Income Tax Appellate Tribunal

Sunil Bardia, Rajnandgaon vs. Income Tax Officer

MANU/RD/0232/2023

10.10.2023

Direct Taxation

Expenditure could not be denied merely because there was no income earned during the relevant Assessment Year

Present appeal is filed by the assessee against the orders passed by the Assessing Officer (AO) disallowing part of interest expense claimed under section 57 of Income Tax Act, 1961 (IT Act) amounting to Rs.5,58,088 and the learned CIT(A) upheld the same.

The assessee had interest income as well as interest expenditure and such transactions of income and expenditure were revealed by the assessee under the head income from other sources. The issue is squarely covered by the order of the Apex Court in the case of CIT Vs. Rajendra Prasad Moody wherein it is specifically held that, how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting, and the interpretation of Section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income.

In view of the principle of law laid down by the Apex Court, since, in the present case, there was income earned by the assessee by way of interest, however, the same was not equal to the percentage of interest in terms of interest expenditure incurred but the same could not be a reason to disqualify certain expenditure within the provision of Section 57(iii) of the Act, when the Apex Court, has held that, the expenditure could not be denied merely because there was no income earned during the relevant A.Y. Expenditure incurred by the assessee, genuineness of which was not disputed by the A.O are allowable expenditure in terms of provisions of Section 57(iii), thus, addition made by the A.O and confirmed by the CIT(Appeals) are not sustainable.

The order of Learned CIT(A) is set aside and the A.O is directed to delete the addition made under Section 57(iii) of the IT Act. The appeal of the assessee is allowed.

Tags : Assessment Addition Legality

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