TaxTMI 
TaxTMI 
2025 (2) TMI 1743
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....ts in Brief:- During the course of assessment proceedings, from the computation of income, the Assessing Officer found that the assessee has claimed an amount of Rs. 16,95,192, under the head "Income From Other Sources" and also claimed deduction for an amount of Rs. 50,09,820, as interest paid under section 57 of the Income Tax Act, 1961 ("the Act"). The resulting loss of Rs. 33,14,628, was set off by the assessee against salary income to the extent of Rs. 33,14,628. During the course of assessment proceedings the Authorised Representative of the assessee was asked to furnish the details of interest from whom received and to whom interest paid and justify the claim under section 57 of the Act., vide order sheet entry dated 13/07/2016, 25/07/2016, 11/08/2016 and 23/08/2016. No details were furnished by the assessee. Hence a show cause was issued on 07/09/2016 and the assessee was asked as to why the deduction under section 57 should not be disallowed. The assessee furnished a list of 39 unsecured loans persons with names only, no/details of amount of loans, interest furnished. The assessee filed confirmations of 20 persons. The assessee was asked to furnish the copy ....
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.... furnished confirmations of only 20 persons. The AO asked the appellant to furnish copy of balance sheet as 31.03.2013 and 31.03.2014 which was not furnished by the appellant. The appellant submitted before the AO that it has paid interest on loans from friends and relatives and also received interest from the same amount given on interest. The AO during the course of assessment proceedings found that the appellant has not been able to establish that the borrowal was for business purposes. The appellant submitted during the appeal proceedings that during the year under consideration, he received new loans to the tune of Rs. 3,59,35,000 and advanced the same to Khandelwal Jewellers Akola Private Limited ('KJAPL'). 5.12 Section 57 of the Act as it stood during the relevant year reads as under:- "57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:- (i) in the case of dividends, [other than dividends referred to in section 115-BAC[or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of re....
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....ent to claim of an expenses, and relied on the judgement of CIT vs Rajendra Prasad Moody 1979 AIR 373, 1979 SCR (1)1047, wherein it has held by the Hon'ble Supreme court that the essential condition for claim under section 57(iii) is that the expenditure should have been made wholly and exclusively for earning such income, whether, any income has been earned in the year under consideration is of no consequence from the perspective of allowability of the claim under section 57(iii). I find that the substantial question of law in case of CIT vs Rajendra Prasad Moody 1979 AIR 373, 1979 SCR (1)1047 was "whether on the facts, and in the circumstances of the case, interest on money borrowed for the investment in shares which had not yielded any dividend is admissible under section 57(iii)?" The above case is not applicable in the case of the appellant as the fact differs in this case as the appellant had invested in its own Private Limited Company and had not earned any income from the profitable company on loans advanced but expenses were claimed in individual Return. 5.14 I find that the expenditure as envisaged by section 57(iii) of the Act should not be in the nature of ....
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....d be for the business purpose is unfounded as the Appellant has claimed interest expenditure under section 57(iii), therefore there is no requirement of establishing nexus with the business. I find that Section 57(iii) of the Act does not require that the expenditure incurred is deductible only if expenditure has resulted in actual income but the purpose of incurring expenditure needs to be to earn income, then the expenditure would be allowed as a deduction under Section 57(iii) of the Act. This purpose has not been established by the appellant in the instant case as the dominant purpose for which the expenditure was incurred was not to earn the income, but as the statutes did not allow KJAPL to borrow from open market, the appellant took loan in his personal capacity to advance loan to the company. Therefore, if appellant earned any interest from it, it was only secondary motive and not the dominant purpose or primary motive. 5.17 Further, the appellant has earned income from saving Bank interest and Bond, which has no nexus with the interest claimed u/s 57 of the Act. The appellant had not earned any interest from the Khandelwal Jewellers (Akola) Pvt. Ltd or Khandelwal ....