HITESH BHUPENDRA SHAH,MUMBAI vs. DCIT, CIRCLE 27(1), MUMBAI

In this appeal, the assessee has raised the following grounds: - “1. a) The Ld. CIT (A) erred in upholding the disallowance of interest expense claimed on loan payment u/s 57 of the Act amounting to Rs. 15,62,738/-.

The solitary issue that arises for our consideration pertains to the allowability of interest expenditure under section 57 of the Act.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual. For the year under consideration, the assessee filed its return of income on 09/10/2019, declaring a total income of Rs. 57,44,620 and claiming a refund of Rs. 10,63,650. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Upon perusal of the computation of income filed by the assessee for the year under consideration, it was observed that the assessee has claimed interest expenses on loans to the tune of Rs. 15,62,738 under section 57 of the Act, while computing his income from other sources as per section 56 of the Act. It was further observed that the assessee has declared a total interest income of Rs. 7,23,639. Accordingly, the assessee claimed a loss of Rs. 8,89,099 under the head “income from other sources”, which was set off against the salary income of Rs. 67,50,000 received as Director of M/s Milton Lifecare Private Limited. The assessee was asked to furnish the details/documents in respect of the income/expenses shown in the

After considering the submissions filed by the assessee, a notice was issued to the assessee to show cause as to why the interest paid on a loan amounting to Rs. 15,62,738 claimed as a deduction under section 57 of the Act should not be disallowed. In response, the assessee furnished a chart for the period from 30/01/2015 to 07/05/2016 along with the bank statement to

The Assessing Officer (“AO”), vide order dated 23/09/2021 passed under section 143(3) read with section 144B of the Act, disagreed with the submissions of the assessee and held that the issue is not that the funds received from M/s Milton Lifecare Private Ltd were further invested, but whether the loan given to M/s Milton Lifecare Private Ltd has any direct nexus with the money received from various parties. The AO held that had there been any nexus, the money so received from various parties would have been

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that a nexus between the borrowed funds and

During the hearing, the learned Authorised Representative (“learned AR”), the assessee has borrowed money on interest since the assessment year 2015-16 and has lent the same to M/s Milton Lifecare Private Ltd on interest. It was further submitted that in the past, the excess interest receipt was offered to tax, and this year the receipt is less than the expenditure. Thus, claimed as a deduction under section 57 of the Act. The learned AR further submitted that there is no dispute regarding the money received and lent, and all the details were filed by the assessee before the lower authorities.

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee claimed interest expenses to the tune of Rs. 15,62,738 under section 57 of the Act while computing his income from other sources as per section 56 of the Act. Since, during the year under consideration, the assessee received a total interest of Rs. 7,23,639, the assessee claimed a loss of Rs. 8,89,099 under the head “income from other sources”. During the assessment proceedings, it was noticed that the assessee has received interest amounting to Rs. 6,17,213 on loans advanced to M/s Milton Lifecare Private Ltd., in which, the assessee was one of the Directors, while it has paid interest to an extent of Rs. 15,52,038 to various parties. There is no dispute that the assessee

In the present case, it is evident from the record that the dispute is only qua the loan given by the assessee to M/s Milton Lifecare Private Ltd, as the assessee failed to prove a direct nexus of said loan with the money received from various parties. During the hearing, the learned AR submitted that since the assessment year 2015-16, the assessee has been availing loans from various parties, and the same has been lent to M/s Milton Lifecare Private Ltd. In this regard, the learned AR referred to the statements of income and capital accounts for the assessment years 2015-16, 2016-17 and 2017-18, which form part of the paper book. From the perusal of the aforesaid documents, as placed on record, it is evident that in previous years the assessee granted interest-bearing loan to M/s Milton Lifecare Private Ltd. Further, the assessee also availed loans from various parties at interest. Providing the details of interest received and interest paid during the year under consideration, our attention was also drawn to page 42 of the paper book.

During the hearing, the learned AR also referred to the flowchart demonstrating the nexus between the loans borrowed from various parties and the loan given to M/s Milton Lifecare Private Ltd, forming part of the paper book on page 35, which is reproduced as follows for ready reference: –

In support of the aforesaid details, the learned AR also referred to the assessee’s loan account ledger and its bank account statement, which form part of the paper book from pages 44-61. It was further submitted that all these details were filed by the assessee before the lower authorities in response to the statutory notices.

Before proceeding further, it is relevant to note the provisions of section 57(iii) of the Act, which reads as follows: - “57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— (i)………. (ia)…….. (ii)………. (iia)……. (iii ) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.”

Therefore, under section 57(iii) of the Act, any expenditure which is not in the nature of capital expenditure and has been expended wholly and exclusively for the purpose of earning income chargeable under the head “income from other sources” is allowable as a deduction. In the present case, there is no dispute regarding the nature of expenditure, and the Revenue has only disputed that the interest expenditure claimed under the aforesaid section has no nexus with the interest income. However, in view of the details placed on record, we are of the considered view that the nexus between the loans borrowed from various parties and the loan given to M/s Milton Lifecare Private Ltd has been sufficiently proved by the assessee. Further, no material has been brought on record by the Revenue to prove that the loan received by the assessee on which interest expenditure was incurred was utilised for any purpose other than giving the loan to the related firms. Thus, there is no material to dispute the fact that the assessee utilised the interest-bearing funds to advance interest-bearing loans to M/s Milton Lifecare Private Ltd. Therefore, we do not find any basis in disallowing the interest expenditure claimed by the assessee under section 57(iii) of the Act. Accordingly, the

In the result, the appeal filed by the assessee is allowed.