CHOMAN SINGH MOOL SINGH DEORA,MUMBAI vs. DCIT, CIRCLE 19(1), PIRAMAL CHAMBER, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 4374/MUM/2026 Assessment Year: 2017-18 Choman Singh Mool Singh vs DCIT, Circle 19(1), Deora Mumbai 3rd Floor Geetanjali Arcade, Nehru Road Vile Parle East, Mumbai - 400057 (PAN: AEDPD4615D) Appellant Respondent Present for: Assessee : Shri J.P. Bairagra and Ms. Rupa Nanda, CAs Revenue : Smt. Sujatha Iyyanger, Sr. DR Date of Hearing : 17.06.2026 Date of Pronouncement : 02.09.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of the Ld. CIT (A), National Faceless Appeal Centre (NFAC), Delhi, Order No. ITBA/NFAC/S/250/2025-26/1086215135(1) dated 19.02.2026 passed against the assessment order by Assessment Unit, Income Tax Department, u/s. 143(3) r.w.s. 263 of the Income-tax Act, 1961 (‘the Act’) dated 21.03.2023, for Assessment Year 2017-18.

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 2. Assessee has raised the following grounds: 1. The learned CIT(A) erred in confirming the disallowance of interest under section 57 of the Act amounting to Rs.34,26,183/-. 2. The learned CIT(A) further erred in holding that the appellant failed to establish a direct nexus between the interest expenditure claimed and the interest income earned.

3.1. Ld. Assessing Officer noted that assessee had claimed interest expenditure of Rs.34,26,183/- against interest income and interest capitalised. The breakup of interest income, as recorded in the assessment order, comprised interest on income-tax refund of Rs.3,77,131/-, savings bank interest of Rs.1,55,596/- and interest from certain parties aggregating to Rs.92,798/-. Interest of Rs.12,94,479/- was also shown as capitalised. Assessee's explanation was that funds had been borrowed in the course of his activity of dealing in land. Whenever there was no deal in

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 progress and the funds were lying idle, such funds were temporarily deployed so as to earn interest and thereby reduce the cost of funds on which assessee continued to incur interest expenditure. Assessee accordingly claimed deduction of the interest expenditure under section 57(iii) against the interest income.

3.2. Ld. Assessing Officer, however, was of the view that assessee had not established the requisite nexus between the interest expenditure and the interest income. According to him, the ledger accounts and charts furnished by assessee did not establish the direct nexus between the borrowings and the investments/advances. He accordingly disallowed the entire interest expenditure of Rs.34,26,183/- and added the same to the returned total income.

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 was offered to tax. According to assessee, the temporary deployment of funds was a commercially prudent measure intended to reduce the cost of borrowed funds. Reference was made to the statement of total income and to the nexus chart furnished in respect of the loan obtained from Narendra Panani. It was submitted that the material placed on record demonstrated the movement of funds and the manner in which borrowed funds were either deployed in land transactions or returned to the lender.

5.1. It was further submitted that section 57(iii) does not require an artificial one-to-one correlation of each individual receipt of interest with each individual payment of interest. What is required is that the expenditure should have a proximate nexus with the earning of income chargeable under the head “Income from Other Sources”. According to assessee, such nexus stood demonstrated from the overall fund flow and the nature of the transactions. Since the computation of income forms an important part of the issue before us, the statement placed on record by assessee is reproduced below: Particulars Amount (Rs.) I. Income from Salary Salary received from Skyway Infraprojects Pvt. Ltd. 60,00,000 Less: Professional Tax 2,500 Less: Local Conveyance 19,200 Income from Salary 59,78,300 II. Income from House Property Self-occupied ownership flat – Annual Value Nil Rent received – Acumen Business Consultancy 6,20,000 Less: Municipal Taxes 1,11,408

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18

Less: 30% Repairs Allowance 1,52,578 Income from rented office premises 3,56,014 Vacant ownership flat – Annual Value 40,500 Less: Vacancy Allowance 40,500 Income from vacant property Nil III. Income from Other Sources Interest on Income-tax Refund 3,77,131 Savings Account Interest 1,55,596 Interest from Sarafi Loans 92,798 Interest Capitalised 12,94,479 Less: Interest Paid (34,26,183) Income from Other Sources (15,06,179) Gross Total Income 48,28,135 Less: Deduction u/s 80C – LIC Premium 1,50,000 Deduction u/s 80D – Medical Insurance 11,681 Deduction u/s 80TTA – Savings Account Interest 10,000 Total Taxable Income 46,56,454 Income-tax Payable 12,21,935 Education Cess @ 3% 36,658 Gross Tax Payable 12,58,593 Tax deducted/paid 16,88,626 Refund Due 4,30,033 Exempt Income – PPF Account Interest 35,021

5.2. The above statement is relevant for appreciating that the interest expenditure of Rs.34,26,183/- was not a subsequently quantified claim

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 but formed part of the computation of total income furnished by the assessee.

5.3. Assessee also furnished a chart demonstrating the movement of funds received from Narendra Panani. The same is reproduced below: Sr. Amount Received Amount Date Payment to Date No. (Rs.) from (Rs.) 20/03/2015 Narendra Panani – 18/09/2014 Narendra 1 10,00,000 10,00,000 Loan return Panani 20/03/2015 Narendra Panani – 22/09/2014 Narendra 2 50,00,000 50,00,000 Loan return Panani 04/09/2015 Narendra 3 12/09/2015 Land at Dhekale 43,08,000 50,00,000 Panani 03/12/2015 Narendra 4 05/12/2015 Land at Dhekale 12,00,000 16,00,000 Panani 18/12/2015 Narendra 5 22/12/2015 Palghar plot 15,00,000 20,00,000 Panani 19/12/2015 Narendra 6 22/12/2015 Palghar plot 10,00,000 10,00,000 Panani 02/04/2016 Narendra Panani – 22/03/2016 Narendra 7 13,00,000 20,00,000 Loan return Panani 27/04/2016 Narendra 8 30/08/2016 Haloli Land 10,00,000 15,00,000 Panani 1,63,08,000 Total Total 1,91,00,000

5.4. The above chart records receipt of funds from Narendra Panani and their subsequent movement towards land transactions as well as repayment of the loan. Assessee had also furnished similar nexus details in respect of the other lenders, namely Moolsingh Deora, Prime Civil Infrastructure Pvt. Ltd. and Neelima Madhani. This fact is acknowledged in the assessment order itself.

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 its entirety merely because ld. Assessing Officer was not satisfied with the manner in which assessee had demonstrated the nexus between the borrowed funds and the interest income.

6.1. Section 57(iii) permits deduction of expenditure, not being capital expenditure, laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the head “Income from Other Sources”. The expression used in the provision is “for the purpose of making or earning such income”. The enquiry, therefore, has to be directed towards the purpose and the nexus of the expenditure with the income, having regard to the facts and circumstances of the case.

6.2. In the present case, there is no finding by the authorities below that the interest expenditure of Rs.34,26,183/- was bogus or that the borrowings themselves were not genuine. The assessment order records the uncontroverted facts about corroborative documentary evidence furnished by the assessee to substantiate his claim duly establishing the nexus in respect of all the lenders, details of which already narrated in the above paragraphs. An important feature of the present case which needs due consideration is on the nature of assessee's activity. The funds were borrowed in connection with assessee's activity of dealing in land. The nexus chart placed before us demonstrates that funds received from Narendra Panani were, at different points of time, either utilised for acquisition of land/plots or returned to the lender. The chart is not a mere self-serving statement of figures. It identifies the date of receipt, the person from whom the funds were received, the date of subsequent utilisation/repayment and the nature of such utilisation. For instance, amounts received from Narendra Panani are shown to have been deployed 7

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 towards land at Dhekale, Palghar plot and Haloli land, apart from amounts returned to the lender. We find this material to be significant because assessee's explanation is not that the entire borrowing was obtained with the sole and exclusive object of earning interest. Rather, the borrowing was undertaken in the course of assessee's land-dealing activity and, during periods when the funds were not immediately required for a land transaction, the funds were temporarily deployed so as to earn interest and reduce the carrying cost of such funds.

7.1. Further, the fact that some components of the interest income, such as interest on income-tax refund and savings bank interest, may accrue without any corresponding expenditure does not, by itself, justify disallowance of the entire interest expenditure. The proper enquiry would be to identify the interest expenditure which has a proximate connection with the interest-bearing deployment of borrowed funds. The existence of other categories of interest income cannot lead to an automatic conclusion that the entire interest expenditure has no nexus with the taxable interest income. Assessee's computation shows interest income from Sarafi loans 8

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 and interest capitalised on investments/land, alongside the interest expenditure. Ld. Assessing Officer, however, proceeded to disallow the entire amount of Rs.34,26,183/- without undertaking any reasonable apportionment after examining the fund-flow material furnished by assessee.

7.2. We also take note of the fact that it is not the case of the Revenue that the interest income was not offered to tax. Nor is there any finding that the borrowings or the interest expenditure were fictitious. The only basis for disallowance is the perceived absence of a direct nexus. In the circumstances of the present case, we are of the considered view that the material placed on record sufficiently demonstrates the live connection between the borrowing, its deployment in assessee's activity and the temporary interest-bearing deployment of funds.

Order pronounced in the open court on 02nd September, 2026.

Sd/- Sd/- Amit Shukla Girish Agrawal Judicial Member Accountant Member Dated: 02nd September, 2026 MP, Sr. PS

ITA No. 4374/Mum/2026 Choman Singh Mool Singh Deora AY 2017-18 Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai