INCOME TAX OFFICER-1(1), KANPUR vs. SHRI AJAY KUMAR JAIN, KANPUR

PER BENCH:

The appeals in I.T.A. No.185 and 268 are the cross appeals which have been filed by the Revenue as well as by the assessee against the order of learned CIT(A) dated 30/12/2016. The assessee has filed Cross Objections in I.T.A. No.185 wherein the assessee has taken the grounds in support of the deletion made by learned CIT(A) and has also taken the grounds, which have been decided against the assessee.

I.T.A. Nos.185 & 268/Lkw/2017 3 C.O.05/Lkw/2017 Assessment Year:2013-14 forgot to file the appeal and which remained with him along with other bunch of folder. It was submitted that the assessee learnt about this when the notice of hearing in Department appeal was received by the assessee. In this respect, learned counsel for the assessee invited our attention to the petition for condonation of delay along with the duly notarized and signed affidavit stating therein the reasons of delay. It was submitted that the delay being unintentional, the same may be condoned. Learned D. R. had no objection to the condonation of delay. Finding the reason for the delay plausible, the delay was condoned and Learned counsel for the assessee was asked to proceed with his arguments. Learned counsel for the assessee submitted that the only issue raised in this appeal is the action of learned CIT(A) by which he has disallowed an amount of interest of Rs.10,89,921/- which the assessee had claimed to have incurred against the interest income and our attention was invited to copy of computation sheet placed at paper book page No. 16 where the assessee had claimed this amount of interest as paid on unsecured loans. Learned counsel for the assessee submitted that such interest was paid on unsecured loans which were given to other companies from which interest was received and therefore, the interest paid for earning of interest income is deductible expenditure as per the provisions of section 57 of the Act and therefore, the action of learned CIT(A) in sustaining the addition is not justified. Learned counsel for the assessee submitted that the claim of the assessee is allowable u/s 57(iii) of the Act as 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 under the head ‘income from other sources’. In this respect reliance was placed on an order of Raipur Bench of the Tribunal in the case of Pankaj Surana vs. Income Tax Officer in I.T.A. No.153/RPR/2018 dated 23/05/2022 on the similar issue of interest disallowance on unsecured loan. Learned counsel for the assessee

I.T.A. Nos.185 & 268/Lkw/2017 4 C.O.05/Lkw/2017 Assessment Year:2013-14 submitted that reason cited by the Assessing Officer in not allowing the deduction was that the Assessing Officer held that no interest was debited on the loan in the profit & loss account of the assessee. In this respect, Learned counsel for the assessee submitted that the assessee is an individual and he had received unsecured loans from persons in his personal capacity and had also advanced loans to other firms in his personal capacity and that is why the income of interest and expenditure of interest has been declared under the head ‘income from other sources’ and not from the business. It was submitted that the interest expenditure has not been rightly debited in the profit & loss account as this amount of unsecured loan was not utilized for the business of the assessee but it was utilised for advancing to other business associates from whom interest was received and therefore, expenditure incurred to earn such interest is a deductible expenditure.

I.T.A. Nos.185 & 268/Lkw/2017 5 C.O.05/Lkw/2017 Assessment Year:2013-14 assessee has no business activity with the persons, to whom licences were given, therefore, he upheld the action as disallowance u/s 36(1)(iii) of the Act. We find that the assessee himself had claimed that the funds were not used for his business purposes but were used for making loans to other sister concerns by taking loans from other persons. The assessee has declared such net income from interest under the head income from other sources as is apparent from the copy of computation, placed at pages 14 to 17 of the paper book. Therefore, any expenditure incurred to earn an income is allowable expenditure as per the provisions of section 57(iii) of the Act. The Raipur Bench of the Tribunal, vide order dated 23/05/2022 has decided the similar issue in favour of the assessee by holding as under:

“6. We have heard the ld. Departmental Representative ("DR", for short), perused the orders of the lower authorities and the material available on record. After deliberating at length on the issue in hand, we are unable to persuade ourselves to subscribe to the view taken by the lower authorities. As per Section 57(iii) of the Act, any expenditure, not being in the nature of a capital expenditure, laid out or expended wholly and exclusively for the purpose of making or earning income under the head 'income from other sources' is to be allowed as a deduction. As the interest-bearing unsecured loans were raised by the assessee with a purpose, intent and motive of earning interest income by advancing the same to third parties and, have actually been so utilized, therefore, the interest expenditure so borne by him could safely, or in fact, inescapably, be held to have been incurred wholly and exclusively for the purpose of earning of interest income. In the backdrop of our aforesaid deliberations, we are of a strong conviction that the deduction of interest expenditure of Rs.6,45,531/-, as claimed by the assessee, and rightly so, was duly allowable as a deduction u/s.57(iii) of the Act. We, thus, in terms of our aforesaid observations, not finding favor with the view taken by the lower authorities, set-aside the order of the CIT (Appeals) and vacate the disallowance of Rs.6,45,531/- made by the A.O. Thus, the Grounds of appeal No.(s) 1 & 2 raised in appeal by the assessee are allowed in terms of our aforesaid observations.

I.T.A. Nos.185 & 268/Lkw/2017 6 C.O.05/Lkw/2017 Assessment Year:2013-14 7. In view of the above facts and circumstances and judicial precedents, we allow the appeal of the assessee.

(Order pronounced in the open court on 19/07/2022)

Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member

Dated:19/07/2022 *Singh

Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow