SANJAY KUMAR RUNGTA, DURG,DURG vs. ITO-CIRCLE-1(1), BHILAI, BHILAI

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ITA 307/RPR/2026Status: HeardITAT Raipur22 May 2026AY 2015-169 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee failed to establish a direct nexus between the borrowed funds and the interest income earned, as the funds were also utilized for other purposes like purchasing shares and plots. Therefore, the deduction claimed under Section 57(iii) was not allowable.

What were the facts?

The assessee claimed a deduction for interest expenses incurred on unsecured loans, stating they were used for earning interest income. However, the Assessing Officer and CIT(Appeals) found no direct nexus between the borrowed funds and the interest income earned, as the funds were also used for investments in shares and property.

What were the issues?

Whether interest expenses on borrowed funds are deductible under Section 57 when the funds are not exclusively used for earning interest income but also for other investments.

Which sections of the Income-tax Act were involved?

Section 57

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR

Before: SHRI PARTHA SARATHI CHAUDHURY

For Appellant: Shri Bikram Jain, CA
For Respondent: Shri CH. Rejeswara Reddy, Sr. DR
Hearing: 19.05.2026Pronounced: 22.05.2026

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 13.02.2026 for the assessment year 2015-16 as per the following grounds of appeal: “1. The order passed by the Ld. Commissioner of Income Tax (Appeals) ('CIT(A)') is bad in law and facts. 2. On the facts and circumstances of the case, the Learned CIT(A)has erred in upholding the order passed by the Ld. Assessing officer ('A.O'), wherein the Ld.A.O has erred in making disallowance on account of Interest expense claimed under section 57 of the Income-tax Act, 1961 amounting to Rs.27,01,241. The disallowance is unjustified, unwarranted and uncalled for 3. On the facts and circumstances of the case, the Learned CIT(A) has erred in upholding the order passed by the Ld. AO, wherein the Ld. A.O has erred in not considering the current year loss of Rs.5,18,307(Rs.1090000-Rs.1608307) while calculating total assessed income. 4. The Appellant reserves the right to add, amend or alter any grounds of appeal at any time of hearing.”

Ground of appeal No.1 and 4 are general. 2.

The only effective grounds are Ground of appeal No.2 & 3 which 3. are interconnected as submitted by the Ld. Counsel for the assessee. The sole grievance of the assessee is the disallowance by the A.O and as confirmed by the Ld.CIT(A)/NFAC the interest expenses claimed u/s.57 of the Income Tax Act, 1961 (for short ‘the Act’) for Rs.27,01,241/-.

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4.

The brief facts in this case are that the assessee is an individual deriving income under the head salary from GDR Rungta College of Engineering and Technology and Rungta College of Dental Science and Research. In addition thereto, the assessee has also earned income by way of interest from various parties. The assessee had filed return of income for the relevant assessment year declaring total income at Rs. Nil. During the year under consideration, apart from salary income, the assessee had disclosed interest income of Rs.10,92,934/- earned on unsecured loans advanced. Against the said interest income, the assessee claimed deduction of Rs.27,01,241/- towards interest paid on unsecured loans obtained. The deduction was claimed u/s. 57 of the Act since as per the assessee the borrowed funds were utilized for the purpose of earning interest income. That before the A.O, relevant details were filed and it was stated by the assessee that unsecured loans were availed for the purpose of investment in group concerns with the objective of earning interest income and partly for the purchase of a residential property. The A.O did not find favour with the submissions of the assessee and disallowed interest expenditure of Rs.27,01,241/- claimed by the assessee against interest income.

5.

That being aggrieved by the addition made by the A.O, the assessee preferred an appeal before the Ld. CIT(Appeals)/NFAC. It was observed by

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the first appellate authority that the assessee is not only earning interest income but earning salary income from GDR Rungta College of Engineering and Technology and Rungta College of Dental Science and Research. In the return filed, the assessee had declared total income at Rs.Nil after declaring interest income of Rs.10,92,934/- and claimed deduction of interest expenses of Rs.27,01,241/- u/s.57(iii) of the Act on unsecured loans allegedly used for earning interest income. The assessee before the said authority had submitted that the unsecured loans were utilized for issuing interest bearing loans to group companies, investing in shares to earn dividend income, and investing in plots to generate rental income. The Ld.CIT(Appeals)/NFAC had observed that there is no direct nexus established by the assessee for utilizing borrowed funds for earning interest income. In fact, an amount of Rs.24,401,393/- was only invested in shares to earn dividend income as well as invested in plots to earn rental income. There was no evidence to demonstrate that the loans taken were used to earn the interest income.

6.

The assessee had also relied upon decision of the Tribunal in his own case for A.Y.2013-14 before the Ld. CIT(Appeals)/NFAC which was factually distinguished by the first appellate authority stating that in that particular year, borrowed funds were utilized for earning interest income and direct nexus was established which therefore, could not be applied to

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the present facts. As evident from the order of the first appellate authority, disallowance made by the A.O of Rs.27,01,241/- u/s. 57(iii) of the Act was upheld.

7.

That at the time of hearing, the Ld. Sr. DR vehemently contended that there is no applicability of Section 57 of the Act in the case of the assessee since the assessee had borrowed funds, invested in shares and purchasing of residential plot of land therefore which are personal expenditures and the ingredients to Section 57 of the Act regarding the direct nexus of borrowing funds and earning interest income is not established in the case of the assessee.

8.

The Ld. Counsel for the assessee failed to demonstrate any reasons why the findings of the Ld. CIT(Appeals)/NFAC should not be upheld. The Ld. Counsel failed to answer that when the borrowed funds have been utilized for purchasing of shares and investment in plot of land then where is the nexus regarding borrowed funds and the interest income earned. He had relied on the fund flow statement which was already rejected by the sub-ordinate authorities. This is a case of mere assertions of intention to earn income without adequate documentary substance and thus, statutory requirement of Section 57(iii) of the Act has not been complied with.

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The Hon’ble High Court of Kerala in the case of Mathew Joseph 9. Vs. CIT (2017) 87 taxmann.com 317 (Ker.) has held that there must be direct and proximate nexus between borrowed fund and earning of interest income. The Courts have emphasized that interest on borrowed funds have to be disallowed if main purpose is something else and not earning income. For instance, in case where borrowed funds are utilized for purchasing of shares for management control, the deduction u/s. 57(iii) of the Act is not allowed. Similar view has been taken in the cases of (i) Sarabhai Sons (P) Ltd. vs. Commissioner of Income Tax (CIT), (1993) 201 ITR 464 ; (ii) Commissioner of Income-Tax vs. Amritaben R. Shah (1999) 238 ITR 777.

The Hon’ble Supreme Court in the case of Vijaya Laxmi Sugar 10. Mills Ltd. v. Commissioner of Income Tax (1991) 191 ITR 641 (SC) clearly establishes that expenses deductible u/s. 57 of the Act must be incurred wholly and exclusively for the purpose of earning income. Revering to the facts of the present case, the assessee has failed to establish direct nexus between expenses incurred and interest income earned. The directive of the Hon’ble Apex Court (supra) says that the expenditure should have been incurred "for the purpose of making or earning such income" show that the object of spending or the end or aim or the intention of such spending shall have to be only for earning the

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interest income. That further, deduction u/s. 57 of the Act cannot be allowed if following conditions are not fulfilled by the assessee: a. Expenditure should be incurred wholly and exclusively for the purpose of earning income; b. It should not be in the nature of capital expenditure; c. It should not be in the nature of personal expenditure of the assessee; d. It should be incurred in the accounting year and not prior or subsequent year.

11.

Reverting to the facts of the present case, when the assessee had invested in purchasing of shares, plots of land, it is clear that money was borrowed only for the purpose of business and personal expenses and not for the purpose of earning interest income. The Co-ordinate Bench of the Tribunal, Bangalore in the case of M/s West Palm Developments Pvt. Ltd. v. JCIT (ITA No. 1668/Bang/2013), dated 24.06.2016 had observed and held that the assessee has claimed deduction u/s. 57(iii) of the Act in respect of interest paid to bank, cannot be allowed since the assessee having obtained loan from bank gave advance to sister concerns for purchase of property and shares.

12.

Here is a case where the assessee is earning income from salary and at the same time, had borrowed funds and such funds were utilized for purchasing shares to earn dividend income and also utilized those funds

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for purchasing of residential plot to earn rental income and further tried to claim deduction on the payment of interest on such funds within the parameter of Section 57 of the Act, in which, the assessee miserably fails. As already examined earlier, there is no evidence on record to justify any nexus of the borrowed funds and the earning of interest income. Rather, those borrowed funds have been utilized as stated in foregoing paras for the purpose of other business which therefore, does not qualify for deduction as per Section 57(iii) of the Act. Therefore, there is no infirmity with the findings of the Ld. CIT(Appeals)/NFAC which is upheld.

That as per above terms, Grounds of appeal No.2 & 3 are 13. dismissed.

14.

In the result, the appeal of the assessee is dismissed.

Order pronounced in open court on 22nd day of May, 2026.

Sd/- (PARTHA SARATHI CHAUDHURY) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 22nd May, 2026. SB, Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT-1, Raipur (C.G.) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च,

9 Sanjay Kumar Rungta Vs. ITO, Circle-1(1), Bhilai (C.G) ITA No.307/RPR/2026

रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 5.

Samira Digitally आदेशानुसार / BY ORDER, signed by n Bera, Samiran // True Copy // Bera, Sr. PS, Sr. PS, Senior Private Secretary ITAT, Raipur आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur Date: ITAT, 2026.05.22 10:47:29 Raipur +05'30'

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