TaxTMI 
TaxTMI 
2026 (2) TMI 1463
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.... partnership firms and private limited companies. The projects are capital intensive in nature. For the purpose of such projects, funds are sourced from own capital, secured bank loans and unsecured loans. 3. During the previous year relevant to the assessment year under consideration, the assessee earned income under various heads, including income from salary, income from house property, income from capital gains and income from other sources. Under the head "Income from Other Sources", the assessee declared interest income from M/s Saptashree Techworld, a partnership firm, amounting to Rs. 19,14,345/-, and interest income from M/s Shree Saptashree Builders and Developers Private Limited amounting to Rs. 31,77,360/-, aggregating to Rs. 50,91,705/-. In the return of income, the assessee claimed deduction of interest expenditure of Rs. 50,91,705/- under section 57 of the Act against the said interest income. 4. During the course of assessment proceedings, the Assessing Officer examined the claim of deduction of interest expenditure under section 57 of the Act. The assessee submitted before the Assessing Officer that the loans were utilised for the purpose of earning interest ....
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....of the learned CIT(A), the assessee is in appeal before us and has raised following grounds: 1. The Ld. CIT(A) erred of law as well as of fact by disallowing the expenses claimed u/s. 57 of Income Tax Act, 1961 of Rs 50,91,705/-without justification and upholding the assessment order. 2. The Ld. CIT(A) erred both in law and in fact in upholding the disallowance of expenses under Section 57 of the Income Tax Act, 1961, despite the fact that both the Assessing Officer (AO) and the Ld. CIT(A) had accepted the genuineness of the expenses. 3. The Ld. CIT(A) erred of law as well as of fact that the appellant had been consistently claiming the expenses u/s. 57 of Income Tax Act, 1961 and the same had been allowed by the Ld. AO in the previous years assessment u/s. 143(3) of Income Tax Act, 1961. Hence, the CIT(A) ignored the principle of consistency. The Ld. CIT(A) ignored the judicial pronouncements of Hon'ble Supreme Court of India and Hon'ble Bombay High Court (Jurisdiction High Court) a. Radhasoami Satsang vs CIT (Supreme Court of India) (1992) 193 ITR 0321 b. Municipal Corporation of City of Thane vs. Vidyut Metallics Ltd & Anr. (2007) 8 S....
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....or other interest receipts. It was thus contended that the assessee had claimed deduction only against that income against which the corresponding expenditure had been incurred and that the nexus between the interest income and the interest expenditure stood established from the statement of income, computation of total income and the profit and loss account placed in the paper book. 10. Per contra, the learned Departmental Representative relied upon the orders of the Assessing Officer and the learned CIT(A). It was submitted that the assessee had failed to establish any direct and proximate nexus between the interest expenditure claimed and the interest income offered to tax under the head "Income from Other Sources". The learned DR contended that, in the absence of cogent evidence demonstrating that the borrowed funds were utilised specifically for earning the interest income in question, the deduction claimed under section 57 of the Act was rightly disallowed by the lower authorities. 11. We have carefully considered the rival submissions and perused the material available on record, including the assessment order, the order of the learned CIT(A), and the paper book filed ....
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....ned from sources unconnected with the borrowings on which interest was paid. The disallowance has been made solely on the premise that a direct nexus was not established, without controverting the factual correlation emerging from the computation of income and the accounts placed on record. 17. In our considered opinion, the expression "for the purpose of making or earning such income" occurring in section 57(iii) of the Act has a wider connotation and does not postulate that the expenditure must necessarily and immediately result in the earning of income in the same previous year. The statutory requirement is not that the expenditure should fructify into income, but that it should be incurred with the dominant and proximate object of earning income chargeable under the head "Income from Other Sources". What is, therefore, required to be established is a reasonable and intelligible nexus between the expenditure incurred and the income sought to be earned. The test is one of purpose and connection, and not of actual yield. 18. Once it is demonstrated that the borrowed funds have been utilised for the purpose of advancing loans or making investments which generate interest inco....