SAHADE vs. INH VAJESINH VAGHELA,RAJKOTVS.ACIT, CIRCLE-1(2), RAJKOT, RAJKOT

The assessee has raised following ground of appeal:-

The solitary issue raised by the assessee is that the ld. CIT(A) erred in confirming the disallowance of interest expenses of Rs. 6,55,080/- which was claimed under Section 57 of the Act.

The brief facts of the case are that the assessee, in the present case, is an individual and filed his return of income declaring the total income at Rs. 14,35,230/-, which was derived from house property and other sources. The assessee has borrowed funds from the bank for an amount of Rs. 70 lakhs on interest @ 14.50% during the year under consideration. The assessee, against such loan has incurred an interest expense of Rs. 10,47,100/- only. The assessee during the assessment proceedings submitted that he has given a loan of Rs. 50 lakhs to M/s VJ Jewellers on interest @ 13% and earned interest income of Rs. 6,55,080/- only, which was offered to tax under the head “income from other sources”. The assessee, against such interest income, has claimed interest expenses of the same amount and thereby showing net interest income at Rs. Nil. However, the Assessing Officer disallowed the interest expenses claimed by the assessee on the reasoning that there was no documentary evidence filed by the assessee suggesting that the money was advanced to M/s VJ Jewellers out of borrowed funds. Accordingly, the Assessing Officer added the same i.e. Rs. 6,55,080/- to the total income of the assessee.

Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who confirmed the order of the Assessing Officer by observing as under:

Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

The ld. AR before us filed a paper-book running from page Nos. 1 to 79 and drew our attention on page no. 26 of the paper-book where the bank statement of the assessee was placed. The ld. AR based on the bank statement demonstrated before us that the loan amount of Rs. 70 lakhs was received in Jivan Commercial Co-operative Bank Ltd.; out of which the loan amount of Rs. 50 lakhs was advanced to M/s. VJ Jewellers. The ld. AR further submitted that the assessee has borrowed funds at the higher rate, whereas he has advanced loan at a lower rate of interest, but the interest was claimed as deduction only to the extent of interest income. As such, there was no loss claimed by the assessee under the head “income from other sources”. The ld. AR, in support of his contention, drawn our attention on the computation of income placed at page Nos. 7-10 of the paper-book demonstrating that the interest expenses was claimed to the extent of interest income only.

On the other hand, ld. DR vehemently supported the orders of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. On perusal of the bank statement placed on page No. 26 of the paper-book, there remains no ambiguity that the advance was given by the assessee on interest basis out of the borrowed funds. Thus, there is a direct nexus between the interest expenditure vis-à-

It is also important to appreciate that though the assessee incurred more interest expense against the interest income, but the assessee has claimed interest expense to the extent of interest income only which is evident from the computation of income filed by the assessee placed on page No. 8 of the paper-book. Accordingly, we set aside the findings of the ld. CIT(A) in this regard and direct the Assessing Officer to delete the addition made by him. Hence, the ground of appeal raised by the assessee is allowed.

In the result, the appeal of the assessee is allowed.