SUBHASH CHAND AGARWAL,MAKRANA vs. DCIT, NAGAUR CIRCLE, NAGAUR

आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member): - 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2015-16 contest the order Ld. Commissioner of Income-Tax (Appeals)-2, Jodhpur, [in short referred to as ‘CIT(A)’],

ITA No.78/Jodh/2020 Shri Subhash Chand Agarwal Assessment Year: 2015-16 Appeal No.110/2017-18, dated 31/12/2019 on following effective grounds:- 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in sustaining addition of Rs.16,51,905/-on account of disallowances of deduction u/s 57 of the Act. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in sustaining disallowances of Rs.16,51,905/- in respect of interest expenditure as claimed u/s 57 of the Act. 3. That on the facts and in the circumstances of the case, the Ld. CIT (A) grossly erred in holding that there was no direct nexus with income and interest expenditure without considering the explanation of the assessee. 4. That on the facts and in the circumstances of the case, the Ld. CIT (A) ought to have allowed such interest expenditure as claimed by assessee. 5. That on the facts and in the circumstances of the case, the Ld. CIT (A.) erred in not considering the explanation and submission of the assessee which are on record.

As evident, the assessee is aggrieved by addition of Rs.16.51 Lacs on account of certain disallowance u/s 57. 2. We have carefully heard the rival submissions and perused relevant material on record including written submissions and documents placed in the paper book. The judicial precedents as relied upon during the course of hearing have duly been deliberated upon. Our adjudication to the subject matter would be as given in succeeding paragraphs. 3.1 The relevant facts are that the assessee was assessed u/s 143(3) on 08/12/2017. The assessee claimed loss of Rs.16 Lacs under the head Income from other sources in the following manner:- No. Particulars Amt. (Rs.) 1. Bank Interest 27,886/- 2. FDR Interest 14,419/- 3. Interest on IT Refund 9,108/- 4. Interest Income 17,03,188/- -16,51,905/- Less : Interest expenses -33,55,093/- Total -1600492/-

3 ITA No.78/Jodh/2020 Shri Subhash Chand Agarwal Assessment Year: 2015-16 The Ld. AO opined that the assessee claimed excess deduction of Rs.16.51 Lacs but no corresponding income was shown and therefore, the same was to be disallowed. 3.2 The assessee explained that it took loan from M/s Bajaj Finance Limited on behalf of an entity namely M/s Amit Marble Private Ltd. The interest so payable to M/s Bajaj Finance Ltd. amounting to Rs.17.03 Lacs was debited to M/s Amit Marble Private Ltd. and accordingly, shown as interest income. 3.3 Regarding balance interest expenditure, it was explained that the assessee had entered into an agreement with M/s Adigear International and advanced a sum of Rs.250 Lacs for a specific period and this amount was to be returned after completion of particular time (6 months) with an increment of 30% of principle amount. The said advances were stated to be funded out of mortgage loan obtained from M/s Karur Vysya Bank Ltd. as well as other loans taken from relatives / friends. On these advances, the interest so paid aggregated to Rs16.51 Lacs, the quantum of which is not under dispute. However, no interest was received from M/s Adigear International as per the agreement since that party did not get any order from Government during the year. In this way, the assessee justified the deduction of balance interest expenditure. 3.4 However, upon perusal of relevant agreement as entered into by the assessee with M/s Adigear International, it was observed that the period of 6 months had already expired but the assessee did not show any income or incentive as envisaged by the

4 ITA No.78/Jodh/2020 Shri Subhash Chand Agarwal Assessment Year: 2015-16 agreement. Therefore, the interest expenditure of Rs.16.51 Lacs as claimed by the assessee for advances made to M/s Adigear International was disallowed and added back to the income of the assessee. 4. Before Ld. CIT(A), the assessee, inter-alia, submitted that considering cash basis of accounting, the amount of interest expenditure was claimed in the year of payment and in the same way, income would be shown as and when it would be realized. It was pointed out that the said borrower failed to refund the money and the assessee preferred an application u/s 17 of Arbitration and Conciliation Act, 1996. The Arbitral Tribunal directed M/s Adigear International to furnish a bank guarantee in favor of the assessee. Since there was no such action, the assessee preferred an application before Hon’ble High Court of Delhi which directed the borrower to return the loan amount with interest of 10% from the date on which the payment was given till the date on which the principal amount and interest was actually refunded to the assessee. Pursuant to the same, the borrower started making payment and the part amount of Rs.15 Lacs was received on 18/09/2020. The said amount would be considered as income of AY 2020-21 as per cash system of accounting being followed by the assessee. However, the said submissions could not convince Ld. CIT(A) who opined that deduction u/s 57(iii) would be permissible for an expenditure laid out or expanded wholly and exclusively for the purpose of earning of the income. Therefore, the additions were

ITA No.78/Jodh/2020 Shri Subhash Chand Agarwal Assessment Year: 2015-16 to be sustained. Aggrieved as aforesaid, the assessee is in further appeal before us. 5. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, we find that the only reason to deny the deduction of the expenditure was the fact that no corresponding income was shown. However, the earning of income, in our considered opinion, was not a pre-requisite for allowance of the interest expenditure. The only condition as envisaged by Section 57(iii) is that the amount should be laid out or expended wholly and exclusively for the purpose of making or earning of such income. The deduction would be allowable even if no income was actually earned by the assessee during the year as held by Hon’ble Supreme Court in CIT V/s Rajendra Prasad Moody 1978 115 ITR 519 wherein it was observed the expression "incurred for making or earning such income" did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained that: - "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure.

6 ITA No.78/Jodh/2020 Shri Subhash Chand Agarwal Assessment Year: 2015-16 Another aspect to be noted that the interest income which was to accrue to the assessee, was under serious doubt. In fact, the assessee had to approach Hon’ble High Court for refund of even the principal amount the substantial portion of which was not forthcoming. Therefore, respectfully following the ratio of binding judicial precedent as above, we hold that that interest expenditure of Rs.33.55 Lacs, in toto, as claimed by the assessee during the year was an allowable expenditure. We order so. The Ld.AO is directed to re-compute assessee’s income in terms of our above order. 6. Resultantly, the appeal stands allowed. Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.

Sd/- Sd/- (Sandeep Gosain) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member

मुंबई Mumbai; िदनांकDated : 21/12/2020 Sr.PS:-Jaisy Varghese आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Jodhpur 5. गाड�फाईल / Guard File 6. आदेशानुसार/ BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, जोधपुर / ITAT, Jodhpur.