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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’, KOLKATA
Before: Shri P.M. Jagtap, AM]
order : May 24, 2018 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 1, Kolkata dated 22.11.2017 and the solitary issue involved therein relates to the disallowance of Rs. 9,68,432/- made by the A.O. and confirmed by the Ld. CIT(A) on account of interest paid.
The assessee in the present case is an individual who is Director of M/s. EFC Logistics India Pvt. Ltd. The return of income for the year under consideration was filed by him on 31.07.2012 declaring a total income of Rs. 36,63,800/- under the heads salary, house property and other sources. In the said return, deduction of Rs. 9,68,432/- was claimed by the assessee u/s 57(iii) of the Act on account of interest paid to HDFC Bank. According to the A.O., the said interest paid by the assessee on vehicle loan was not allowable as deduction since the assessee did not have any income from the business of running the Assessment Year: 2012-13 Sanjay Kumar Gupta vehicle on hire. He accordingly disallowed the claim of the assessee for deduction on account of interest in the assessment completed u/s 143(3) vide an order dated 07.03.2015.
Against the order passed by the A.O. u/s 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and the following submission was made by the assessee before the Ld. CIT(A) in support of his claim for deduction on account of interest: “With regards to the deduction for interest expense section 57(iii) of the Income Tax Act, 1961 allows deduction for ‘any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose or making or earning such income’.
Further to the above, we would like to state that a term loan of Rs. 1,00,00,000/- (Rupees One Crore only) was taken by Mr. Sanjay Kumar Gupta from HDFC Bank Ltd. and the same was transferred to the account of M/s. MBT Infrastructure Pvt. Ltd. as a loan (Bank Pass Book copy is attached for reference)
Also in the course of Income Tax Return for the A.Y. 2012-13, total interest income computation was shown as under: Total Interest received from M/s. MBT Infrastructure Private Limited Rs. 11,18,178.00 Total Interest paid to HDFC Bank Ltd. Rs. (9,68,432.00)
Net Taxable Interest Income shown from Interest earned on loan given to M/s. MBT Infrastructure Private Ltd. Rs. 1,49,746.00 As the interest expense was incurred exclusively for the purpose of earning income from M/s. MBT Infrastructure Pvt. Ltd., the same should be allowed as deduction u/s 57(iii) of the Income Tax Act, 1961. Thus there will be no loss of revenue.
Assessment Year: 2012-13 Sanjay Kumar Gupta 4. The Ld. CIT(A) did not find merit in the submission of the assessee and proceeded to confirm the disallowance made by the A.O. on account of interest for the following reasons given in his impugned order: “I have considered the material before me. The issue under dispute concerns the claim for deduction of interest of RS. 9,68,432/- claimed as deduction u/s 57 of the Act. The appellant has mainly contended that a term loan of Rs. 1,00,00,000/- was taken by Shri Sanjay Kumar Gupta from HDFC Bank Ltd. which was transferred to the account of M/s. MBT Infrastructure Pvt. Ltd. as a loan. The appellant has submitted a photocopy of Oriental Bank of Commerce in support of this contention. The appellant has also claimed that it had received total interest of Rs. 11,18,178/- from M/s. MBT Infrastructure Pvt. Ltd. and the payment of interest to HDFC Bank of Rs. 9,68,432/- should be allowed as deduction u/s 57(iii) of the Act. On perusal of document on records, it is found that there is substance in the appellant’s claim for declaring interest income of Rs. 11,18,178/- from M/s. MBT Infrastructure Private Limited during the F.Y. 2011-12 which is evidenced from copy of Form 26AS for the A.Y. 2012-13. As regards the allowance of any other expenditure as deduction u/s 57(iii) of the Act, the onus lies upon the assessee to establish that documentary evidence that the said expenditure was incurred wholly and exclusively for the purpose of earning such income. In the instant case, the payment of interest on car loan from HDFC Bank by the appellant is found to be in the nature of capital expense as it was incurred for obtaining car loan from HDFC Bank. On the other hand, the appellant has not establish any nexus between the interest earned from M/s. MBT Infrastructure Pvt. Ltd. and the payment of interest of Rs. 9,68,432/- to HDFC Bank Ltd. which is prima facie found to be capital expense and is therefore not allowable as deduction u/s 57(iii) of the I.T. Act. Therefore, the action of the A.O. in disallowance of the interest, deduction of Rs. 9,68,432/- is found to be correct and confirmed. This ground is not allowed.”
Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
Assessment Year: 2012-13 Sanjay Kumar Gupta 5. I have heard the arguments of both the sides and also perused the relevant material available on record. The learned counsel for the assessee has invited my attention to the provision of section 57(iii) to submit that the assessee is entitled for deduction on account of any expenditure, not being in the nature of capital expenditure, which is laid out or expended wholly and exclusively for the purpose of making or earning income which is chargeable to tax under the head ‘Income from other sources’. In this regard, he has reiterated the submission made by the assessee before the Ld. CIT(A) that the funds borrowed from HDFC Bank Ltd. having been utilised by the assessee for earning interest from M/s. MBT Infrastructure Pvt. Ltd., the expenditure incurred on interest paid on HDFC Bank loan was laid out wholly and exclusively for the purpose of earning interest income which was offered to tax under the head ‘Income from other sources’. He has contended that the Ld. CIT(A) however failed to appreciated the claim of the assessee and confirmed the disallowance made by the A.O. on account of interest by observing that the assessee could not establish any nexus between the interest earned from M/s. MBT Infrastructure Pvt. Ltd. and the payment of interest to HDFC Bank. He has contended that such direct nexus is very much there and if an opportunity is given to the assessee, he can establish the same before the A.O. Since the learned DR has not raised any objection in this regard, the impugned order of the Ld. CIT(A) on the issue under consideration is set aside and the matter is restored to the file of the A.O. for deciding the same afresh after giving the assessee an opportunity to establish that the expenditure on account of interest in question was laid out or expended wholly and exclusively for the Assessment Year: 2012-13 Sanjay Kumar Gupta purpose of earning interest income which was offered to tax under the head ‘Income from other sources’.
In the result, the appeal of the assessee is treated as allowed for statistical purpose. Order Pronounced in the Open Court on 24th May, 2018.