TaxTMI 
TaxTMI 
2023 (9) TMI 319
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.... the disallowance of interest expenses by the Assessing Officer under section 57 of the Income-tax Act, 1961(in short, 'the Act'). 3. The assessee is a partnership firm engaged in the business of trading in shares. The assessee filed its return of income for A.Y. 2017-18 on 28/08/2017 declaring Nil income and on 11/07/2018 for A.Y.2018-19 declaring Nil income. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The assessee in the return of income has declared income from business as well as income from other sources. The assessee in the return of income for A.Y. 2017-18 has claimed interest on loan and OD of Rs. 68,92,787/- out of which Rs. 47,89,529 was claimed under section 57 and the balance....
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.... 07-05-2016 FD WITH HDFC BANK 1,90,00,000.00 07-05-2016 FD WITH HDFC BANK MATURED -3,20,00,000.00 07-12-2016 FD WITH KOTAK MAHINDRA BANK 99,00,000.00 07-12-2016 07-12-2016 99,00,000.00 06-03-2017 FD WITH HDFC BANK 99,00,000.00 07-03-2017 FD WITH HDFC BANK 99,00,000.00 07-03-2017 31,00,000.00 LOAN TAKEN FROM TARAMATI NISAR 07-03-2017 27,50,000.00 LOAN TAKEN FROM NAGJI NISAR 58,50,000.00 INTEREST RS.30,061 @9% P.A. ON 58,50,000 FOR 25 DAYS A.Y. 2018-19 S.No. Name of the lender Op....
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....a deduction since it was not established by the assessee that the expenses is incurred wholly and exclusively for the purpose of earning income offered under section 56 of the Act. Accordingly, the Assessing Officer disallowed the interest expenses to the tune of Rs. 47,89,528/- for A.Ys 2017-18 and Rs. 55,46,456/- for A.Y. 2018-19. The assessee preferred appeal before the CIT(A). 6. The assessee submitted before the CIT(A) that the loans taken are invested in fixed deposits and therefore the interest paid should be allowed as a deduction under section 57. The assessee further submitted that the claim of expenditure is restricted to the interest income earned and therefore there is no excess claim towards the difference in the interest p....
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....er the head 'Income from other sources' and restricted the claim of interest expenses against the said income to the extent of income offered under section 57 of the Act. The Ld.AR, therefore, submitted that the assessee had not claimed more than the income offered to tax under 'Income from other sources', i.e. income earned at 6.25% and the expenses restricted to the same percentage. Therefore, it is argued by the Ld.AR that no disallowance under section 57 is warranted. The Ld.AR also drew our attention to funds flow wherein the money received as loan from related parties have been used for keeping it in FD from where interest income is earned and submitted that this fact has been clearly explained to the Assessing Officer during the cour....
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....ties as provided by the assessee. It is the claim of the assessee that the FDs are placed using the funds borrowed in earlier years from the related parties and therefore the revenue cannot make the disallowance in the years under consideration for the reason that the assessee failed to establish the nexus. During the course of hearing our attention was drawn to Balance Sheet of the assessee as at 31/03/2017 and 31/03/2018 to submit that there cannot be a one to one match between the loan amount used for investing in FD and used for business. We tend to agree with this contention for the reason that one of the partners' capital account is having a considerable credit balance (own funds) and there is also sizeable balance shown under the....