SANDIP VALLABHDAS PARIKH,AHMEDABAD V. THE DY. COMMISSIONER OF INCOME TAX, AHMEDABAD

ITA 853/AHD/2023

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The case involves Sandip Vallabhdas Parikh, the appellant, who contested the disallowance of interest expenses claimed under section 57(iii) of the Income Tax Act, 1961, against his interest income for the Assessment Year 2017-18. The Deputy Commissioner of Income Tax initially disallowed the claim due to perceived discrepancies and lack of direct nexus between the borrowed funds and the interest income. The Commissioner of Income Tax (Appeals) upheld this decision. However, upon appeal to the Income Tax Appellate Tribunal, it was determined that the assessee had sufficiently demonstrated the nexus through detailed submissions and documentary evidence, leading to the allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126621 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Capital asset; Rule of consistency; Grounds of appeal; Subsequent Assessment; Dismissed; National Faceless Appeal; Commissioner; Commissioner of Income Tax; Transfer; Deleted; Department; Claim of deduction; Explanation; Allowability; Loans and advance; Large deduction; Personal Purpose
• Section: 143(3)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD सु\u0018ी सुिच\u001aा का \u001bले, \u0012ा ियक सद एवं \u0018ी मकरंद वसंत महा देवकर, लेखा सद क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.853/Ahd/2023 िनधा \u0010रण वष\u0010 /Assessment Year : 2017-18 Sandip Vallabhdas Parikh 5, Malay Villa Bungalows Nr. Silver Crust Bungalows Science City Road, Sola Ahmedabad – 380 060 बनाम/ v/s. The Dy.Commissioner of Income Tax Circle 4(1)(2) Ahmedabad – 380 015 \u0014थायी लेखा सं./PAN: ACZPP 0214 C अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Mehul K. Patel, AR Revenue by : Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 21/04/2025 घोषणा की तारीख /Date of Pronouncement: 23/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the order dated 03.10.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”], confirming the assessment order dated 20.11.2019 passed under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as \"the Act\"] by the Deputy Commissioner of Income Tax, Circle 4(1)(2), Ahmedabad [hereinafter referred to as “Assessing Officer”], for the Assessment Year (AY) 2017-18. ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 2 Facts of the Case: 2. The assessee, an individual, had filed his return of income for A.Y. 2017-18 on 03.08.2017, declaring a total income of Rs.63,87,340/-. The case was selected for scrutiny assessment under the Computer Aided Scrutiny Selection (CASS) on the issue of “large deduction claimed under section 57 of the Act.” During the course of assessment proceedings, the Assessing Officer observed that the assessee had earned interest income of Rs.40,16,435/- from loans and advances and had simultaneously claimed interest expenses amounting to Rs.39,60,528/- under section 57(iii) of the Act. On being called upon to justify the allowability of such claim, the assessee submitted details of interest income earned and interest expenses incurred. However, the Assessing Officer noted various discrepancies in the balance sheet filed along with the return, such as mismatch in loan and advances figures, absence of liabilities in the ITR schedule, and non-establishment of direct nexus between the borrowed funds and the earning of interest income. Consequently, the Assessing Officer disallowed the claim of Rs.39,60,528/- under section 57(iii) of the Act and assessed the total income of the assessee at Rs.1,03,47,868/-, as against the returned income of Rs.63,87,340/-. In appeal, the learned CIT(A) upheld the action of the Assessing Officer, holding that the assessee failed to establish the nexus between the borrowed funds and the earning of interest income, and accordingly dismissed the appeal of the assessee. 3. Aggrieved thereby, the assessee has preferred the present appeal before us raising following grounds of appeal: 1. That on facts, and in law, the learned NAC has grievously erred in confirming the disallowance of Rs. 39,60,528/- made u/s 57 (iii) of the Act in respect of claim of interest expenses. ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 3 2. That on facts, and in law, the learned NAC and AO has grievously erred in not at all considering the submissions and evidences filed, and in dismissing the appeal. 3. The appellant craves liberty to add, alter, amend any ground of appeal. 4. During the course of hearing before us, the learned Authorized Representative (AR) reiterated the facts as stated in the statement of facts and drew our attention to the detailed submissions filed before the Assessing Officer, including the replies dated 22.09.2019, 23.10.2019, and 15.11.2019, placed in the paper book. It was submitted that the assessee had duly furnished complete details of interest income earned, interest expenditure incurred, ledger accounts of the parties, merged balance sheet, computation of income, and bank statements during the course of assessment proceedings. The learned AR contended that the Assessing Officer had not questioned the authenticity or genuineness of the interest payments made. The Assessing Officer had only doubted the existence of a nexus between borrowed funds and the loans and advances on which interest income was earned. The AR submitted that the nexus had been clearly explained and substantiated both before the Assessing Officer and the CIT(A), but the authorities failed to properly appreciate the evidences placed on record. 4.1. The learned AR further pointed out that the assessee had borrowed funds from various parties such as White Valley Pvt. Ltd., Tulsi Industries, and Tulsi Dyechem Pvt. Ltd., and in turn advanced the amounts to earn interest income. Since the assessee could not commence business activities during the relevant assessment year, the borrowed funds were utilized to give loans and earn interest, thereby establishing the nexus between the interest-bearing borrowings and the interest-yielding advances. In support of ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 4 this contention, the AR furnished a detailed statement of borrowings and corresponding advances, demonstrating that:- Borrowed From Date Amount Borrowed (Rs.) Advanced To Date Amount Advanced (Rs.) White Valley Pvt. Ltd. 28.03.2014 1,50,00,000 Tulsi Dyechem Pvt. Ltd. 28.03.2014 1,50,00,000 White Valley Pvt. Ltd. 26.03.2015 75,00,000 Tulsi Dyechem Pvt. Ltd. 26.03.2015 75,00,000 Tulsi Industries 10.02.2015 1,85,00,000 White Valley Pvt. Ltd. (loan repaid) 10.02.2015 1,85,00,000 Tulsi Dyechem Pvt. Ltd. (loan repaid) 14.02.2015 1,25,00,000 Ritu M. Patel 14.02.2015 1,25,00,000 4.2. It was submitted that the above borrowings and advances were routed through banking channels and duly supported by bank statements placed on record. Thus, there was a clear one-to-one nexus established between borrowed funds and the loans advanced, which ultimately generated taxable interest income offered under the head \"Income from Other Sources.\" 4.3. The AR also emphasized that any portion of the interest expenditure that pertained to amounts diverted for personal purposes, or capital account, had not been claimed as deduction, but was transferred to the capital account ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 5 separately. Thus, only that portion of interest expenditure which was directly relatable to interest-earning loans was claimed under section 57(iii). 5. The learned Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities and contended that the assessee had failed to establish a clear nexus in respect of the interest-bearing borrowings and the corresponding advances before the lower authorities. 5.1. The DR further raised a question regarding the true purpose for which the borrowed funds were obtained and the amounts were subsequently advanced to other parties. 6. We have carefully considered the rival submissions made by both sides and have perused the orders of the authorities below. We have also gone through the material placed on record, including the paper book containing the assessee’s submissions before the Assessing Officer and the Commissioner of Income Tax (Appeals), bank statements, ledger accounts, statement showing nexus between borrowings and advances. 6.1. The sole dispute in the present appeal revolves around whether the assessee is entitled to deduction of interest expenditure amounting to Rs.39,60,528/- under section 57(iii) of the Income Tax Act, 1961 against the interest income earned under the head \"Income from Other Sources.\" 6.2. It is not in dispute that the assessee had borrowed funds on which interest was paid. It is also not in dispute that the assessee has earned interest income by advancing certain funds during the relevant previous year. The ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 6 Assessing Officer has not doubted the genuineness of either the borrowings or the advances made. The Assessing Officer has, however, disallowed the deduction under section 57(iii) of the Act on the ground that the assessee failed to establish a direct nexus between the borrowed funds and the interest-earning advances. 6.3. Under section 57(iii) of the Act, for claiming deduction, it is not necessary that the expenditure must result in earning income. The only requirement is that the expenditure should have been incurred \"wholly and exclusively\" for the purpose of earning income. What is necessary is the purpose of the expenditure — namely, for making or earning income. Applying the above principle to the facts of the present case, we find that the assessee had borrowed funds from various parties including White Valley Pvt. Ltd., Tulsi Industries, and Tulsi Dyechem Pvt. Ltd., and subsequently advanced the funds to other parties to earn interest income. The statement filed by the assessee before us clearly evidences the flow of funds from borrowings to advances made. The ledger accounts and bank statements placed in the paper book further corroborate this nexus. 6.4. Moreover, the assessee has prudently transferred the portion of interest expenditure pertaining to funds utilized for personal purposes or capital asset acquisition to his capital account, and only the net interest expenditure directly relatable to the earning of interest income has been claimed under section 57(iii). Therefore, the apprehension of the Assessing Officer regarding absence of nexus is misplaced. ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 7 6.5. During the course of hearing, the learned Departmental Representative further raised a question regarding the true purpose for which the borrowed funds were obtained, and the subsequent advances made to third parties. In this regard, we observe that the assessee has consistently contended that the funds were initially borrowed with an intention to commence business activity; however, since business could not be commenced, the funds were utilized for advancing loans to earn interest income. The assessee has placed on record a detailed statement showing the flow of funds, along with supporting bank statements and ledger accounts, evidencing that the borrowings were immediately or shortly thereafter advanced to third parties on which interest income was earned and offered to tax. We find that the explanation offered by the assessee is duly supported by documentary evidence and has not been controverted by bringing any material on record to demonstrate diversion of funds for non-business purposes or for purposes other than earning taxable interest income. In the absence of any adverse material, the mere raising of a question regarding the purpose of borrowing and lending, without disproving the evidence furnished, cannot be a ground to deny the claim of deduction under section 57(iii) of the Act. 6.6. In the present case, the nexus, at least indirect if not direct, between the interest-bearing borrowings and the interest-earning advances is sufficiently established by the assessee by furnishing cogent documentary evidence. The Assessing Officer and the CIT(A) have disregarded the evidence placed on record without pointing out any specific defect therein. Disallowance cannot be sustained on mere conjecture or suspicion, without any tangible adverse material. ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 8 6.7. It is further noted that the learned AR has brought to our attention that in the subsequent Assessment Year 2018–19, the assessee had claimed deduction of similar interest expenditure against interest income earned on loans and advances, and the same was allowed by the CIT(A) vide order dated 11.03.2025. The learned AR submitted that the facts and circumstances in the subsequent year are identical to the present year, and therefore, in the absence of any material change in facts or law, the principle of consistency ought to be followed. The copy of the said order was placed on records. In this regard, it is well settled that where there is no change in facts or law, and a particular view has been taken in the assessee’s own case for a different year, consistency demands that the same view should ordinarily be followed, unless there is a distinguishing feature brought on record. 6.8. Having regard to the totality of the facts and circumstances of the case, we are of the considered opinion that the assessee is entitled to claim deduction of Rs.39,60,528/- under section 57(iii) of the Act, and the disallowance made by the Assessing Officer and confirmed by the CIT(A) is not sustainable in law. Accordingly, the disallowance of Rs. 39,60,528/- is directed to be deleted. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Open Court on 23 April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 23/04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS ITA No.853/Ahd/2023 Sandip Vallabhdas Parikh vs. CIT Asst. Year : 2017-18 9 आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)- 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , अहमदाबाद /DR,ITAT, Ahmedabad. 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 22.4.2025 2. Date on which the typed draft is placed before the Dictating Member. : 22.4.2025 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 23.4.25 7. Date on which the file goes to the Bench Clerk. : 23.4.25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "