Shri Kailash Chand Soni C/o- S.L. Poddar & Company E-3A, Kanti Chandra Raod, Bani Park, Jaipur, Jaipur V. ACIT Circle-5, Jaipur, Circle-5, Jaipur

ITA 960/JPR/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5975 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 15-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH
• Assessee Lawyers: S L PODDAR
• Keywords: Business expenditure; Salary income; Commercial expediency; Capital expenditure
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC H A JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA- @ ITA NO. 960/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2014-15 SHRI KAILASH CHAND SONI A-467, AJMER ROAD, VIDYUT NAGAR, JAIPUR CUKE VS. ACIT, CIRCLE-05, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AHNPS6421P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. S. L. PODDAR (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SH. RAJENDRA SINGH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 03/10/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 03/10/2019 VKNS'K@ ORDER PER: SANDEEP GOSAIN, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, JAIPUR DATED 28.06.2019 WHEREIN THE ASSESSEE HAS TA KEN THE FOLLOWING GROUNDS OF APPEAL:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 7,79,478/- ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES WHICH ARE IN ACCORDANCE THE PROVISIONS OF SECTION 57(III) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF H EARING. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME INCOME FROM SALARY AN D COMMISSION FROM M/S ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 2 FINESSE JEWELS PVT. LTD. IN ADDITION TO THIS. THE A SSESSEE ALSO EARNED CAPITAL GAIN INCOME AND INTEREST INCOME DURING THE YEAR UND ER CONSIDERATION. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 17,04,990/- ON 27.12.2014. SUBSEQUENTLY, THE CASE WAS SELECTED THROUGH CASH FOR LIMITED SCRUTINY U/S 143(3) OF THE ACT AND AFTER SERVING ST ATUTORY NOTICES AND SEEKING REPLY OF THE ASSESSEE. THE ADDITIONS/ DISALLOWANCE U/S 57(III) OF THE ACT WAS MADE IN RESPECT OF INTEREST EXPENDITURE AMOUNTING T O RS. 7,79,478/-. 3. AGGRIEVED THE ORDER OF AO, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE LD. CIT(A) AND LD. CIT(A) CONSIDERING THE CASE OF B OTH THE PARTIES DISMISSED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSES SEE HAS FILED THE PRESENT APPEAL BEFORE US ON THE GROUND MENTIONED HEREINABOV E. 5. REGARDING GROUND NO. 1, THIS GROUND RAISED BY T HE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING T HE ADDITIONS OF RS. 7,79,478/- ON ACCOUNT OF DISALLOWANCE OF INTEREST E XPENSES U/S 57(III) OF THE ACT. 6. THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS RAISED BY HIM. THE LD. AR ALSO RELIED UP ON THE WRITTEN SUBMISSIONS SUBMITTED BY HIM BEFORE LD. CIT(A) AS W ELL AS BEFORE US. 7. THE WRITTEN SUBMISSIONS SUBMITTED BY THE ASSESS EE BEFORE THE LD. CIT(A) ARE IN PARA 2.2 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW. 2.2 THE RELEVANT EXTRACT OF THE SUBMISSION OF THE APPELLANT IS AN UNDER:- ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 3 'THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM VARIOU S PARTIES DURING THE YEAR UNDER CONSIDERATION OR IN THE EARLIER YEARS FO R THE PURPOSE OF ADVANCING LOANS TO OTHER PARTIES AND MAKING INVESTMENT IN FIN ESSE JEWELS PVT. LTD. WHERE THE ASSESSEE IS DIRECTOR AND SHAREHOLDER. DUR ING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED TOTAL INTER EST OF RS. 4,21,667/- FROM LOAN ADVANCED TO VARIOUS PARTIES AND HAS SHOWN TOTA L INVESTMENT IN FINESSE JEWELS OF RS. 52,29,785/- AS ON 31.03.2014. THESE F UNDS HAVE BEEN RAISED THROUGH UNSECURED LOANS TAKEN FROM VARIOUS PARTIES ON WHICH THE ASSESSEE HAS TO PAY INTEREST OF RS. 12,01,145/- DURING THE Y EAR UNDER CONSIDERATION. THEREFORE IT IS CLEAR THAT ALL THE FUNDS HAVE BEEN UTILIZED FOR EARNING INTEREST INCOME OR FOR BUSINESS PURPOSE AND FOR NO OTHER USE . THE INCOME TAX RETURN OF THE ASSESSEE ALONG WITH THE BALANCE SHEET AND CA PITAL ACCOUNT IS AVAILABLE HEREWITH ON PAPER BOOK PAGE NO. 1 TO 6 FOR YOUR VER IFICATION. THE GENUINENESS OF THE CLAIM OF THE ASSESSEE IS PROVED HEREWITH IN THE FOLLOWING POINTS AS UNDER:- 1. INTEREST IS RECEIVED ON LOAN AND ADVANCES AT THE RATE NOT LOWER THAN RATES ON WHICH UNSECURED LOAN IS GIVEN:- THE LEARNED A.O. HAS STATED IN ITS ORDER DATED 20:1 2.2016 THAT THE 'THE ASSESSEE'S CLAIM OF INTEREST EXPENDITURE OF RS 12,0 1,145/- U/S 57(III) IS NOT JUSTIFIABLE SINCE EXPENDITURE IS NOT RELATED TO EXC LUSIVELY AND WHOLLY FOR EARNING INCOME OF RS. 4,21,667/- BECAUSE LOGICALLY NO COMMON PRUDENT MAN INTENTIONALLY INCUR LOSS BY OBTAINING LOANS AT HIGH ER RATE OF INTEREST AND ADVANCING LOAN ON EITHER LOW OR NIL RATE OF INTERES T.' THIS STATEMENT SHOWS THE ORDER ISSUED BY THE LEARNED A.O. IS IN ITSELF I MPUGNED AND INVALID AS IT IS BASED ON WRONG FACTS. IN ACTUAL THE LEARNED A.O. HA S ISSUED SHOW CAUSE NOTICE UPON THE ASSESSEE ON DATE 14.12.2016 REQUIRI NG HIM TO PRODUCE THE COMPLETE DETAILS OF INTEREST EXPENSES AND INTEREST INCOME INCLUDING RATE OF INTERESTS IN BOTH THE CASE. IN RESPONSE TO SUCH NOT ICE THE ASSESSEE HAS ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 4 PROVIDED COMPLETE DETAILS OF INTEREST PAID AND INTE REST RECEIVED WHICH ARE REPRODUCED HEREWITH ON PAPER BOOK PAGE NO. 7 TO 8. IN SUCH DETAILS IT CAN BE CLEARLY SEEN THAT THE RATE OF INTEREST ON INTEREST RECEIVED BY THE ASSESSEE ON LOANS ADVANCED IS NO LOWER THAN RATE OF INTEREST ON INTEREST PAID TO UNSECURED LOAN PARTIES. THE RATE OF INTEREST ON INT EREST RECEIVED VARIES FROM 14.40 % TO 15% WHEREAS THE RATE OF INTEREST ON INTE REST PAID TO PARTIES VARIES FROM 12% TO MAXIMUM OF 15.60%. THIS MEANS TH AT THE ASSESSEE HAS NOT ADVANCED LOAN TO PARTIES AT LOWER RATE OR WITH AN INTENTION TO INCUR LOSS.HOWEVER THE LEARNED A.O. WHILE PASSING THE ORD ER U/S 143(3) HAS NOT CONSIDERED THE DETAILS OF INTEREST PAID AND INTERES T RECEIVED PROVIDED BY THE ASSESSEE AND CONCLUDED THAT THE ASSESSEE HAS ADVANC ED LOANS TO VARIOUS PARTIES AT LOW RATE OR NIL RATE OF INTEREST AS THE INTEREST EXPENDITURE IS HIGHER THAN THE INTEREST INCOME. THEREFORE THE CONT ENTION OF THE ASSESSING OFFICER IS NOT MAINTAINABLE AS IT IS NOT BASED ON C ORRECT FACTS. THEREFORE SUCH AN ADDITION WHICH IS BASED ON ASSUMPTIONS OR S URMISES OR ERRONEOUS FINDINGS NEEDS TO BE DELETED. FURTHER THE ASSESSING OFFICER HAS STATED IN ITS ORD ER THAT NO PRUDENT MAN INTENTIONALLY INCUR A LOSS BY OBTAINING LOANS A T HIGHER RATE OF INTEREST AND ADVANCING LOANS ON EITHER LOW OR NIL R ATE OF INTEREST.IN THIS REGARD IT IS TO BE SUBMITTED THAT THE ASSESSEE HAS NOT ACTED NELIGIGENTLY OR CARELESSLY WHILE BORROWING MONEY FR OM PARTIES. IT HAS EVEN NOT ADVANCED MONEY TO THE PARTIES AT LOWER RAT E OF INTEREST EXCEPT OF M/S FINESSE JEWELS PVT. LTD. WHICH IS A RELATED CON CERN OF THE ASSESSEE AND SUCH ADVANCES HAVE BEEN MADE OUT OF COMMERCIAL EXPE DIENCY BY THE ASSESSEE. IN SUCH A CASE THE ASSESSEE HAS NOT UTILI ZED THE LOAN AMOUNT FOR ITS PERSONAL USE BUT THE PURPOSE OF TAKING LOAN WAS TO EARN THE INCOME FROM THE INVESTMENT EITHER IN THE FORM OF INTEREST OR IN THE FORM OF DIVIDEND OR CAPITAL GAIN AND THEREFORE THE INTEREST EXPENDITURE IS ALLO WABLE DEDUCTION UNDER SECTION 57(III) OF THE ACT. ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 5 FURTHER THE LEARNED ASSESSING OFFICER CANNOT JUSTIF IABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH REASONABLE E XPENDITURE IS HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. RATHER HE MUST PUT HIMSELF IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINES SMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IN A DECIDED CASE LAW THEDELHI HIGH COURT IN CIT VS . DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 337 (DEL) IN ANOTHER CASE OF COMMISSIONER OF INCOME TAX V/S. ROCKMAN CYCLE INDUSTRIES PRIVATE LIMITED REPORTED IN 331ITR 401 IN ANOTHER CASE LAW OFCOMMISSIONER OF INCOME TAX V/ S. SPECIAL PRINTS LTD. REPORTED IN 356 1TR 404 2. ADVANCE TO M/S FINESSE JEWELS PVT. LTD. OUT OF COMMERCIAL EXPEDIENCY:- FURTHER IT IS TO BE SUBMITTED THAT THE ASSESSEE HAS SHOWN LOANS AND ADVANCE TO M/S FINESSE JEWELS PVT. LTD. OF RS. 52, 29,785/- IN THE BALANCE SHEET AS ON 31.03.2014. SUCH A LOAN HAS BEEN ADVANC ED TO THE COMPANY OUT OF UNSECURED LOANS TAKEN BY THE ASSESSEE FROM VARIO US PARTIES. FURTHER THE LOAN HAS BEEN ADVANCED AT NIL RATE OF INTEREST. IT IS TO BE MENTIONED HERE THAT M/S FINESSE JEWELS PVT. LTD IS A RELATED CONCE RN OF THE ASSESSEE. SUCH AN ADVANCE IS MADE TO THE COMPANY FOR BUSINESS PURP OSE OF THE ASSESSEE. ANY ADVANCE MADE TO THE OTHERPARTY FOR THE PURPOSE OF BUSINESS COMES UNDER THE PURVIEW OF COMMERCIAL EXPEDIENCY. HERE IT IS IMPORTANT TO DEFINE COMMERCIAL EXPEDIENCY. IN A CASE OFC.R. AULUCK& SON S PVT. LTD ... VS ASSESSEE (ITA NO. 915/CHD/2008)A.Y. 2005-06THE SUPR EME COURT HAS OBSERVED THAT 'THE EXPRESSION 'COMMERCIAL EXPEDIENC Y' IS AN EXPRESSION OF ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 6 WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUD ENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NO T HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY.' IN THE PRESENT CASE M/S FINESSE JEWELS IS ENGAGED I N THE BUSINESS OF MANUFACTURING OF GEMS AND JEWELLERY. THE ASSESSEE I S A DIRECTOR AND SHAREHOLDER IN SUCH COMPANY AND DERIVES SALARY AND COMMISSION INCOME FROM SUCH COMPANY. IT HAS MADE INVESTMENT IN THE COMPANY FOR THE PURPOSE OF EARNING THE INCOME FROM THE INVESTMENT EITHER IN TH E FORM OF INTEREST OR IN THE FORM OF DIVIDEND OR CAPITAL GAIN. THEREFORE SUCH AN ADVANCE WAS CLEARLY GIVEN BY THE ASSESSEE FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY. FURTHER IT IS TO BE NOTED THAT ANY ADVANCE MADE TO THE RELATED/SISTER CONCERN OUT OF COMMERCIAL EXPEDIENCY IS ALLOWABLE U NDER THE INCOME TAX RETURN AND ANY EXPENSES CLAIMED IN RESPECT OF S UCH ADVANCE GIVEN CAN BE CLAIMED AS DEDUCTION U/S 57(III) 137 OF THE INCOME TAX ACT, 1961. THERE ARE VARIOUS CASE LAWS IN SUPPORT OF THE ASSESSEES CONTENTION. SOME OF THEM ARE AS FOLLOWS:- THE ISSUE AS TO WHETHER AN ASSESSEE, WHO HAD BORROW ED FUNDS CARRYING INTEREST AND ADVANCED PART THEREOF TO ITS SISTER CONCERN ON INTEREST FREE BASIS, CAN CLAIM DEDUCTION TO THAT EXTENT WAS CONSIDERED BY HON'BLE THE SUPREME COURT IN SA BUILDERS LIMITED'S CASE. IN THE AFORESAID CASE, HON'BLE THE SUPREME COURT OPINED THAT THE TAX AUTHORITIES M UST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUD ENT BUSINESSMAN. IN CASE, IT IS FOUND THAT TRANSFER OF BORROWED FUNDS TO A SI STER CONCERN WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY EVEN IF THE SAME IS INTERE ST FREE, THE DEDUCTION CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 7 IN ANOTHER CASE OFDELHI HIGH COURT IN CIT VS. DALMI A CEMENT (BHARAT) LTD. (2002) 254 ITR 337 (DEL) IN ANOTHER CASE OF COMMISSIONER OF INCOME TAX V/S. PANKAJMUNJAL FAMILY TRUST REPORTED IN 326 ITR 286, THE DECISION OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B. V. V/S. UNION OF INDIA &ANR. REPORTED IN 341 ITR 1 (SC) HON'BLE THE SUPREME COURT IN THE CASE OF COMMISSION ER OF INCOME TAX V. RAJENDRA PRASAD MOODY, (1978) 115 ITR 519. 3. THE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR EARNING SUCH INTEREST INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IN ORDER TO DECIDE WHETHER EXPENDITURE IS A PERMISS IBLE DEDUCTION U/S 57(III), FOLLOWING THINGS MUST BE CONSIDERED IN MIN D:- (1) EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITA L EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE; (2) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPE NDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OF EARNING 'I NCOME FROM OTHER SOURCES'; (3) THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND IN THIS CONNECTION, FOR, WHAT IS RELEVANT IS T HE MANIFEST AND IMMEDIATE PURPOSE AND NOT THE MOTIVE OR PERSONAL CONSIDERATIO NS WEIGHING THE MIND OF THE ASSESSEE IN INCURRING THE EXPENDITURE; (4) IF THE ASSESSEE HAS NO OPTION EXCEPT TO INCUR T HE EXPENDITURE IN ORDER TO MAKE THE EARNING OF THE INCOME POSSIBLE, SUCH AS WHEN HE HAS TO INCUR LEGAL EXPENSES FOR PRESERVING AND MAINTAINING THE S OURCE OF INCOME, THEN UNDOUBTEDLY, SUCH EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION; HOWEVER, WHERE THE ASSESSEE HAS AN OPTION AND THE OPTION WHI CH HE EXERCISES HAS NO ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 8 CONNECTION WITH THE MAKING OR EARNING OF THE INCOME AND THE OPTION DEPENDS UPON PERSONAL CONSIDERATIONS OR MOTIVES OF THE ASSESSEE, THE EXPENDITURE INCURRED IN CONSEQUENCE OF THE EXERCISE OF SUCH OPTION CANNOT BE TREATED AS AN ALLOWABLE DEDUCTION; (5) IT IS NOT NECESSARY, HOWEVER, THAT THE EXPENDIT URE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONE Y WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMMEDIATE BENEFIT T O THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIE NCY AND IN ORDER INDIRECTLY TO FACILITATE THE MAKING OR EARNING OF T HE INCOME; (6) IF, THEREFORE, IT IS FOUND ON APPLICATION OF TH E PRINCIPLES OF ORDINARY COMMERCIAL TRADING THAT THERE IS SOME CONNECTION, D IRECT OR INDIRECT, BUT NOT REMOTE, BETWEEN THE EXPENDITURE INCURRED DIZILIEEMA YNE EARNED, THE EXPENDITURE MUST BE TREATED AS AN ALLOWABLE DEDUCTI ON; (7) IT WOULD NOT, HOWEVER, SUFFICE TO ESTABLISH MER ELY THAT THE EXPENDITURE WAS INCURRED IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON THE ACTIVITY WHICH IS THE SOURCE OF THE INCOME; AND NEXUS MUST NECESSA RILY BE NEXUS MUST NECESSARILY BE BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED; (8) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT INCOME WAS EARNED; (9) THE TEST IS NOT WHETHER THE ASSESSEE BENEFITED THEREBY OR WHETHER IT WAS A PRUDENT EXPENDITURE WHICH RESULTED IN ULTIMAT E GAIN TO THE ASSESSEE BUT WHETHER IT WAS INCURRED LEGITIMATELY AND BONAFIDE F OR MAKING OR EARNING THE INCOME; (10) THE QUESTION WHETHER THE EXPENDITURE WAS LAID OUT OR EXPENDED FOR MAKING OR EARNING THE INCOME MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINAL CONCLUSION BEING ON OF LAW. ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 9 FURTHER IT IS TO BE SUBMITTED THAT CLAUSE (III) TO SECTION 57 MAKES ADMISSIBLE THE DEDUCTION OF ANY OTHER EXPENDITURE (NOT BEING I N THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME (INCOME CHARGEABLE UN DER THE HEAD 'INCOME FROM OTHER SOURCES'). THIS MEANS SECTION 57(III) PR OVIDES FOR DEDUCTION ONLY OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. IN ORDER THAT EXPENDITURE MAY BE ADMISSIBLE UNDER SECTION 57(III), IT IS NECESSARY THAT THE PRIMARY M OTIVE OF INCURRING IT IS DIRECTLY TO EARN INCOME FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57( III) OF THE ACT, IRRESISTIBLY LEADS TO THE CONCLUSIONS THAT TO BRING A CASE WITHI N THAT SECTION IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THAT THIS PURP OSE MUST BE FULFILLED IN ORDER TO QUAL0, THE EXPENDITURE FOR DE DUCTION IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INC OME IS MADE OR EARNED (CIT VS. RAJENDRA PRASAD MOODY (1978), TAXATION 51 (3)-52, 115 ITR 519 (SC) : CIT VS. MURLIMANOHAR (1998) IX SITC 673 (ALL ): CIT VS. RAMPUR TIRNBER&TURNEY CO. LTD. (1981) 129 ITR 58 (ALL.) : CIT VS. ADMINISTRATOR GENERAL OF MADRAS (1998) 142 TAXATION 85 (MAD)). THERE IS CASE LAW ROSHANSETHIA, MUMBAI VS ASSESSEE ON 15 MAY, 2015 ITA NO.5860/M/2012 A.Y. 2009-10IN WHICH THE ITAT, MUMBA I HAS GIVEN DECISION IN FAVOR OF THE ASSESSEE WHICH IS SIMILAR TO THE PR ESENT CASE:- HERE IN THIS CASE THE ASSESSEE DISCLOSED INTEREST I NCOME OF RS.23,64,399/- UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WHEREAS THE ASSESSEE HAS DEBITED THE INTEREST PAID TO VARIOUS PARTIES AMOUNT ING TO RS.43,88,240/- AND CLUBBING INTEREST INCOME OF RS.41,23,008/-. THE AO DISALLOWED INTEREST ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 10 EXPENDITURE TO THE EXTENT OF RS.35,88,438/- ON THE GROUND THAT THE ASSESSEE HAS USED THE INTEREST BEARING FUND FOR GIV ING INTEREST FREE LOAN TO MRS. TARA LODHA AS WELL AS FOR MAKING INVESTMENT IN SHARES. THE AO ALSO OBSERVED THAT THE LOANS WERE UTILIZED FOR ACQUIRING CONTROLLING INTEREST IN M/S. SIMDIAM P. LTD AND THEREFORE THE INTEREST IS N OT ALLOWABLE IN VIEW OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF 'CIT VS. AMRITABEN R. SHAH' 238 ITR 777. IT IS TO BE NOTED THAT THE ASSESSEE HAS BORROWED FU ND AND INVESTED THE SAME BY EITHER GIVING LOAN OR INVESTMENT IN THE SHA RES OF THE GROUP CONCERN AS WELL AS SHARES OF THE OTHER LISTED COMPANIES FRO M WHICH IT COULD EARN INTEREST INCOME, DIVIDEND INCOME AND CAPITAL GAIN O N SALE OF SUCH SHARES. THE INVESTMENT IN THE SHARES OF M/S. SIMDIAM P. LTD WHICH IS A CLOSED COMPANY OF THE ASSESSEE WAS IN FACT LOAN WHICH WAS CONVERTED INTO THE CAPITAL. THE ASSESSEE HAS INVESTED THE AMOUNT BY GI VING LOAN TO THE SAID COMPANY ON WHICH THE ASSESSEE EARNED INTEREST INCOM E IN THE EARLIER YEARS. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE SAID L OAN WAS ALREADY CONVERTED INTO THE SHARE CAPITAL, THEREFORE THE INT EREST WHICH WAS EARNED IN THE EARLIER YEAR COULD NOT BE EARNED DURING THE YEA R UNDER CONSIDERATION. THE LD. A.R. HAS CONTENDED THAT EARNING INCOME FROM THE EXPENDITURE INCURRED IS NOT A SHRIROSHANSETHIA CONDITION FOR ALLOWING THE D EDUCTION UNDER SECTION 57(III) OF THE ACT. IT IS ONLY FOR THE PURPOSE OF M AKING OR EARNING OF INCOME WHICH IS REQUIRED FOR ALLOWING THE DEDUCTION UNDER SECTION 57(III) AND NOT THE ACTUAL INCOME EARNED BY THE ASSESSEE. HE RELIED UPON THE DECISION OF 'CIT VS. RAJENDRA PRASAD MOODY'. AFTER HEARING THE PLEA OF BOTH THE PARTIES THE HONO RABLE ITAT, MUMBAI HAS GIVEN THE DECISION IN FAVOUR OF THE ASSESSEE BY REL YING ON THE DECISION OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF 'CIT VS. ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 11 DARASHAW& CO. PVT. LTD.' AND JUDGMENT OF HON'BLE MA DRAS HIGH COURT IN THE CASE OF 'CIT VS. M ETHURAYAN'. A SIMILAR VIEW IS TAKEN BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF 'CIT VS. M ETHURAJAN' (273 ITR 95 (MAD) IN THE PRESENT CASE ALSO THE ASSESSEE HAS PROVIDED THE LEARNED ASSESSING OFFICER WITH THE BANK STATEMENTS IN WHICH IT IS CLE ARLY VISIBLE THAT THE FUNDS RAISED FROM THE UNSECURED LOAN TAKEN FROM VARIOUS P ARTIES IS UTILIZED FOR LENDING MONEY TO VARIOUS PARTIES. IT MEANS THAT THE INTEREST PAID ON UNSECURED LOANS IS EXPENDED WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME FROM LOANS AND ADVANCES. IN ADDITION TO THAT THE ASSESSEE HAS ADVANCED MONEY TO ITS SISTER CONCERN M/S FINESSE JE WLES PVT. LTD. AT NIL RATE OF INTEREST FOR THE PURPOSE OF EARNING THE INCOME F ROM THE INVESTMENT EITHER IN THE FORM OF INTEREST OR IN THE FORM OF DIVIDEND OR CAPITAL GAIN WHICH WILL BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IN THE YEAR WHEN IT IS EARNED. IT IS IMMATERIAL WHETHER THE ASSESSEE HAS M ADE PROFIT OUT OF SUCH EXPENDITURE OR NOT. FOR CLAIMING DEDUCTION U/S 57(I II) OF THE INCOME TAX ACT IT WOULD BE SUFFICIENT TO PROVE THAT THERE IS NEXUS BE TWEEN THE INCOME EARNED AND AMOUNT EXPENDED. THEREFORE HERE IN THE CASE OF THE ASSESSEE AS ALL THE REQUIREMENTS FOR CLAIMING DEDUCTION U/S 57(III) OF THE INCOME TAX ACT, 1961 ARE FULFILLED, ASSESSEE CAN AVAIL THE FULL DEDUCTIO N U/S 57(III). THE BANK STATEMENT OF THE ASSESSEE SHOWING THE INFLOW OF FUN DS FROM UNSECURED LOAN PARTIES AND OUTFLOW OF FUNDS TO LOANS AND ADVANCES PARTIES IS AVAILABLE HEREWITH ON PAPER BOOK PAGE NO. 9 TO 14. HOWEVER THE LEARNED A.O. HAS NOT CONSIDERED SECTION 57(III) OF THE INCOME TAX ACT AND TERM COMMERCIAL EXPEDIENCY TOGETHER AND HAS CONTENDED THAT THE EXPENDITURE IS NOT RELATED WHOLLY AND EXCLUSIVE LY FOR EARNING INCOME OF RS. 4,21,667/- ONLY BECAUSE THE ASSESSEE HAS ADVANC ED LOAN TO ONE PARTY AT NIL RATE OF INTEREST OUT OF COMMERCIAL EXPEDIENCY. IN ACTUAL SUCH LOANS AND ADVANCES WHICH ARE PROVIDED AT LOW OR NIL RATE OF I NTEREST OUT OF COMMERCIAL ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 12 EXPEDIENCY DOES NOT AFFECT THE NATURE OF TRANSACTIO N AND THE INTEREST EXPENSE WOULD STILL BE ELIGIBLE TO BE CLAIMED BY TH E ASSESSEE U/S 57(III) IF SUCH EXPENDITURE IS WHOLLY AND EXCLUSIVELY LAID OUT FOR EARNING THE INCOME UNDER 'INCOME FROM OTHER SOURCES'. IN THE PRESENT C ASE ALSO SINCE THE ADVANCE TO M/S FINESSE JEWELS PVT. LTD. ARE MADE AT NIL RATE OF INTEREST OUT OF COMMERCIAL EXPEDIENCY, IT WON'T AFFECT THE NATURE O F INTEREST EXPENDITURE TO BE PERSONAL AND IS ELIGIBLE TO BE CLAIMEDAS DEDUCTI ON U/S 57(III) AS IT IS LAID OUT WHOLLY AND EXCLUSIVELY FOR EARNING INTEREST INC OME BY THE ASSESSEE.' 8. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DERS PASSED BY THE REVENUE AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD, JUDGMENTS CITED BY THE PARTIES AS WELL A S ORDERS PASSED BY THE REVENUE AUTHORITIES. AS PER THE FACTS OF THE PRESEN T CASE, THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM VARIOUS PARTIES DURING T HE YEAR UNDER CONSIDERATION OR IN THE EARLIER YEARS FOR THE PURPO SE OF ADVANCING LOANS TO OTHER PARTIES AND MAKING THE INVESTMENTS IN M/S FIN ESSE JEWELS PVT. LTD., WHERE ASSESSEE IS A DIRECTOR AND SHAREHOLDER. DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED TOTAL INTE REST OF RS. 4,21,667/- FROM LOAN ADVANCED TO VARIOUS PARTIES AND HAS SHOWN TOTA L INVESTMENT IN FINESSE JEWELS OF RS. 52,29,785/- AS ON 31.03.2014. THESE F UNDS HAVE BEEN RAISED THROUGH UNSECURED LOANS TAKEN FROM VARIOUS PARTIES ON WHICH THE ASSESSEE HAD TO PAY INTEREST OF RS. 12,01,145/- DURING THE Y EAR UNDER CONSIDERATION. THEREFORE IT IS CLEAR THAT ALL THE FUNDS HAVE BEEN UTILIZED FOR EARNING INTEREST INCOME OR FOR BUSINESS PURPOSE AND FOR NO OTHER USE . THE ASSESSEES CLAIM OF INTEREST EXPENDITURE OF RS. 12,01,145/- U/S 57(III) WAS NOT FOUND JUSTIFIABLE BY THE REVENUE AUTHORITIES AS THE SAID EXPENDITURE WAS NOT RELATED TO EXCLUSIVELY AND WHOLLY FOR EARNING INCOME OF RS. 4,21,667/-. AS PER THE REVENUE LOGICALLY NO COMMON PRUDENT MAN INTENTIONALLY INCUR LOSS BY O BTAINING LOANS AT HIGHER ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 13 RATE OF INTEREST AND ADVANCING LOAN ON EITHER LOW O R NIL RATE OF INTEREST. IN THIS RESPECT, WE HAVE SEEN RESPONSE FILED BY THE ASSESSE E TO THE NOTICES RECEIVED BY HIM BY THE AO. IN HIS RESPONSE, THE COMPLETE DET AILS OF INTEREST PAID AND INTEREST RECEIVED WERE REPRODUCED BEFORE THE AO AND SUCH DETAILS HAVE ALREADY BEEN MENTIONED BY THE ASSESSEE IN PAPER BOO K. IT CAN BE CLEARLY SEEN FROM THE DOCUMENTS THAT THE RATE OF INTEREST ON INT EREST RECEIVED BY THE ASSESSEE ON LOANS ADVANCED IS LOWER THAN RATE OF IN TEREST ON INTEREST PAID TO UNSECURED LOAN PARTIES. THE RATE OF INTEREST ON INT EREST RECEIVED VARIES FROM 14.40% TO 15% WHEREAS THE RATE OF INTEREST ON INTER EST PAID TO PARTIES VARIES FROM 12% TO MAXIMUM OF 15.60%. THIS MEANS THAT THE ASSESSEE HAS NOT ADVANCED LOAN TO PARTIES AT LOWER RATE OR WITH AN I NTENTION TO INCUR LOSS. HOWEVER THE LEARNED A.O WHILE PASSING THE ORDER U/S 143(3) HAS NOT CONSIDERED THE DETAILS OF INTEREST PAID AND INTERES T RECEIVED PROVIDED BY THE ASSESSEE AND CONCLUDED THAT THE ASSESSEE HAS ADVANC ED LOANS TO VARIOUS PARTIES AT LOW RATE OR NIL RATE OF INTEREST AS THE INTEREST EXPENDITURE IS HIGHER THAN THE INTEREST INCOME. THUS CONTENTION OF THE AS SESSING OFFICER IS NOT MAINTAINABLE AS IT IS NOT BASED ON CORRECT FACTS. 10. AS PER THE CONTENTIONS OF THE ASSESSEE, IT HAS EVEN NOT ADVANCED MONEY TO THE PARTIES AT LOWER RATE OF INTEREST EXCE PT OF M/S FINESSE JEWELS PVT. LTD. WHICH IS RELATED CONCERN OF THE ASSESSEE AND SUCH ADVANCES HAVE BEEN MADE OUT OF COMMERCIAL EXPEDIENCY BY THE ASSES SEE. IT IS ADMITTED FACT THAT NOWHERE, AO HAD POINTED OUT THAT THE ASSESSEE HAD UTILIZED THE LOAN AMOUNT FOR ITS PERSONAL USE. AS PER THE DECISIONS O F HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEMENT (BHARAT) LTD (2002) 254 ITR 3 37 (DEL), CIT VS. ROCKMAN CYCLE INDUSTRIES PVT. LTD. REPORTED IN 331 ITR 401 AND CIT VS. SPECIAL PRINTS LTD. REPORTED IN 356 ITR 404 WHEREIN IT HAS BEEN HELD AS UNDER:- THE LEARNED ASSESSING OFFICER CANNOT JUSTIFIABLY C LAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF T HE BOARD OF DIRECTORS AND ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 14 ASSUME THE ROLE TO DECIDE HOW MUCH REASONABLE EXPEN DITURE IS HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. RATHER HE MUST PU T HIMSELF IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOUL D ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POI NT BUT THAT OF A PRUDENT BUSINESSMAN. 11. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EX PRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HA VE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BU SINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 12. IN THE PRESENT CASE M/S FINESSE JEWELS IS ENGAG ED IN THE BUSINESS OF MANUFACTURING OF GEMS AND JEWELLERY. THE ASSESSEE I S A DIRECTOR AND SHAREHOLDER IN SUCH COMPANY AND DERIVES SALARY AND COMMISSION INCOME FROM SUCH COMPANY. IT HAS MADE INVESTMENT IN THE COMPANY FOR THE PURPOSE OF EARNING THE INCOME FROM THE INVESTMENT EITHER IN TH E FORM OF INTEREST OR IN THE FORM OF DIVIDEND OR CAPITAL GAIN. THEREFORE SUC H AN ADVANCE WAS CLEARLY GIVEN BY THE ASSESSEE FOR THE PURPOSE OF CO MMERCIAL EXPEDIENCY. 13. FURTHER IT IS TO BE NOTED THAT ANY ADVANCE MADE TO THE RELATED/SISTER CONCERN OUT OF COMMERCIAL EXPEDIENCY IS ALLOWABLE UNDER THE INCOME TAX RETURN AND ANY EXPENSES CLAIME D IN RESPECT OF SUCH ADVANCE GIVEN CAN BE CLAIMED AS DEDUCTION U/S 57(III) 137 OF THE INCOME TAX ACT, 1961. THE LD. AR HAD RELIED UPON VA RIOUS CASE LAWS IN SUPPORT OF THE ASSESSEES CONTENTION. SOME OF THEM ARE AS FOLLOWS:- THE ISSUE AS TO WHETHER AN ASSESSEE, WHO HAD BORRO WED FUNDS CARRYING INTEREST AND ADVANCED PART THEREOF TO ITS SISTER CONCERN ON INTEREST FREE BASIS, CAN CLAIM DEDUCTION TO THAT EXTENT WAS CONSIDERED BY HON'BLE THE ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 15 SUPREME COURT IN SA BUILDERS LIMITED'S CASE. IN THE AFORESAID CASE, HON'BLE THE SUPREME COURT OPINED THAT THE TAX AUTHORITIES M UST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUD ENT BUSINESSMAN. IN CASE, IT IS FOUND THAT TRANSFER OF BORROWED FUNDS TO A SI STER CONCERN WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY EVEN IF THE SAME IS INTERE ST FREE, THE DEDUCTION CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. IN ANOTHER CASE OFDELHI HIGH COURT IN CIT VS. DALMI A CEMENT (BHARAT) LTD. (2002) 254 ITR 337 (DEL) IN ANOTHER CASE OF COMMISSIONER OF INCOME TAX V/S. PANKAJMUNJAL FAMILY TRUST REPORTED IN 326 ITR 286, THE DECISION OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B. V. V/S. UNION OF INDIA &ANR. REPORTED IN 341 ITR 1 (SC) HON'BLE THE SUPREME COURT IN THE CASE OF COMMISSION ER OF INCOME TAX V. RAJENDRA PRASAD MOODY, (1978) 115 ITR 519. 14. WE ARE OF THE VIEW THAT IT IS NOT NECESSARY THA T THE EXPENDITURE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMM EDIATE BENEFIT TO THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMME RCIAL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE MAKING OR EARNIN G OF THE INCOME. 15. FURTHER, CLAUSE (III) TO SECTION 57 MAKES ADMIS SIBLE THE DEDUCTION OF ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF C APITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING SUCH INCOME (INCOME CHARGEABLE UNDER THE HEAD 'INCO ME FROM OTHER SOURCES'). THIS MEANS SECTION 57(III) PROVIDES FOR DEDUCTION ONLY OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY 'FOR TH E PURPOSE OF MAKING OR EARNING SUCH INCOME'. IN ORDER THAT EXPENDITURE MAY BE ADMISSIBLE UNDER SECTION 57(III), IT IS NECESSARY THAT THE PRIMARY M OTIVE OF INCURRING IT IS DIRECTLY ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 16 TO EARN INCOME FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57( III) OF THE ACT, IRRESISTIBLY LEADS TO THE CONCLUSIONS THAT TO BRING A CASE WITHI N THAT SECTION IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THAT THIS PURP OSE MUST BE FULFILLED IN ORDER TO QUAL0, THE EXPENDITURE FOR DEDUCTION IT DO ES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED (CIT VS. RAJENDRA PRASAD MOODY (1978), TAXATION 51 (3)-52, 1 15 ITR 519 (SC) : CIT VS. MURLIMANOHAR (1998) IX SITC 673 (ALL): CIT VS. RAMPUR TIRNBER&TURNEY CO. LTD. (1981) 129 ITR 58 (ALL.) : CIT VS. ADMINIS TRATOR GENERAL OF MADRAS (1998) 142 TAXATION 85 (MAD)). 16. THERE IS CASE LAW ROSHANSETHIA, MUMBAI VS ASSES SEE ON 15 MAY, 2015 ITA NO.5860/M/2012 A.Y. 2009-10IN WHICH THE ITAT, M UMBAI HAS GIVEN DECISION IN FAVOR OF THE ASSESSEE WHICH IS SIMILAR TO THE PRESENT CASE:- 17. HERE IN THIS CASE THE ASSESSEE DISCLOSED INTERE ST INCOME OF RS.23,64,399/- UNDER THE HEAD 'INCOME FROM OTHER SO URCES' WHEREAS THE ASSESSEE HAS DEBITED THE INTEREST PAID TO VARIOUS P ARTIES AMOUNTING TO RS.43,88,240/- AND CLUBBING INTEREST INCOME OF RS.4 1,23,008/-. THE AO DISALLOWED INTEREST EXPENDITURE TO THE EXTENT OF RS .35,88,438/- ON THE GROUND THAT THE ASSESSEE HAS USED THE INTEREST BEAR ING FUND FOR GIVING INTEREST FREE LOAN TO MRS. TARA LODHA AS WELL AS FO R MAKING INVESTMENT IN SHARES. THE AO ALSO OBSERVED THAT THE LOANS WERE UT ILIZED FOR ACQUIRING CONTROLLING INTEREST IN M/S. SIMDIAM P. LTD AND THE REFORE THE INTEREST IS NOT ALLOWABLE IN VIEW OF THE JUDGMENT OF HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF 'CIT VS. AMRITABEN R. SHAH' 238 ITR 777. ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 17 18. WE HAVE NOTED THAT THE ASSESSEE HAD BORROWED FU ND AND INVESTED THE SAME BY EITHER GIVING LOAN OR INVESTMENT IN THE SHA RES OF THE GROUP CONCERN AS WELL AS SHARES OF THE OTHER LISTED COMPANIES FRO M WHICH IT COULD EARN INTEREST INCOME, DIVIDEND INCOME AND CAPITAL GAIN O N SALE OF SUCH SHARES. THE INVESTMENT IN THE SHARES OF M/S. SIMDIAM P. LTD WHICH IS A CLOSED COMPANY OF THE ASSESSEE WAS IN FACT LOAN WHICH WAS CONVERTED INTO THE CAPITAL. THE ASSESSEE HAD INVESTED THE AMOUNT BY GI VING LOAN TO THE SAID COMPANY ON WHICH THE ASSESSEE EARNED INTEREST INCOM E IN THE EARLIER YEARS. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE SAID L OAN WAS ALREADY CONVERTED INTO THE SHARE CAPITAL, THEREFORE THE INT EREST WHICH WAS EARNED IN THE EARLIER YEAR COULD NOT BE EARNED DURING THE YEA R UNDER CONSIDERATION. THE LD. A.R. HAS CONTENDED THAT EARNING INCOME FROM THE EXPENDITURE INCURRED IS NOT A SHRIROSHANSETHIA CONDITION FOR ALLOWING THE D EDUCTION UNDER SECTION 57(III) OF THE ACT. IT IS ONLY FOR THE PURPOSE OF M AKING OR EARNING OF INCOME WHICH IS REQUIRED FOR ALLOWING THE DEDUCTION UNDER SECTION 57(III) AND NOT THE ACTUAL INCOME EARNED BY THE ASSESSEE. HE RELIED UPON THE DECISION OF 'CIT VS. RAJENDRA PRASAD MOODY'. 19. AFTER HEARING THE PLEA OF BOTH THE PARTIES THE HONORABLE ITAT, MUMBAI HAS GIVEN THE DECISION IN FAVOUR OF THE ASSESSEE BY RELYING ON THE DECISION OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF 'CIT VS. DARASHAW& CO. PVT. LTD.' AND JUDGMENT OF HON'BLE MA DRAS HIGH COURT IN THE CASE OF 'CIT VS. M ETHURAYAN'. 20. A SIMILAR VIEW IS TAKEN BY THE HON'BLE MADRAS H IGH COURT IN THE CASE OF 'CIT VS. M ETHURAJAN' (273 ITR 95 (MAD). 21. IN THE PRESENT CASE ALSO THE ASSESSEE HAD PROVI DED TO THE ASSESSING OFFICER WITH THE BANK STATEMENTS IN WHICH IT IS CLE ARLY VISIBLE THAT THE FUNDS RAISED FROM THE UNSECURED LOAN TAKEN FROM VARIOUS P ARTIES IS UTILIZED FOR ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 18 LENDING MONEY TO VARIOUS PARTIES. IT MEANS THAT THE INTEREST PAID ON UNSECURED LOANS IS EXPENDED WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME FROM LOANS AND ADVANCES. IN ADDITION TO THAT THE ASSESSEE HAS ADVANCED MONEY TO ITS SISTER CONCERN M/S FINESSE JE WLES PVT. LTD. AT NIL RATE OF INTEREST FOR THE PURPOSE OF EARNING THE INCOME F ROM THE INVESTMENT EITHER IN THE FORM OF INTEREST OR IN THE FORM OF DIVIDEND OR CAPITAL GAIN WHICH WILL BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IN THE YEAR WHEN IT IS EARNED. IT IS IMMATERIAL WHETHER THE ASSESSEE HAS M ADE PROFIT OUT OF SUCH EXPENDITURE OR NOT. FOR CLAIMING DEDUCTION U/S 57(I II) OF THE INCOME TAX ACT IT WOULD BE SUFFICIENT TO PROVE THAT THERE IS NEXUS BE TWEEN THE INCOME EARNED AND AMOUNT EXPENDED. THEREFORE HERE IN THE CASE OF THE ASSESSEE AS ALL THE REQUIREMENTS FOR CLAIMING DEDUCTION U/S 57(III) OF THE INCOME TAX ACT, 1961 ARE FULFILLED, ASSESSEE CAN AVAIL THE FULL DEDUCTIO N U/S 57(III). THE BANK STATEMENT OF THE ASSESSEE SHOWING THE INFLOW OF FUN DS FROM UNSECURED LOAN PARTIES AND OUTFLOW OF FUNDS TO LOANS AND ADVANCES PARTIES IS AVAILABLE HEREWITH ON PAPER BOOK. HOWEVER THE A.O. HAD NOT CONSIDERED SECTION 57(III) OF THE INCOME TAX ACT AND TERM COMMERCIAL EXPEDIENCY TOGETHER AND HAD CON TENDED THAT THE EXPENDITURE IS NOT RELATED WHOLLY AND EXCLUSIVELY FOR EARNING INCOME OF RS. 4,21,667/- ONLY BECAUSE THE ASSESSEE HAS ADVANCED L OAN TO ONE PARTY AT NIL RATE OF INTEREST OUT OF COMMERCIAL EXPEDIENCY. IN A CTUAL SUCH LOANS AND ADVANCES WHICH ARE PROVIDED AT LOW OR NIL RATE OF I NTEREST OUT OF COMMERCIAL EXPEDIENCY DOES NOT AFFECT THE NATURE OF TRANSACTIO N AND THE INTEREST EXPENSE WOULD STILL BE ELIGIBLE TO BE CLAIMED BY TH E ASSESSEE U/S 57(III) IF SUCH EXPENDITURE IS WHOLLY AND EXCLUSIVELY LAID OUT FOR EARNING THE INCOME UNDER 'INCOME FROM OTHER SOURCES'. IN THE PRESENT C ASE ALSO SINCE THE ADVANCE TO M/S FINESSE JEWELS PVT. LTD. ARE MADE AT NIL RATE OF INTEREST OUT OF COMMERCIAL EXPEDIENCY, IT WON'T AFFECT THE NATURE O F INTEREST EXPENDITURE TO ITA NO. 960/JP/2019 SHRI KAILASH CHAND SONI, JAIPUR VS. ACIT, JAIPUR 19 BE PERSONAL AND IS ELIGIBLE TO BE CLAIMED AS DEDUCT ION U/S 57(III) AS IT IS LAID OUT WHOLLY AND EXCLUSIVELY FOR EARNING INTEREST INCOME BY THE ASSESSEE.' 22. CONSIDERING, THE TOTALITY THE FACTS AND CIRCUMS TANCES, THE DISALLOWANCE MADE ABOVE. WE ALLOW THE CLAIM OF THE ASSESSEE AND DELETE THE ADDITIONS MADE BY THE AO AND UPHELD BY THE LD. CIT(A). IN THE RESULT, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 23. REGARDING GROUND NO. 2 IS GENERAL IN NATURE WHI CH DOES NOT REQUIRE ADJUDICATION. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED WI TH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 03/10/2019. SD/- SD/- FOE FLAG ;KNO LANHI XKSLKBZ (VIKRAM SINGH YADAV) ( SANDEEP GOSAIN ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 03/10/2019 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI KAILASH CHAND SONI, JAPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-05, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 960/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR