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Facts
The assessee borrowed funds from Allahabad Bank at 12.7% and advanced them to Curo India Pvt. Ltd. at 14%, earning interest income of Rs. 52,97,393/-. The assessee claimed deduction of interest paid to the bank (Rs. 53,09,959/-) under Section 57(iii), which was denied by lower authorities for lack of nexus, despite the nexus being accepted by the AO in the previous assessment year (AY 2016-17).
Held
The Tribunal held that the assessee is eligible for deduction of interest paid to Allahabad Bank under Section 57(iii). Since the nexus between borrowed funds and their utilization was already proven and accepted by the AO in AY 2016-17, there is no requirement to prove it again for the current assessment year.
Key Issues
Whether deduction of interest paid to the bank on borrowed funds used for advancing loans can be claimed under Section 57(iii) when nexus was previously accepted by the AO.
Sections Cited
143(3), 57(iii), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI VIMAL KUMAR
O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2017-18, arises out of 1. the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1056772490(1) dated 04.10.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 30.10.2019 by the Assessing Officer, NFAC, Delhi (hereinafter referred to as „ld. AO‟).
Though the assessee has raised several grounds before us, the only effective issue to be decided in this appeal is as to whether the assessee is entitled to claim deduction of interest paid to bank against interest income offered to tax while computing income from other sources.
Pawan Garg 3. We have heard the rival submissions and perused the material available on record. The assessee is an individual and had filed his return of income for AY on 17.07.2017 declaring total income of Rs. 13,43,730/- . During the earlier assessment year i.e. 2016-17, the assessee took a loan of Rs. 4.50 crores from Allahabad Bank at an interest rate of 12.7% which was utilized for giving loan to Curo India Pvt. Ltd at an interest rate of 14% per annum. The said company repaid a sum of Rs. 60 lakhs to the assessee during the financial year 2015-16 leaving an outstanding balance of Rs. 3.90 crores as on 01.04.2016. During the year under consideration, the assessee earned an interest income of Rs. 52,97,393/- from the said company on the loan advanced to them. This interest income was declared as income by the assessee under the head “income from other sources”. Since borrowed money was utilized directly for advancing loan to the aforesaid company, the assessee claimed interest payment made to Allahabad Bank as deduction u/s 57(iii) of the Act in the sum of Rs. 53,09,959/- under the head „income from other sources‟. This deduction was denied by the lower authorities on the ground that nexus between borrowed funds and its utilization was not proved by the assessee. In this regard, we find that scrutiny assessment for AY 2016- 17 was framed on the assessee wherein, the very same query was raised by the ld AO vide notice u/s 142(1) dated 13.08.2018. The assessee filed a reply proving one to one nexus thereon. The ld AO on being satisfied with the same completed the assessment for the AY 2016-17 u/s 143(3) of the Act on 30.11.2018 granting deduction for interest paid to Allahabad Bank while computing income from other sources. The very same claim for a different figure is being made in the year under consideration. During the year, there is no requirement for the assessee to prove the nexus between borrowed funds and its utilization as it had already been proved by the assessee in AY 2016-17 and accepted by the