ORDER
Sandeep Gosain, Judicial Member. – The present appeal has been filed by the assessee challenging the impugned order 16.06.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2020-21. The following grounds are reproduced below:
“1. On the facts and circumstances of the appellant’s case and in law the Id. CIT(A) erred in confirming the action of Ld. AO in disallowing the interest expense of Rs.1,49,52,658/- claimed u/s 57 without appreciating the fact that the loan against which such interest was paid, was availed for the purpose of earning income chargeable to tax under the head “Other Sources” and hence the same was duly allowable.
2. On the facts and circumstances of the appellant’s case and in law the Id. CIT(A) erred in confirming the action of Ld. AO erred in disallowing the forecasting expense of Rs. 2,00,000/- by treating the same as personal expense without appreciating the fact that such expense are eligible business expenses.
3. The Appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal.
4.The appellant prays the Hon’ble Tribunal to delete the additions/disallowances made by the Learned Assessing Officer, which are confirmed by the Ld. CIT (A).”
2. Ground No. 1 raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of AO in disallowing the interest expenses claimed under Section 56 of the Act.
3. In this regard, Ld. AR on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities. It was submitted that assessee is an individual and renowned professional engaged in providing services as a film artist in the film industry and filed her original return of income under Section 139(1) of the Act. Thereafter, assessment order under Section 143(3) of the Act was passed, thereby making addition/disallowance on various issues aggregating to Rs. 10.63 crores.
4. It was submitted that Ld. CIT(A), after considering the case of both the parties partly allowed the appeal and restricted the addition/ disallowance which are tabulated herein below:
5. It was submitted that Ld. CIT(A) erred in confirming the decision of AO in disallowing the interest expenses of Rs. 1,49,52,658/- claimed under Section 57 of the Act without appreciating the fact that the loan against which such interest was paid was availed for the purpose of earning income chargeable to tax under the head “Income from other sources” and was thus duly allowable.
6. On the contrary Ld. DR appearing on behalf of the Revenue relied on the order passed by the Revenue Authorities.
7. We have heard the counsels for both parties, perused the materials placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that in the return of income, assessee had claimed expenses under Section 57 of the Act. and the said expenses includes the figure of Rs. 1,49,52,658/- being interest expenses incurred by the assessee on the loan taken from Deutsche Bank. As per assessee, the loan proceeds were utilized for making the investment in VCF funds which had resulted in income from other sources. However, AO in its order had specifically mentioned that the assessee had failed to established the nexus between the borrowed funds and the investments yielding income from other sources. It was also observed by the AO that the assessee had substantial investments in capital/ personal assets including jewelry, motor cars and other fixed assets and had failed to prove that borrowed funds were not utilized for acquisition of such assets and as per balance sheet, as on 31.03.2020, the assessee had not reflected any outstanding loan while significant investments in shares, bonds and government securities were shown which yield both taxable as well as exempt income. Thus it was concluded that borrowed funds were not-utilized for earning “Income from other sources”
8. During the appellate proceedings, Ld. CIT(A) also confirmed that the assessee had failed to furnish any cogent documentary evidences such as loan agreements, funds utilization details or fund flow statements to establish the nexus between the borrowed funds and investments yielding income from other sources thus upheld the disallowance in the hands of the assessee.
9. After having gone through the entire facts placed before us and also the material placed before us, we found that as per the assessee, she had incurred an interest expenditure on loan taken from Deutsche Bank in December 2016, and which according to the assessee was utilized for making investment and in this regard reliance has been placed upon the copy of financials.
10. We also noticed that the total investment increased from Rs. 285 crores as on March 2016 to 341 crores as on March 2017. We have also perused the copy of financials for AY 2016-17 and 2017-18 which are placed at Paper Book page nos. 79 to 84 and 142 to 147. It was submitted by the Ld. AR that loan was specifically taken to explore investment opportunities in the VCF sector and the income from the same had been duly offered for computation of income for the purpose of tax. We noticed that the interest on the said loan as per the documents was claimed as deductions in the financial year 2016-17 and the same was duly allowed by the AO in the assessment completed under Section 143(3) of the Act.
11. In our view, once the interest expenditure in the year of acquisition of investment had been accepted, then in that eventuality the same cannot be disputed in the subsequent years without any change in the facts. We have also gone through the copy of financials statements and assessment order for AY 2017-18 which has also been placed on record at Paper Book page nos. 85 to 130. Similarly, in AY 2018-19 also the assessee had claimed interest expenses under Section 57 of the Act against the income from VCF which had been accepted by the AO. We noticed that further in AY 2019-20 the assessee had claimed the similar expenditure the said return was adopted in the order passed under Section 143(1) of the Act with no variations.
12. In our view, when in earlier assessment years the AO had accepted the claim of the Assessee then in the year under consideration, facts being the same, no disallowance was warranted, by following the principles of consistency. In this regard reliance has been placed on the decisions in the following cases:
| • | | DIT (Exemptions) v. Escorts Cardiac Diseases Hospital Society [2008] 300 ITR 75 (Delhi) |
| •Travancore | | Textiles (P.) Ltd. v. ITO [IT Appeal .Nos. 3193 /Chny/2018 & 176/Chny/2019, dated 3-3-2021] |
13. Now as far as the submission of the Revenue that no nexus between the loan taken and investments was established by the assessee, in this regard, we noticed that once the incremental investments made by the assessee exceed the amount of loan taken, it clearly establishes that the loan funds were utilized for making such investments. Consequently, keeping in view this above reasoning the interest paid on such loan can very well be considered incurred for the purpose of earning income and is thus allowable as deduction under Section 57 of the Act.
14. As regards the observation made by the Revenue that, the loan was not reflected in the balance sheet for AY 2019-20, is concerned, in this regard, we noticed that the said loan was taken in FY 2016-17 and was repaid in June 2019 and December 2019 and therefore, no loan was outstanding as on 31.03.2020. Thus on these reason the same was not reflected on the financial statements for AY 2019-20. Whereas the loan outstanding on 31.03.2019 has duly been reflected in the financial statements AY 2018-19. The copies of which have already been placed at Paper Book page nos. 74 to 84, 142 to 147 and 151 to 156.
15. Therefore, considering in totality the facts and circumstances of the case and keeping in view our above discussion we direct the AO to delete the disallowance made under Section 57 of the Act and accordingly allow this ground raised by the Assessee.
16. Ground No. 2: This ground relates to challenging the order of Ld. CIT(A) in confirming the action of Ld. AO in disallowing the forecasting expense of Rs. 2,00,000/- by treating the same as personal expense without appreciating the fact that such expense are eligible business expenses.
17. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities and it was submitted that during the year under consideration the assessee had claimed the forecasting expense amounting to Rs. 2,00,000/- in its return of income. Whereas, the AO in its assessment order has disallowed the claim of the assessee by holding that these were personal in nature and were not incurred for the purpose of assessee’s business and thus do not qualify claiming deductions u/s 57 of the Act.
18. Whereas on the contrary Ld. DR relied upon the orders passed by the Revenue Authorities.
19. We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that assessee is engaged in the business of generation of power through windmills situated at various locations and income from the said business was duly and offered to tax. As per the assessee in order to explore the feasibility of setting up new windmill power projects in the state of Maharashtra, assessee had incurred an expenditure or Rs. 200,000/- towards professional services paid to M/s. Manikaran Analytic Ltd.
20. Although AO has not brought on record any material to demonstrate as to how the said expenditure is personal in nature or not incurred for business purposes. Whereas, on the contrary, prima facie the expenditure is connected with and incidental to the existing business, which is continuously engaged in the windmill sector.
21. Therefore, keeping in view the above all facts and the discussion made above we are of the view that the expenses claimed by the assessee qualifies as allowable business expenditure. Therefore, we direct the AO to delete the disallowance. Consequently, this ground raised by the assessee is allowed.
22. In the result appeal filed by the assessee is allowed.
