TaxTMI 
TaxTMI 
2022 (3) TMI 432
X X X X Extracts X X X X
X X X X Extracts X X X X
....or AY 2012-13, have been taken into consideration for deciding these appeals en masse. 3. Grounds of appeal raised by the assessee are as follows: "1. The ld. Commissioner Income Tax (Appeals)-3, Vadodara [hereinafter referred to as CIT(Appeals)], erred in confirming the findings of the Assessing Officer that the assessee had diverted interest-bearing funds to an associate concern and that the assessee had also failed to prove the nexus between interest expenses and interest income. 2.The Ld. CIT(Appeals), whilst confirming the findings of the Assessing Officer, has overlooked the peculiar facts of the case of the assessee. 3. It is humbly prayed that the action of the Assessing Officer in disallowing interest expenses aggregating to Rs. 14,74,654/-, and disallowance of other expenses of Rs. 9,02,504/- in AY 2012-13, and confirmed by the CIT(Appeals) be deleted." 3. The assessee has filed additional grounds of appeal which reads as follows:- "I. On interests expenses 1) (a) The Ld. CIT(A) has erred both in Law and in Fact in not allowing deduction of Rs. 14,74,654/- u/s 57 and or other provisions of Act being interest paid for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-company had failed to prove the nexus between the interest expenses of Rs. 14,74,654/- and interest income of Rs. 19,490/-. Considering this fact, assessee's claim of interest expenses of Rs. 14,74,654/-, was disallowed and added to the total income of the assessee. Besides, assessing officer also disallowed other expenses to the tune of Rs. 9,02,504/-. 6. On appeal, ld CIT(A) has confirmed the action of the assessing officer. Aggrieved, the assessee is in appeal before us. Learned Counsel for the assessee argues that interest expenses has been incurred by the assessee are genuine in nature. The Ld. Counsel further contends that not allowing deduction of Rs. 14,74,654/- u/s 57,(being interest paid for the Loan advanced to Affem Rolling Pvt Ltd., for 'Commercial expediency, a sister concern company, of assessee), is not justified. The ld Counsel also argued that such interest expenses of Rs. 14,74,654/- may be allowed u/s 57 of the Act. 7. On the other hand, Learned DR for the Revenue submits before us that assessee company had failed to prove the nexus between interest expenses and interest income. Therefore, the addition made by AO should be affirmed. 8.We have heard bot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under the development stage. The assessee company therefore did not receive any dividend and interest income from the said company. The assessee also incurred the expenses in form of director's remuneration and other expenses in the form of accounting charges, audit charges etc. The assessee has incurred these expenses to manage the funds invested in the said company and controlling the interest in the company i.e.Affem Rolling Pvt. Ltd. The assessing officer disallowed the interest expenses and the other expenses incurred by the assessee on the ground that it is not allowable u/s 57 of the Act, as assessee has already claimed the expenses u/s 24 of the Act against the rent income. 10.We note that assessee made the investment in Affem Rolling Pvt Ltd out of the amounts borrowed from Bank of Baroda on which assessee incurred the interest expenses. The assessee has proved complete nexus between the amount borrowed and amount invested. We note that assessing officer has not pointed out that the fund borrowed was not diverted for the purpose of making investment with Affem Rolling Pvt Ltd. We note that before lower authorities, the assessee claimed both alternatives that interest ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er expenditure (not being in the nature of capital expenditure) laid down or expended wholly and exclusively for the purpose of making or earning such income". The expenditure to be deductible under section 57(iii) must be laid out or expended wholly and exclusively for the purpose of making or earning such income. The argument of the Revenue was that unless the expenditure sought to be deducted resulted in the making or earning of income, it could not be said to be laid out or expended for the purpose of making or earning such income. The making or earning of income, said the Revenue, was a sine qua non to the admissibility of the expenditure under section 57(iii) and, therefore, if in a particular assessment year there was no income, the expenditure would not be deductible under that section. The Revenue relied strongly on the language of section 37(1) and contrasting the phraseology employed in section 57(iii) with that in section 37(1), pointed out that the Legislature had deliberately used words of narrower import in granting the deduction under section 57(iii). Section 37(1) provided for deduction of expenditure laid out or expended wholly and exclusively for the pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is also interesting to note that, according to the Revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs. 1000/-, if there is income of even Re. 1/-, the expenditure would be deductible and there would be resulting loss of Rs. 999/- under the head '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 expendi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Patnaik. This view is eminently correct as it is not only justified by the language of section 57(iii) but it also accords with the principles of commercial accounting. The contrary view taken by the Patna High Court in Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Incometax and the Calcutta High Court in Madanlal Sohanlal v. Commissioner of Incometax must in the circumstances be held to be incorrect. We accordingly answer the question referred to us for our opinion in each of these two references in favour of the assessee and against the Revenue." 12.Therefore, respectfully following the judgment of Hon`ble Supreme Court in the case of Rajendra Prasad Moody (supra), we allow the interest expenses for both assessment years, 2012-13 ( Rs. 14,74,654) and 2013-14 ( Rs. 13,96,831). 13.Second issue, as raised by the assessee, as per its grounds of appeal is related to disallowance of expenses of Rs. 9,02,504/-. We have heard both the parties and note that assessee had claimed expenses of Rs. 9,02,504/- on account of fees of Accountant, audit fees, and general expenses etc. So far disallowance of these other expenses are concerned, we note that assessee is claimin....