ARVIND CHHOTALAL MORZARIA,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 27(1), MUMBAI

ITA 5176/MUM/2025

AI Insights

The case revolves around the appellant, Arvind Chhotalal Morzaria, who contested the disallowance of interest expenses claimed against interest income earned from a mortgage loan. The Assessing Officer (AO) initially disallowed these expenses, treating them as related to a house building loan (HBL), which should be adjusted under section 24(b) against income from house property, not under section 57(iii) which pertains to other income sources. The Commissioner of Income-tax (Appeals) upheld the AO's decision. However, the Tribunal found that there was a direct nexus between the loan utilized and the interest income earned, allowing the deduction under section 57(iii).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 790968 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 22-08-2025
• Other Referred Cases: CIT v. Taj International Jewellers (2012) 20 taxmann.com 1 (Del)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: DHARAN GANDHI; VINITA NARA
• Keywords: Capital expenditure
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER I.T.A No.5176/Mum/2025 (Assessment Year: 2017-18) Arvind Chhotalal Morzaria 501, Neelkanth Royale, 5th Floor, Joshi Lane, Off. M.G. Road, Ghatkopar (West), Mumbai-400 077 PAN : AEKPM9977L vs Assistant Commissioner of Income-tax, Circle-27(1), Mumbai Room No. 415, 4th Floor, Tower No.6, Vashi Railway Station, Navi Mumbai, Maharastra APPELLANT RESPONDENT Assessee by : Shri Dharan Gandhi & Ms. Vinita Nara Respondent by : Shri Surendra Mohan (SR.DR) Date of hearing : 04/12/2025 Date of pronouncement : 10/12/2025 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeal) / Addl / JCIT(A), Thiruvananthapuram [in short, Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 for A.Y. 2017-18, date of order 02/07/2025. The impugned order emanated from the order of the Learned Assistant Commissioner of Printed from counselvise.com 2 ITA No.5176/Mum/2025 Arvind Chhotalal Morzaria Income-tax, Circle 27(1), Mumbai, order passed u/s 143(3), date of order 22/11/2019. 2. The brief facts of the case is that the assessee filed the return of income declaring total income of Rs.1,63,15,690/-. The assessment was framed u/s 143(3) determining the total income at Rs.1,94,06,330/- by disallowing of interest u/s 57(iii) of the Act. The assessee, in computation of income has claimed interest expenses amount to Rs.30,90,636/- against the interest received amount to Rs.29,65,083/- and Rs.1,25,553/- from M/s Premier Industrial Corporation Ltd and banks respectively. The interest expenses are incurred out of loan taken against the property. The said property was acquired by the assessee on 25/04/2016 from assessee’s own fund. After acquiring the said property, the assessee raised funds through a mortgage loan providing the same security. The sums so received by the assessee was transferred to the company’s account directly and from which the assessee haws earned interest income of Rs.29,65,083/- which was duly adjusted with the interest paid to the bank. The Ld.AO in assessment proceedings rejected the interest expenses and treated this interest as a house building loan interest which will be adjusted u/s 24(b) but not u/s 57(iii) of the Act. The aggrieved assessee filed an appeal before the CIT(A). The Ld.CIT(A), in his order stated that the nature of loan was HBL and the interest on HBL will be adjusted with the House Property income. On the other hand, the assessee claimed that the said fund was directly paid to the loan debtors and the interest was earned. So, there is direct nexus with the investment and the loan is proved. So the interest earning and interest expenses is duly eligible for adjustment. The Printed from counselvise.com 3 ITA No.5176/Mum/2025 Arvind Chhotalal Morzaria Ld.CIT(A) upheld the order of the Ld.AO. Being aggrieved, the assessee filed an appeal before us. 3. We have heard the rival submissions and perused the documents available on record. The Ld. AR submitted that the assessee had obtained a loan from the Bank of Baroda and the loan amount was directly disbursed to the loan creditors. A copy of the sanction letter dated 08/06/2016 issued by the Bank of Baroda is placed on record. Upon perusal of the sanction letter, we find that the bank had directly paid the sanctioned loan amount to the said loan creditor, and the rate of interest determined by the bank was 9.9%. The Ld. AR further submitted that the purpose of the loan is material for determining its nature, and in the present case, the nature of investment is minimal. He also drew our attention to the “Frequently Asked Questions” (FAQ) issued by the CBDT, wherein the following clarification is provided: “Q: Can interest paid on loans taken from friends and relatives be claimed as deduction while calculating House Property Income? Ans: Yes, if the loan is taken for the purchase, construction, repair, renewal or re-construction of the house. If the loan is taken for personal or other purposes, the interest on such loan cannot be claimed as deduction.” 4. The Ld. DR argued that the HBL (Housing Building Loan) is in the nature of a government subsidy. Therefore, shifting the loan utilization from one head to another cannot permit the assessee to set off interest paid against income from another head. According to him, HBL interest is allowable only against income from house property. He stands in favour of the orders of the revenue authorities. Printed from counselvise.com 4 ITA No.5176/Mum/2025 Arvind Chhotalal Morzaria 5. In our considered view, we find that the assessee was granted the loan specifically for the purpose of housing. The nature and purpose of the loan are clearly and conclusively determined by the bank. On perusal of the sanction letter, it is evident that the bank directly disbursed the loan amount to the concerned entity. There is no dispute that a direct nexus exists between the interest earned from the loan and the interest paid on the same fund. A plain reading of section 57(iii) of the Act provides: “57... (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.” Further, the CBDT FAQ clarifies that if a loan is taken for purchase, construction, repair, or renewal of a property, the interest thereon is allowable as deduction under section 24(b). However, in the present case, the borrowed funds were directly utilized for earning interest income other than under the head “Income from House Property.” Therefore, the interest paid on such borrowed funds squarely falls within the ambit of section 57(iii), since the expenditure was wholly incurred for earning taxable interest income. The Ld. AR has also respectfully placed reliance on the judgment of the Hon’ble Delhi High Court in CIT v. Taj International Jewellers (2012) 20 taxmann.com 1 (Del), wherein the Hon’ble Court held: “3. The Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal have recorded a finding of fact that there was a clear nexus between the interest earned on the FDRs and the interest paid on loans utilized for purchase of FDRs and the intimate connection between the receipt and payment of interest stands established. It is not in dispute that the entire money was borrowed with the sole purpose of converting the same into FDRs and that was actually done as well. In these circumstances, we agree with the opinion of the authorities below. The interest paid had to be allowed under the provisions of section 57(iii) of the Act as Printed from counselvise.com 5 ITA No.5176/Mum/2025 Arvind Chhotalal Morzaria the amount was borrowed for making and earning income, taking advantage of the EXIM policy of the Government of India as well as lower LIBOR interest rate.” 6. In view of the above legal position, we find that the purpose of the loan and its utilization is clearly established, and the nexus between the earning of interest and payment of interest is duly proved. Respectfully following the decision of the Hon’ble Delhi High Court in Taj International Jewellers (supra), we hold that the assessee is entitled to claim deduction of interest under section 57(iii) of the Act. Accordingly, the addition of Rs.30,90,636/- made by the Ld. AO is deleted. 7. In the result, the appeal of the assessee bearing ITA No.5176/Mum/2025 is allowed. Order pronounced in the open court on 10/12/ 2025. sd/- sd/- (PRABHASH SHANKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 10/12/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकरआयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, MUMBAI 5. गाड\u0019फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBA Printed from counselvise.com "