest u/s 57(iii). The assessee has not establish the nexus and availability of funds while extending loan by appellant to M/s Rahul Sales and investment in the mutual funds and how this expenditure by way of payment of interest is linked with the interest earned by assessee. Therefore assessee has failed to claim and justify to prove the nexus of income earned from other sources and interest paid against this income. The onus to prove the nexus lies on the assessee who had claimed the deduction. I have also gone through the detailed submission filed by the appellant and I find myself in agreement with the contention of assessing officer, that assessee has not been able to explain the clear Nexus between the earning of income from other sources and to establish the nexus of expenditure with income earned by the assessee. 4.4 In order to explain that an e....
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....or the purpose of earning that income, there should be some nexus between the expenditure and the earning of the income [Addl. CIT vs. Madras Fertilisers Ltd. (1980) 122 ITR 139 (Mad.) : Vijaya Laxmi Sugar Mills Ltd. vs. CIT (1991) 191 ITR 641 (SC): CIT vs. Dwaraka Chit Funds Pvt. Ltd. (1996) 132 Taxation 109 (Mad.). In view of the facts of the case as mentioned above and different judicial pronouncements I find that the assessee has clearly failed to establish nexus between the interest income earned and expenditure claimed by the assessee against earning this income. Accordingly disallowance of Rs. 40,53,426/- as interest paid under section 57(iii) is sustained. With the result this ground of appeal is dismissed." 6. At this juncture the Ld. Counsel for the assessee was asked to demonstrate as to how the assessee has established the nexus between the interest expenses claimed and the interest income earned and was also asked whether the assessee had made similar claims in preceding years also. To this the Ld.Counsel for the assessee stated at Bar that the assessee had made identical claims in the preceding years also, having made the impugned investments from loans taken 4 to ....