The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has held that the deduction of expenditure u/s 57(iii) of the Income Tax Act,1961 can be for negative or positive income.
Sh. Tejinder Singh, the assessee is a salaried employee of M/s Medel India Pvt. Ltd. as a Director since 2006. The return of income was filed declaring a total income of Rs. 63,10,470/-, which included income from salary, income from house property and income from other sources.
The Assessing Officer (AO) noted that the assessee had given his car on lease to the employer company and had received a lease rent of Rs. 4,08,000/- as ‘income from other sources’. The AO further noted that the assessee had shown a net loss on account of the lease to the tune of Rs. 4,33,020/ after claiming depreciation of Rs. 4,39,662/-, interest on a loan amounting to Rs. 3,19,572/- repairs and maintenance amounting to Rs. 41,970/- and insurance amounting to Rs. 39,816/-.
The assessee was required by the AO to justify the allowability of expenditure relating to depreciation, interest, repairs and maintenance and insurance. The assessee submitted a detailed reply. The AO disallowed entire expenses claimed u/s 57 of the Income Tax Act, 1961 [‘the Act’] by the assessee which was to the tune of Rs. 8,41,020/-.
The AO also made an addition of Rs. 6,10,443/- on account of payment made by the employer company to meet the credit card bill of the assessee on the ground that the same was a prerequisite in the hands of the assessee. The assessment was completed at an income of Rs. 77,61,933/-.
The assessee approached the First Appellate Authority, who deleted the addition about the payment made by the employer towards the credit card expenses and also partly upheld the disallowance of car-related expenditure by restricting it to the lease rent earned by the assessee and confirmed the disallowance of balance expenditure of Rs. 4,33,020/-
It was observed that the assessee was not in the business of leasing out cars on rent and that is the reason he has shown the income under the head’s income from other sources rather than showing the same income from the business
It was evident that clauses (i), (ia), (ii) and (iia) of section 57 of the Act specifically mention the deductions available while computing the income chargeable under the head ‘income from other sources’ whereas clause (iii) to section 57 allows admissibility of deduction of any other expenditure laid out or expended wholly and exclusively to make or earn such income i.e. income chargeable under the head ‘income from other sources.
The ITAT bench of Shri Sudhanshu Srivastava, judicial member & Shri Vikram Singh Yadav, accountant member observed that depreciation, interest on loan, repairs and maintenance expenses as well as insurance expenses were directly relatable to the earning of lease rental which was shown by the assessee under ‘income from other sources’.
It was held by the ITAT that there can even be a negative income/loss u/s 57(iii) of the Act. While allowing the appeal of the assessee, the ITAT directed the AO to allow the impugned expenditure claimed in full.
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