Interest Expenses incurred  for earning Income  from Loans and Advances shall not be Disallowed u/s 57 of Income Tax Act: ITAT [Read Order]

The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) has recently held that the interest expenses incurred for earning income from loans and advances should not be disallowed under Section 57 of Income Tax Act, 1961.

The assesee Ankit Ashok Savla after filing the return for the assessment year 2017-18. The case was selected for scrutiny assessment. Thereafter assesee  filed details and other documents.

During the proceedings Assessing Officer (AO) observed that the assessee firm has given advances to three persons/entities during the year under consideration at the interest rate of 8.87%, 10.21% and 8.09%.

Further, the AO observed that the assessee firm has received unsecured loan from the 14 entities/persons wherein the average rate of interest comes around 10 to 12%.

The assessee has collected interest at 8.9 to 10% on loans and advances given. However, the assessee has paid interest at 12% on the unsecured loan received.

The assessee claimed deduction under Section 57 of the Income Tax Act as the assessee has no business income.The AO disallowed the  interest expenses.

Aggrieved the assessment order assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The first appellate tribuanl dismissed the appeal of the assessee. Thereafter, the assesee filed a second appeal before the tribunal.

Before the bench, Prakash D, the counsel for the assessee submitted that interest expenses of Rs. 42,78,115/- is for the purpose of earning of income from interest from various party/advances/ deposits and partnership firm and ultimately there is net interest income of Rs. 3,07,993/- and there is no question of any disallowance of any interest expenses.

Further the counsel submitted that  interest income from  partnership firms offered as income from business has not been considered and only interest income and interest expenses shown under the head from other sources have been considered and the remaining amount disallowed.

V. K. Mangla, counsel for the revenue submitted nexus of fund of borrowed and the loan given was not established by the assessee before any of the Revenue authorities.

It was observed by the tribunal that the AO  could not dictate the assessee about the loan and advances given to the other parties and the interest thereon charged by the assessee as the assessee is a partner in the partnership firm.

The assessee within his business exigencies has paid higher interest on unsecured loans as the need in respect of partnership firm for its fund is required.

Therefore the single member bench of 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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