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Facts
The assessee filed an appeal with a delay of 72 days against the order of the CIT(A) concerning the assessment year 2016-17. The CIT(A) had confirmed a disallowance of interest expenses to the extent of ₹.14,59,536/-.
Held
The Tribunal held that the interest expenditure was incurred wholly and exclusively for the purpose of earning income, irrespective of whether the income earned was less than the expenditure. The disallowance made by the CIT(A) was deleted.
Key Issues
Whether interest expenditure incurred for earning income, where expenditure exceeds income, is allowable as a deduction.
Sections Cited
57(iii), 57
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Before: Shri S.S. Viswanethra Ravi&
आयकर अपीलीय अिधकरण, ’बी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी एस.एस. िव�ने� रिव, �ाियक सद� एवं �ी अिमताभ शु�ा, लेखा सद� के सम� Before Shri S.S. Viswanethra Ravi, Judicial Member & Shri Amitabh Shukla, Accountant Member आयकर अपील सं./I.T.A. No.1686/Chny/2025 िनधा�रण वष�/Assessment Year: 2016-17 Dinesh Kumar Jeetendra Bhandari, Vs. The Assistant Commissioner of No. 27B, Mooker Nallamuthu Street, Income Tax, Chennai G.P.O., Parrys, Corporate Circle 1(2), Chennai 600 001. Chennai. [PAN:AAAPB6406F] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri Hitesh, Advocate ��थ� की ओर से/Respondent by : Ms. Gouthami Manivasagam, JCIT सुनवाई की तारीख/ Date of hearing : 06.11.2025 घोषणा की तारीख /Date of Pronouncement : 13.11.2025 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 28.01.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2016-17.
We find that this appeal is filed with a delay of 72 days. The assessee filed an affidavit for condonation of delay stating the reasons.
Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
The assessee raised 10 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the addition made by the Assessing Officer under section 57(iii) of the Income Tax Act, 1961 [“Act” in short].
4. At the outset, it is noted that according to the Assessing Officer, the assessee derived income from M/s. Salem Steel Suppliers by way of interest after claiming expenses of ₹.29,61,266/-. The Assessing Officer disallowed the interest expenses under section 57 of the Act. The ld. CIT(A) given relief of ₹.15,01,730/- and confirmed the disallowance of ₹.14,59,536/-.
The main contention of the ld. AR Shri Hitesh, Advocate is that the assessee is entitled to the entire deduction as the said expenditure was incurred for earning the corresponding interest income of ₹.16,99,332/-. He vehemently argued that the assessee has only and exclusively utilized the aforesaid expenditure for the purpose of earning income. He drew our attention to the investments made in 4 entities and submits that the assessee had taken loans in his personal capacity and lent the same to the 4 entities at a lower rate of interest as the business did not have the credit standing to acquire loans at a lower rate of interest. He argued that the assessee was acted as a passing through agent to improve the efficiency and functioning of the 4 entities by lending loan at a comparatively lower rate of interest.
Heard both the parties and perused the material available on record. It is noted from the details of interest received are reflected in the income returned under the head “income from other sources” and the break-up is also detailed therein. On perusal of the same, which clearly demonstrates the interest expenditure incurred by the assessee for the specific purposes of advancing loan to the said 4 entities at lower rate of interest and incidentally derived interest, which is corresponding income. It is noted that the reason for giving part relief by the ld. CIT(A), for that matter the Assessing Officer too, is that the interest expenditure incurred was higher than the corresponding interest i.e., interest earned is ₹.16,99,332/- and the expenditure incurred is at ₹.29,61,266/-. It is no doubt, the requirement of law is that the expenditure must be incurred wholly and exclusively for the purpose of making or earning income, irrespective of whether the income actually earned is less than the expenditure incurred. In the present case, it is noted that the assessee borrowed loans at higher rate of interest and invested in 4 entities namely Balasara Engineering Products Pvt. Ltd., Bhandari Foils & Tubes Ltd., Bhandari Steels Pvt. Ltd. Adinath Finance Services and shown income from the said 4 entities under the head “income from other sources”. We find no dispute that the assessee made investments in the above said 4 entities, but, however, the respondent-revenue denied full deduction of interest expenditure only on the premise that interest expenditure is more than the income earned from the said 4 entities. The ld. CIT(A) restricted the interest expenditure to the extent of ₹.14,59,536/- by observing that the interest claimed is disproportionately for earning of lower rate of interest income and the actual business conditions existing in real life are often very different and any over simplistic assumption in this regard shall not be correct. In our view, it is not the requirement of law, therefore, the addition confirmed by the ld. CIT(A) is an allowable deduction in view of our discussion made herein above. Thus, the addition towards disallowance confirmed by the ld. CIT(A) at ₹.14,59,536/- is deleted. Thus, the ground raised by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 13th November, 2025 at Chennai.