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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)’s order dated 5th October 2016, for the assessment year 2013-14, on the following grounds:-
“(1) The appellant company came into existence before 11 years and not done any business since then till the year A.Y. 2013-14 under appeal. The appellant company made short term borrowings from Afro Asian Insurance and Reinsurance Brokers (I) Pvt. Ltd. Rs.2,50,00,000/- @ 9% and advanced to Icecorp Solutions Pvt. Ltd. @10%. Accordingly, interest at Rs.25,00,000/- (Sch. 10 of audited accounts) received from Icecorp Solutions Pvt. Ltd. against which interest of Rs.13,12,500/- (Sch. 11 of audited accounts) paid to Afro Asian Insurance and Reinsurance Brokers (I) Pvt. Ltd. and the company has shown under the head “Other Income”. The appellant company has not done any business and therefore the income and expenditure of interest falls under the head other sources and rightly shown the net interest income liable to tax. Disallowance of Rs.13,12,500/- be therefore deleted and be allowed u/s.57(iii) as claimed by the appellant. (2) Bank charges Rs.14,636/- and Audit Fees Rs.16,854/- be also allowed against income from other sources.” 2. The material facts are not in dispute. The assessee has received Rs.2,50,00,000/- from Afro Asian Insurance and Reinsurance Brokers (India) Pvt. Ltd., and is paying interest @ 9%
ITA No.3055/Ahd/2016 Assessment Year : 2013-14 Page 2 of 2
thereon. The assessee has extended a loan of the identical amount, i.e. Rs.250 lakhs, to Icecorp Solutions Pvt. Ltd. and is charging interest @10% thereon. While the Assessing Officer has taxed interest income of Rs.25,00,000/- in the hands of the assessee as income from other sources, he has not allowed any deduction of the interest paid, i.e. Rs.22,50,000/- on the ground that “expenses debited in the Profit and Loss account are not relatable to earning or making the said interest, and, therefore, inadmissible u/s 57(iii) of the Income Tax Act”. Aggrieved, assessee carried the matter in appeal before the ld. CIT(A) but without any success. The assessee is not satisfied and is in appeal before me.
We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
I find that there is no dispute that the funds used by the assessee, in extending advance to Icecorp Solutions Pvt. Ltd., are borrowed funds and interest of Rs.22,50,000/- has been paid in respect of the same. The nexus of interest paid and interest earnings is thus well established. Under these circumstances, in my considered view, expenditure on interest payment is clearly allowable under section 57(iii), I, therefore, direct the Assessing Officer to grant deduction of Rs.22,50,000/- under section 57(iii), The assessee succeeds on this point.
In the result, the appeal is allowed. Pronounced in the open court today on the 18th May, 5. 2018.
Sd/- Pramod Kumar (Accountant Member) Dated: Ahmedabad, the 18th day of May, 2018.
PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File
By order
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad