Expenditure u/s 57 Justified with Established Income Nexus: ITAT allows to claim Deduction [Read Order]

In a recent decision, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the assessee to claim a deduction of Rs. 30.4 lakhs under Section 57 of the Income Tax Act, 1961, as the assessee had established the nexus between the income earned and expenses incurred.

In this case, the assessee had filed its Income Tax Returns ( ITR ) for the assessment year ( AY ) 2017-18 on 31-10-2017 and declared total income at Rs. 12,77,150.
The assessee's case was selected for scrutiny due to a large deduction claimed under Section 57 of the Income-tax Act.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Although statutory notices and a show-cause notice were issued, the assessee provided limited documents, including a balance sheet, profit and loss account, and a ledger showing interest payments of Rs. 5,30,509 to Chandrakant P. Patel and Ushaben Nareshbhai Patel. However, key details like bank statements, loan confirmations, and interest rate justifications were not submitted.

The assessing officer passed the final assessment order by disallowing the deduction claimed under Section 57 of the Income Tax Act and adding Rs. 30.4 lakhs to the assessee's income.

Although the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], there were no favourable results.

The assessee’s counsel submitted that the assessee has an interest-free capital of Rs. 1.64 crore. It is presumed that if both interest-free funds and loans are available, investments are made from interest-free funds if they are sufficient, and that this presumption was ignored by the CIT(A).

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

It is to be noted that Section 57 of the Income Tax Act deals with deductions that can be claimed against income under the category "Income from Other Sources."

The ITAT, by going through the calculation given by the assessee, held that the assessee had demonstrated a clear connection between the expenses incurred and the income earned, which is a requirement for claiming deductions under Section 57 of the Income Tax Act.

The bench, comprising Dr. B.R.R Kumar ( Vice President ) and Suchitra Kamble ( Judicial Member ) allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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