NIMMI VISHINDAS VAZIRANI,MUMBAI vs. ITO WARD 17(2)(4), MUMBAI

Ground No. 1 raised by the assessee is not being pressed by the Ld. AR. Therefore, this ground stands dismissed as not pressed.

Ground No. 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in confirming the disallowance of interest expenditure of Rs. 5,69,18,61 claimed under section 57(iii) of the Income-tax Act.

In this regard, I have heard the learned counsel for both the parties, perused the material on record, judgments cited before me and the orders passed by the Revenue Authorities. From the records, I noticed that the claim of the assessee on account of interest expenditure was rejected by the Ld. CIT(A) by holding that during the appellate proceedings, the assessee submitted that the loan of Rs. 8.23 crore was availed from DHFL, out of which Rs. 5.03 crore was advanced to related parties, namely, Mr. Vishindas Vazirani and M/s. KK Reality, on which interest income was earned and offered under the head ‘Income from Other Sources’ on net basis.

It was further contended that the interest paid to DHFL attributable to the said advances was wholly and exclusively incurred for earning interest income and hence sought allowance of the said amount under section 57(iii) of the Income-tax Act.

In this regard, the assessee relied upon bank statements, interest workings and judicial precedents to support its contention that there existed a direct nexus between the interest expenditure and interest income.

However, as per the decision of the Ld. CIT(A), it has been specifically mentioned that the assessee had not successfully established a direct and proximate nexus, as required under section 57(iii) of the Act, between the interest expenditure claimed and the income earned under the head ‘Income from Other Sources’.

Moreover, it was also mentioned that documentary evidences such as loan agreements, terms and conditions, rate of interest and ledger accounts of the parties to whom advances were made, in order to establish the nexus of the funds, had not been placed on record even in spite of getting several opportunities, as the assessee had only relied upon the bank statements without demonstrating exclusive utilisation of the borrowed funds for earning taxable income.

Whereas, on the contrary, the Ld. AR specifically submitted that whatever documents were required or sought for by the Assessing Officer were placed on record, which have also been furnished before me, in the shape of computation of total income, loan sanction letter issued by DHFL, extract of bank statement reflecting the loan received from DHFL and loan advanced to Mr. Vishindas Vazirani and M/s. KK Reality, extract of bank statement reflecting interest received from the parties for the period from 01.04.2016 to 31.03.2017, working of interest paid to DHFL and details of interest income received.

The fact still remains that even the documents referred to by the assessee have not been verified, which also requires verification. Therefore, I am of the view that this issue requires restoration to the file of the AO with a direction to adjudicate the same afresh, after verifying the documents relied upon by the assessee.

The assessee is also at liberty to place on record any other document in order to substantiate its claim. Needless to mention, the decision shall be taken by the AO after providing due opportunity of being heard to the assessee.

Ground No. 3 raised by the assessee relates to challenging the order of the Ld. CIT(A) confirming the disallowance of expense of Rs. 25,000 towards compensation paid to the landlord.

In this regard, I have heard both the parties, perused the material placed on record and the orders passed by the Revenue Authorities. From the records, I noticed that the assessee has not furnished any supporting evidence or documentary evidence to substantiate this ground.

Since I have already restored issue contained in Ground No. 2 back to the file of the AO for fresh adjudication, therefore, one more opportunity is granted to the assessee to furnish the required documents to substantiate the claim by restoring the matter back to the file of the AO with a direction to decide the same afresh.

Needless to mention, the AO shall decide the issue after providing due opportunity of being heard to the assessee.

Before parting, I make it clear that my decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law.

In the result, appeal filed by the Assessee stands partly allowed for statistical purposes.