The Raipur bench of the Income Tax Appellate Tribunal (ITAT) held that the income earned by way of interest and claimed under income from other sources shall be allowable expenditure under Section 57(iii) of the Income Tax Act, 1961.
The assessee is an individual who derives income under the head income from house property and profit and gains of business income from other sources and had filed a return of income declaring total income at Rs.4,78,990/-. Subsequently, the case of the assessee was selected for scrutiny assessment through Computer-Assisted Scrutiny Selection (CASS) to examine the issue of “large deduction claimed under Section 57 of the Income Tax Act”.
Upon verification of the details furnished by the assessee, it was observed that interest @15% was received from all advances given, and interest ranging from 15% to 16.8% was paid to various lenders. When the chart of interest received and ledger accounts of the advances were further examined by the Assessing Officer, he observed that information furnished by the assessee was not fully correct, and in the following cases, interest received was at 9%, 9.7%, and 14% instead of 15%.
The Assessing Officer in the cases of two parties from whom the assessee had received interest of 9%, 9.7% had disallowed difference by reducing the said rates from 16%, and the disallowance was proposed for Rs.5,58,088/-.
The Authorized Representative submitted that Section 58 of the Income Tax Act provides as to what expenditures will not be allowed. This section has specific reference to Section 40A & 40(a)(ia) & (iia), 44AD, etc, therefore, anything which was not covered by the provisions of Section 58 cannot be disallowed.
It was further submitted that interest paid to the parties are unrelated parties. It is the argument of the Authorized Representative that partial interest expenditure could not be disallowed in the absence of there being any specific provision in the Income Tax Act and merely because interest received was at a lower rate than the rate at which interest was paid, no disallowance could have been made.
The Two-member bench comprising of Ravish Sood (Judicial member) and Arun Khodpia (Accountant member) held that expenditure incurred by the assessee, the genuineness of which was not disputed by the Assessing Officer are allowable expenditure in terms of provisions of Section 57(iii) of the Income Tax Act. Therefore, the additions made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeal) [CIT(A)] are not sustainable. Thus, the appeal of the assessee was allowed.
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