Nagarjuna Rao Akkineni , Hyderabad V. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 1157/Hyd/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8592 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Appeal Filed On: 16-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 12; 143(3); 142(1); 14A; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) B EFORE SH RI SA TBEER SING H GODA RA, JU DI CIA L MEM BER AND SHR I L AXMI PR AS A D SAHU , AC COUNT ANT MEMBE R ITA No. 1157/H/2019 Assessment Year: 2016-17 Nagarjuna Rao Akkineni, Hyderabad. PAN – ABQPA 4126L Vs. Asst. Commissioner of Income-tax, Central Circle – 14(1), Hyderabad. (Appellant) (Respondent) Assessee by: Shri V. Siva Kumar Revenue by: Shri Rohit Mujumdar Date of hearing: 29/09/2021 Date of pronouncement: 15/11/2021 O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 6, Hyderabad’s order dated 24/05/2019 for AY 2016-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act on the following grounds of appeal: “1. The Order of the Commissioner of Income Tax (Appeals)-6, Hyderabad dated 24-05-2019 is erroneous, contrary to law and facts of the case. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 2 -: 2. Commissioner of Income Tax (Appeals) is not justified in upholding the action of the Assessing Officer in disallowing interest of Rs.19,01,112/- claimed as deduction u/s.57(iii) against rent from land offered as income from other sources stating that the Appellant is not entitled to claim interest on loan borrowed from bank as deduction u/s.57(iii) of the Act against lease rental income. The Commissioner of Income Tax (Appeals) ought to have seen that the appellant raised loan first from ICICI Bank for payment of regularization fee to State Government in connection with land on which Rs.20 Lakhs rent per month (annual rent being Rs.240,00,000/- ) was earned. Such loan was later repaid out of lean raised from HDFC Bank. Thus Appellant was incurring interest on loan which was utilized for payment of regularization fee for land. Thus such interest was incurred wholly and exclusively in earning rent from land and therefore the same is allowable as deduction u/s.57(iii). 3. F or all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal and suitable directions be given to Assessing Officer to cancel the disallowance of interest of Rs.19,01 ,112/- in the interest of justice.” 2. Briefly the facts of the case are that the assessee, being an individual is a film artist and also engaged in production of films & related activities. The assessee is deriving income from various heads of income viz., profits and gains of business or profession, capital gains, house property and other sources. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 3 -: 2.1 The assessee filed his return of income for the impugned AY 201617 on 17.10.2016, declaring a total income of Rs.38,17,98,228/-. The return of income was processed u/s.143(1) of the Act and the case was selected for scrutiny under CASS. Subsequently, after issuing statutory notices u/s.143(2) and 142(1) of the Act, the scrutiny assessment was completed u/s.143(3) of the Act, vide order dated 26.12.2018, determining the total income of the assessee at Rs.38,32,54,340/-. While doing so, the AO disallowed interest expenditure to the tune of Rs.19,01,112/- claimed as deduction u/s .57 of the Act. 2.2. During the course of assessment proceedings, while scrutinizing the details furnished by the assessee, the AO observed that the assessee had claimed interest on loan taken for payment of land regularization fee against lease rental income from land situated at Khanamet Village disclosed under the head 'Income from Other Sources'. In view of this, the AO issued a show cause notice to the assessee requiring him to show cause as to why the said interest expenditure of Rs.19,0l,112/- should not be disallowed on the ground that the same was not wholly and exclusively incurred for the purpose of making or earning of the Income from Other Sources. 2.3 In response thereto, the assessee explained to the AO that, initially, he bought a piece of land at Khanamet Village ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 4 -: from private parties, and later the State Government claimed the ownership of the property. Further, the assessee submitted that in order to settle the issue, he had paid regularization fee to the State Government and, accordingly, he became the legal owner of the land. However, since he was not having sufficient funds to pay regularization fee, he had raised loan from IClCI Bank (later shifted to HDFC Bank), and paid the land regularization fee. In view of this, the assessee contended before the AO that interest paid on the loan borrowed for payment of regularization fee should be allowed as deduction against the income earned in the form of lease rent from the said land leased to M/s Music Foods (P) Ltd (since the name changed to M/s N3 Enterprises (P) Ltd), which was disclosed under the head 'Income from Other sources'. 2.4 After having considered the submissions made by the assessee and contentions thereof, the AO rejected the assessee's contentions on the ground that as per the provisions of sec.57(iii) of the Act, deduction can be allowed only if the expenditure had been incurred wholly and exclusively for the purpose of earning of income disclosed under the head 'Income from Other sources'. While doing so, the AO observed that expenditure incurred towards interest on loans taken from banks did not reduce the assessee's income received by way of lease rent on the land (supra). In this regard, the AO placed reliance on the ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 5 -: decision of Hon'ble Supreme Court in the case of CIT vs, Dr. V.P.Gopinatham (2001) 116 Taxman 489. Accordingly, the AO disallowed the interest on loans taken from the bank for regularization of land on the ground that same is not allowable as deduction u/s. 57(iii) of the Act. 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). 4. During the course of appellate proceedings, it was contended by the assessee that the AO is not justified in disallowing the interest expenditure of Rs.19,01,112/- claimed u/s.57(iii) of the Act on the ground that he raised loans from bank for payment of regularization fee to the State Government in , connection with the land from which Rs.20,00,000/- was earned as income per month during the FY 2015-16 relevant to impugned AY 2016-17. Accordingly, the assessee was of the opinion that the interest expenditure on such loans was incurred wholly and exclusively for earning Rs.20,00,000/ lease rent per month from the land and, therefore, such interest is allowable as deduction u/s.57(iii) of the Act. 4.1 Further, it was submitted by the assessee that he had purchased the said land at Khanamet Village during FY 1992-93 from different persons/private parties and, thereafter, paid regularization fee to the State Government ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 6 -: i.e., Special Officer, Urban Land Ceiling, Hyderabad, during the FY 2008-09 to the extent of Rs. 7,49,55,707/-. In this connection} he borrowed funds from IClCI Bank (later shifted to HDFC Bank) during the FY 2008-09 for the purpose of payment of regularization fee to the State Government on which he has been incurring interest expenditure. 4.2 Further, it was submitted that subsequently, he entered into a lease agreement, vide lease deed, dated 30.09.2009} with M/s Music Foods (P) Ltd., wherein the assessee leased the subject land for a period of 36 months from the lease commencement date and the payment of rent shall commence from the date of completion of the project or 31,03.2010 whichever is later. Accordingly, during the FY 2015-16 relevant to impugned AY 2016-17, the assessee received annual lease rent of Rs.2,40,00,000/-. 4.3 It was also stated by the assessee that up to FY 2010- 11, the interest on loans taken from IClCI Bank (later shifted to HDFC Bank) for payment of regularization fee aggregating to Rs.89,66,593/- was capitalized and from FY 2011-12 onwards, he has been claiming such interest on loan as expenditure u/s.57(iii) of the Act against lease rental income from the land. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 7 -: 4.4 It was submitted that the reliance placed by the AO on the decision of the Han'ble Supreme Court in the case of Dr VP Gopinathan (supra), had been differentiated by the assessee on facts, and, therefore, contended that the same is not applicable to the case on hand. 5. During the course of appellate proceedings, the CIT(A) asked the to furnish the details of actual date of acquisition of the property and accounting of the land/asset in the books of account maintained by the assessee. Also, the assessee was asked to furnish the details of actual rent commencement date and accounting of interest paid on loans borrowed from ICICI Bank (later shifted to HDFC Bank) till the rent commencement date, along with copies of lease deed and ledger accounts. Accordingly, the assessee furnished the relevant details and documentary evidence. 5.1 On an examination of the details and evidence furnished by the assessee, the CIT(A) observed that though the lease deed was entered into between the assessee and Mis. Music Foods (P) Ltd. on 30.09.2009, but the actual rent commencement date is 01.01.2011. Further, as seen from the schedule of fixed assets and depreciation forming part of the balance sheet of the assessee for the year ending 31.3.2016, the said land is reflected under 'Personal Assets' rather than 'Assets used for Profession'. Also, it was observed that the interest paid on the loans borrowed from ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 8 -: ICICI Bank (later shifted to HDFC Bank) up to rent commencement date was capitalized in the books under the head 'Agricultural Land' treating the same as capital expenditure. 5.2 Further, the CIT(A) observed that as seen from the facts emanating from the record, there is no direct nexus or correlation between lease rental income received by the assessee from lease of land and interest paid on loans borrowed from ICICI Bank (later shifted to HDFC Bank) in the FY 2008-09. To be precise, the assessee has borrowed funds from banks for the purpose of acquisition of or securing valid legal title of a personal asset in the form of land rather than earning lease rental income from such land in future. 5.3 The CIT(A) also observed that it is clearly evident from the record that the event of acquisition of land had actually taken place way back in the FY 1992-93 wherein the assessee purchased a piece of land admeasuring 24,024 sq. yds. from various private parties for a sum of Rs.13,50,228/-. Subsequently, in view of the fact that the State Government disputed with the original ownership of the lands and declared the same as Government lands, during the FY 2008-09, the assessee was forced to pay regularization fee in order to regularize the property and acquire the valid legal title of the property in his personal ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 9 -: name for which he said to have made a payment of Rs.7,49,55,707/-. Further, in connection with payment of such regularization fee, the assessee said to have borrowed loans from ICICI Bank and later shifted to HDFC Bank. Subsequently, he leased out the land, and from 01.01.2011 onwards, he started receiving the lease rental income from the lessee @ Rs.12,OO,OOO/- per month. 5.4 On the basis of the analysis of the factual matrix, it is clearly emerged that; “1) Raising of loans from banks and leasing of land are two independent and distinct events happened in two different time zones. 2) The purpose of utilization of such loans i.e. payment of regularization fee is distinct and different from the purpose of leasing the land. To be precise, in the first case, the only purpose sought to be achieved by the assessee was securing valid legal title of the property in his personal name by payment of regularization tee to the State Government. On the other hand, in the second case, the only purpose of leasing the land was to earn lease rental income. 3) As a natural corollary, the expenditure incurred towards interest paid on such borrowed loans is distinct and independent from the income received in the form of lease rent. These two activities would fall under two independent fields without having any direct or indirect nexus. 4) Accordingly, interest expenditure would fall under capital field, being expenditure directly connected with acquisition of a capital asset or regularization of the capital asset and, thereby, bringing a capital asset into ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 10 -: existence, whereas lease rental income would fall under revenue field wherein the assessee would receive the lease rental income without there being any other expenditure incurred whether directly or indirectly. 5) As such, the event of payment of regularization fee in connection with which the assessee claimed interest on borrowed funds, had happened in the past as a legal obligation to protect or secure the legal title of the property in the name of the assessee, without there being any remote relation/nexus with the subsequent event of the assessee entering into lease deed with M/s Music Foods (P.) Ltd (since the name changed to M/s N3 Enterprises Pvt Ltd) in later years which resulted in earning lease rental income subject to tax under the head 'Income from Other Sources'. 6) Thus, the interest expenditure is not incurred for the purpose of earning lease rental income, but incurred for the purpose of payment of land regularization fee which is a legal obligation without having any nexus with lease of the property in the subsequent years. 5.5 The CIT(A) further observed that at this juncture, it may be noted that as per the provisions of sec. 57(iii) rws 58(1)(a)(i) of the Act, in order to claim any expenditure against 'Income from Other sources', the assessee should fulfil the following important conditions: 1) The expenditure should not be in the nature of capital expenditure. 2) Even in the case of revenue expenditure - (i) such expenditure should have been laid out or expended wholly and exclusively for the purpose of making and earning the income. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 11 -: (ii) Such expenditure should not be in the nature of personal expenses of the assessee. (iii) There must be a clear and direct nexus between the expenditure incurred and the income sought to be earned. 5.5 In the instant case, vide para No.6.16 above, it has already been held that the expenditure incurred by the assessee towards interest on loans borrowed would partake the nature of capital expenditure and, therefore, the same would increase the actual cost of the land as done by the assessee himself up to the FY 2010-11. To be precise, upto FY 2010-11 relevant to the AY 2011-12, the assessee had capitalized the said interest in the books of account against 'Agricultural Land' disclosed under 'Personal Assets' in the balance sheet. 5.6 Thus, firstly, the said expenditure, being capital in nature, cannot be claimed as deduction u/s. 57(iii) of the Act. Secondly, even after presuming, but not admitting, that the said expenditure is revenue in nature, but the same is not allowable as deduction since it was laid out or expended wholly and exclusively for the purpose of acquiring the valid legal title of the property rather than for earning income in the form of lease rent. 5.7 At this juncture, it may be noted that the expression "for the purpose of making or earning income" as appearing ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 12 -: in sec.57(iii) of the Act connotes a precise and specific objective and, therefore, there should be a clear and direct nexus between the expenditure incurred and income earned. On the other hand, in respect of business deductions i.e., the expression "for the purpose of business or profession" as appearing in sec.37(1) of the Act has wider implications than the expression "for the purpose of making or earning income". 5.8 Accordingly, in the case of sec. 57 (iii) of the Act, if the purpose of incurring expenditure is coupled with some other extraneous purpose, the said expenditure cannot be allowed as deduction. Thus, u/s.57(iii) of the Act, the purpose for which the expenditure is incurred must necessarily be in order to earn income which is taxable under the head 'Income from Other Sources', as envisaged u/s.56 of the Act. In this context, the motive behind the said act of incurring the expenditure by the assessee has no locus standi to decide the allowability of such expenditure. As such, what is relevant is the manifest and immediate purpose of incurring the said expenditure and not the motive. 5.9 In view of the above observations and relying judgments, which were mentioned from pages 15 to 23 of his order, the CIT(A) held that the assessee is not entitled to claim interest on borrowed loans from banks of Rs. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 13 -: 19,01,112/- as deduction u/s 57(iii) of the Act against lease rental income of Rs. 2,40,00,000/-. 6. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT. 7. Before us, the ld. AR of the assessee filed written submissions, which are as under: “2. The appellant derived rent of Rs.2,40,OO,OOO/- from land situated at H.No.292/1, Khanamet village, Serilingampally Mandal, RR District. The assessee declared this amount as income from other sources. Against the said income, the assessee claimed deduction of Rs.19,01,112/- towards interest paid on loan taken for land regularization and also claimed deduction of Rs. 4,11,726/- towards property tax and declared net income of Rs.2,16,87,162/-. The A.O was of the view that the amount of Rs.19,01,112/- was not incurred wholly and exclusively for the purpose of earning the rental income. He called upon the appellant to show cause as to why the claim for deduction of interest and property tax should not be disallowed because. 3. In response, the appellant submitted that the land at Khanamet was bought from private parties and later, the State Government gave a notice to the appellant stating that the title to the land bought by him was not proper. Against such notice, the appellant went to the High Court and got a stay. While the matter stood thus, the Government announced a regularization scheme for lands whose title is in dispute and would regularize the same on payment of regularization fee. In view of the pending dispute of title to the land and as the value of the land ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 14 -: has gone up from the date of its purchase, the appellant wanted to pay regularization fee and get the dispute settled. As per the notice issued by the Government, regularization fee payable was Rs.7,49,55,707/-. The appellant was having only some liquid funds and was falling short of money for payment of regularization fee. Hence he took a loan of Rs.2.5 crores from ICICI bank and paid regularization fee to the Government. Subsequently the appellant raised a loan from HDFC bank and repaid the loan taken earlier from ICICI bank. The appellant was paying interest on such borrowed money since then. The appellant pleased before the A.O that interest paid on the loan taken to pay regularization fee to own the land was allowable as deduction in computing income earned by lease of the land. 4. The Assessing Officer was of the view that in the appellant's case, the expenditure by way of interest on loan did not reduce appellant's income earned on land situated at Khanamet. On the said ground the A.O disallowed claim for deduction of interest of Rs.19,01,l12/-. 5. The appellant submits that the same Assessing Officer who completed regular assessment for the Assessment Year 2015-16 allowed the appellant's claim of interest for that year. Copy of the Asst. Order u/s.143(3) is submitted herewith. (please see pages 1 to 2 annexed) 6. Aggrieved by the disallowance, the appellant filed appeal before the CI.T (Appeals) who dismissed appellant's appeal. Learned CI.T (A) noted that the appellant had submitted that during F.Y 2008-09, the appellant had borrowed funds for payment of regularization fee, that interest on such loan was capitalized in the earlier years and that from the F.Y 2011-12, when the land was yielding rent from lease of the said land, the appellant had been claiming such ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 15 -: interest on loan as expenditure ujs.57(iii) of the Act against lease rental Income. 7. Learned CI.T (Appeals) took the view that there is no direct nexus between the lease rental and the interest paid on loan borrowed from the bank. CIT(A) has cited a decision of Bombay High Court in the case of J.Jagmohandas Kapadia 61 ITR 663 BOM. The assessee therein carried on business in stocks and shares. He paid interest on loans taken for purchase of shares. He received income from business in purchase and sale of shares as also income by way of dividends. He claimed deduction of the interest against dividend income. A.O disallowed the claim which was upheld in first appeal but allowed by the Tribunal. On further appeal High court held against the assessee. The reason given was that the loan was taken for carrying on business in shares and not for earning dividend. 8. In the appellant's case, there was no such distinction and the impugned land was used for earning income assessed under the head "Other sources". 9. Learned CI.T (Appeals) cited a few other decisions to buttress the view that there is no direct nexus between the payment of interest and earning of lease income. He cited a decision in the case of Hariram Hotels (P) Ltd., 325 ITR 136 KER HC wherein it was held that interest paid on borrowals made for construction of property was to be included in the cost of acquisition while computing Capital Gain. The facts of the said case have no relevance to the facts of appellant's case. 10. Learned C.1.T (Appeals) dismissed appellants appeal. Aggrieved, the appellant filed appeal before Hon'ble IT AT. The appellant relies on the ratio of the under mentioned decisions in support of his claim that the interest expenditure is allowable u/s.57(iii) as deduction from income derived on lease of the impugned land by the appellant. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 16 -: 11. The appellant relies on the decision of the Hon'ble IT AT Mumbai in the case of Birla Group Holdings Ltd. vs DCIT 13 SOT 642 MUM ITAT wherein the Hon'ble ITAT held that interest paid on borrowings utilized for investment in foreign companies, dividend from which was not governed by provisions of section 115-0 and, hence, was not exempt under section 10(33), was to be considered for allowance under section 57(iii). In this case appellant claimed deduction of interest paid on borrowed money, which had been utilized for purpose of investment in shares in domestic as well as foreign companies. Expenditure in respect of interest paid on borrowings utilized for purpose of investment in shares of domestic companies, dividend from which was exempt under section 10(33), was not to be allowed as an expenditure in view of provisions of section 14A but interest paid on borrowings utilized for investment in foreign companies, dividend from which was not governed by provisions of section 115-0 and, hence, was not exempt under section 10(33), was to be considered for allowance under section 57(iii) (Copy of decision is submitted at pages 01 to 06 of paper book.) 12. The appellant also relies on the decision of the Hon'ble ITAT in the case of Raj Kumar Sharma vs ACIT (lTA No.3083/DeIj2018 dt: 16-10-2019- DEL TRIB) In this case Hon'ble Appellate tribunal held that interest expenditure on loans taken by the assessee is allowable as deduction against interest earned by the assessee on deposits made out of the loan amounts. In this case, the assessee obtained loan for expanding his business by purchasing a bigger office premises. Since he could not immediately find suitable premises, he parked the funds in FDRs. The assessee claimed deduction of the interest paid on loans against interest derived on FDRS. A.O did not allow the assessee's claim and in appeal C.I.T(A) upheld the disallowance. In further appeal Hon'ble IT AT allowed the assessee's claim u/s.36(1)(iii) and also held that even if the said expenditure is not allowable ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 17 -: as business expenditure, the same is allowable u/s.57(iii) as there is nexus between income earned and expenditure claimed. (Copy of decision is submitted at pages 07 to 15 of paper book.) 13. The appellant also relies on the decision of Hon'ble Delhi High Court in the case of Pr.C.I.T vs Jubilant Energy Nelp-V-(P) ltd 102 Taxmann.com 97 Del HC. In this case the assessee paid interest to sister concern on money borrowed and subsequently it earned interest income on Inter-Corporate Deposits (ICDs). Since there was direct nexus between interest paid and interest earned, interest paid to sister concern was held deductible under section 57 while bringing interest income to tax as "income from other sources". (Copy of decision is submitted at pages 16 to 18 of paper book.) 14. The appellant also relies on the decision in the case of ACIT vs New Vikas Co-operative House Building Society Ltd., In this case Hon'ble ITAT decided several appeals viz., ITA Nos 2217 & 2218/De/j2008, ITA Nos.1679/DeI/2011, ITA No.3791/DeI/2011, ITA No.3413/De/j2009, ITA No.3596/De/j2011 and ITA No.6051/De/j2013 by its order dated 29-06-2018. Out of these, the issue of allowability of expenditure u/s.57(iii) has been decided in ITA No.3791/Del/2011. The Assessing Officer disallowed an amount of Rs.5,01,804 on account of inadmissible expenditure. In appeal the C.I.T (Appeals) deleted the said addition. On further appeal by the Department, Hon'ble ITAT found that the Assessing Officer disallowed the above expenditure holding that they are not meant for earning additional compensation (of Rs.2.86 crores) and interest thereon (of Rs.1.71crores). The learned Commissioner (Appeals) allowed the claim of the assessee holding that these expenses are on account of legal expenses as well as accounting charges etc. and deleted the addition. Hon'ble ITAT stated that in the case of the assessee, the expenditure related to OD interest, audit expenditure, salary expenditure, legal ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 18 -: expenditure, meeting expenditure etc. They are not capital expenditure in nature. Legal fees are incurred for the purpose of the compensation earned. In view of the above, Hon'ble ITAT held that it did not find any infirmity in the order of the learned Commissioner (Appeals) in allowing the c1aim of expenditure of Rs. 5,01,804/-undersection 57(iii) of the Act. (Copy of decision in so far as ITA No.3791/DeI/2011 is submitted at pages 19 to 22 of paper book). 15. The appellant also relies on the decision of the Hon'ble ITAT in the case of Oriental Building & Furnishing Co. Ltd. vs DCIT 53 ITO 198 Delhi ITAT. In this case, Hon'ble IT AT directed that interest paid on loan taken by the assessee is entitled for relief under section 57(iii) of the Income-tax Act as the expenditure by way of interest payable on the amount of loan, which has been utilized by the assessee in providing the equipments, furniture. fixtures and fittings and on the renovation of the premises, has been laid out and expended wholly and exclusively for the purposes of earning the income, which were held as taxable under the head "income from other sources".(Copy of decision is submitted at pages 23 to 39 of paper book.) 16. The appellant also relies on the decision of the Hon'ble ITAT in the case of Asia Investments (P) Ltd. 91 taxmann.com 431 MUMBAI ITAT. In this case, finance charges (akin to interest on loan) are allowed against the dividend income, which was taxable. Hence, interest taken on loan and which was utilized for the purpose of acquisition / addition to fixed asset may also be kindly be allowed. (Copy of decision is submitted at pages 40 to 49 of paper book.) In this connection the appellant submits that there is a plethora of case law, which states that against the dividend income which is taxable (at that point of time), interest on loans borrowed for acquisition of shares ( otherwise than for controlling interest) is allowable. Hence, interest cost which is revenue in nature needs to be allowed against ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 19 -: the immediate income generated from the asset acquired out of the loan on which interest is paid. 17. The appellant submits that borrowal of monies was made for payment of regularization fee for getting title to the land perfected. Had the assessee not paid the regularization fee, title to the land would be in jeopardy and along with it the appellant would lose right and opportunity to earn income by exploiting the land by leasing it out. 18. As already submitted, the appellant has been claiming interest as deduction. The Assessing Officer has allowed the same vide assessment order for Asst.Year 2015-16 submitted (vide paragraph 5 above). The appellant submits that the Assessing Officer was not right in disallowing the claim of expenditure. Learned C.I.T (Appeals) erred in holding that the interest paid on the loans taken the assessee was capital in nature and that the same is not allowable u/s.57(iii) of the Act. In the light of the submissions made in the preceding paragraphs, the appellant submits that the disallowance of interest on borrowings amounting to Rs.19,01,l12/- may kindly be directed to be deleted.” 8. The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the interest expenditure claimed by the assessee is not incurred for the purpose of earning lease rental income, but incurred for the purpose of payment of land regularization fee which is a legal obligation without having any nexus with lease of the property in the subsequent years and, therefore, the assessee is not entitled to claim interest as deduction u/s 57(iii) of the Act, on borrowed loans. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 20 -: 9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The ld. CIT(A) confirmed the action of the AO in denying the assessee’s claim of interest on borrowed loans u/s 57(iii) of the Act after analysing the issue elaborately with the provisions of section 57(iii) as well as relying on the case law. The CIT(A) analysed the factual matrix of the case and culled out the points, which are emerged against the case of the assessee. At the cost of the repetition, we reproduce the same as under: “1) Raising of loans from banks and leasing of land are two independent and distinct events happened in two different time zones. 2) The purpose of utilization of such loans i.e. payment of regularization fee is distinct and different from the purpose of leasing the land. To be precise, in the first case, the only purpose sought to be achieved by the assessee was securing valid legal title of the property in his personal name by payment of regularization tee to the State Government. On the other hand, in the second case, the only purpose of leasing the land was to earn lease rental income. 3) As a natural corollary, the expenditure incurred towards interest paid on such borrowed loans is distinct and independent from the income received in the form of lease rent. These two activities would fall under two independent fields without having any direct or indirect nexus. 4) Accordingly, interest expenditure would fall under capital field, being expenditure directly connected with acquisition of a capital asset or regularization of the ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 21 -: capital asset and, thereby, bringing a capital asset into existence, whereas lease rental income would fall under revenue field wherein the assessee would receive the lease rental income without there being any other expenditure incurred whether directly or indirectly. 5) As such, the event of payment of regularization fee in connection with which the assessee claimed interest on borrowed funds, had happened in the past as a legal obligation to protect or secure the legal title of the property in the name of the assessee, without there being any remote relation/nexus with the subsequent event of the assessee entering into lease deed with M/s Music Foods (P.) Ltd (since the name changed to M/s N3 Enterprises Pvt Ltd) in later years which resulted in earning lease rental income subject to tax under the head 'Income from Other Sources'. 6) Thus, the interest expenditure is not incurred for the purpose of earning lease rental income, but incurred for the purpose of payment of land regularization fee which is a legal obligation without having any nexus with lease of the property in the subsequent years.” 9.1 As observed by the CIT(A), the said expenditure, being capital in nature, cannot be claimed as deduction u/s. 57(iii) of the Act. Secondly, even after presuming, but not admitting, that the said expenditure is revenue in nature, but the same is not allowable as deduction since it was laid out or expended wholly and exclusively for the purpose of acquiring the valid legal title of the property rather than for earning income in the form of lease rent. 9.2 Before us, the ld. AR of the assessee failed to present its case against the orders of lower authorities that the ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 22 -: orders are contrary to the facts of the case of the assessee. The case law relied upon by the ld. AR in his written submissions are not of any help to the case of assessee. Therefore, we do not see any reason to interfere in the order of the CIT(A) and upholding the same, we dismiss the grounds raised by the assessee on this issue. 10. In the result, appeal of the assessee is dismissed in above terms. Pronounced in the open court on 15 th November, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 15 th November, 2021. kv Copy to : 1 Nagarjuna Rao Akkineni, 8-2-293/82/A, Plot No. 959A, Road No. 48, Jubilee Hills, Hyderabad – 33 2 ACIT, Circle – 14(1), Hyderabad. 3 CIT(A) - 6, Hyderabad 4 Pr. CIT – 6, Hyderabad 5 ITAT, DR, Hyderabad. 6 Guard File. ITA No. 1157/Hyd/2019 Nagarjuna Rao Akkineni, H y d . :- 23 -: S . N o . D e t a i l s D a t e 1 D r a f t d i c t a t e d o n 2 D r a f t p l a c e d b e f o r e a u t h o r 3 D r a f t p r o p o s e d & p l a c e d b e f o r e t h e S e c o n d M e m b e r 4 D r a f t d i s c u s s e d / a p p r o v e d b y S e c o n d M e m b e r 5 A p p r o v e d D r a f t c o m e s t o t h e S r . P S / P S 6 K e p t f o r p r o n o u n c e m e n t 7 F i l e s e n t t o B e n c h C l e r k 8 D a t e o n w h i c h t h e f i l e g o e s t o H e a d C l e r k 9 D a t e o n w h i c h f i l e g o e s t o A . R . 10 D a t e o f D i s p a t c h o f o r d e r