M/S. MAPLE RELATORS PVT. LTD.,MUMBAI vs. ITO 10(2)(3), MUMBAI

The sole ground raised by the assessee, in its appeal, is reproduced as under:-

In the larger interest of justice, the slight delay of 4 days in filing the present appeal is condoned. During the hearing, the learned Departmental Representative (“learned DR”) also did not raise any objection against the condonation of the aforesaid delay.

The only dispute raised by the assessee is against disallowance of interest expenditure of Rs. 4,05,206.

The brief facts of the case as emanating from the record are: The assessee is a private limited company and is engaged in the business of builders and developers. For the year under consideration, the assessee filed its return of income on 17/10/2016 declaring a total income of Rs. Nil. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has received only interest income of Rs. 5,54,257 from Maple Infra Projects and has no other business income as per the profit and loss account. It was further observed that out of the total expenses claimed by the assessee, it has claimed interest expenses of Rs. 4,05,206 paid to various parties. During the assessment proceedings, the assessee was asked to prove the nexus between the loans taken and given. In response thereto, the assessee provided the ledgers of the parties from whom the loan was taken and ledger of the party to whom the loan was given in order to establish the nexus. The Assessing Officer (“AO”) vide order dated 06/12/2018 passed under section 143(3) of the Act held that the assessee has not discharged the onus of establishing the nexus of the interest-bearing loan taken by the assessee with the interest-bearing loans given by the assessee. Accordingly, the AO disallowed the interest expenditure of Rs. 4,05,206 claimed by the assessee. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee has borrowed from several parties on which Page | 2

On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities and submitted that the assessee has not proved the nexus between the interest income and interest expenditure.

We have considered the submissions of both sides and perused the material available on record. From the perusal of the computation of income forming part of the paper book on pages 10-11, we find that the assessee has declared interest income of Rs. 5,54,257 under the head “income from other sources” and against the said income, the assessee claimed an expenditure of Rs. 4,37,785, thus declaring total income of Rs. 1,16,472 under the head “income from other sources”. Further, from the financial statement of the assessee on page 29, we find that the assessee incurred interest expenditure of Rs. 4,05,206. As noted above, as per the assessee it has borrowed funds from several parties on which interest was paid and the said fund was given as a loan to its group concern on which assessee earned the interest income. As per the assessee, the differential amount was offered for taxation. In support of its submission, we find that the assessee has furnished the ledger confirmation of the loan creditors as well as the loan debtor. Further, from pages 41-48 the assessee has also furnished its bank statement and bank ledger in order to substantiate the nexus between the interest income and interest expenditure. From the perusal of aforesaid documents, we find merit in the submissions of the assessee that the funds received on which interest was paid were used for the purpose of granting the loan to its group concern on which interest was earned. Accordingly, we are of the view that the interest expenditure is wholly and exclusively for the purpose of earning interest income. Therefore, we direct the AO to grant the deduction of interest expenditure of Rs. 4,05,206 paid by the assessee, while computing the income

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 14/08/2023