Interest Expenditure Allowable u/s 57 Against Income from Other Sources

ITAT Mumbai allowed the taxpayer’s appeal for AY 2018-19, holding that interest expenses of Rs.50.91 lakh were properly linked to interest income under Section 57. The tribunal deleted the disallowance made by the AO.

Amarsingh N. Thakur has filed the present appeal in ITAT Mumbai, challenging an order dated September 29, 2025, passed by the CIT(A)/NFAC Delhi, under Section 250 of the Income-tax Act, 1961. The case concerns the Assessment Year 2018-19.

The assessee, a builder and real estate developer, had earned income from different sources, including salary, house property, capital gains, and others. While filing the return of income, he declared an interest of approximately Rs. 50.91 lakh under the head of “Income from Other Sources”, and on the same claimed an equal amount as an interest expenditure deduction under Section 57 of the Income-tax Act, stating that the loans were taken specifically to earn that income.

However, during the assessment of the return, the Assessing Officer (AO) disallowed the entire Rs. 50.91 lakh deduction under section 57 of the Act and made an addition of the same to the assessee’s income on the grounds that the assessee failed to explain a direct link between the borrowed funds and the interest income. When approached by the CIT(A), the CIT(A) endorsed the findings of the AO and upheld the impugned disallowance and addition.

The aggrieved assessee, with the CIT(A)’s ruling, thereafter filed an appeal before the ITAT Mumbai, where he explained that the total interest expense was higher, but only the portion related to earning interest income was claimed as a deduction, while the remaining interest was capitalised. He further explained that no expenses were claimed against other types of income, like dividends or bank interest.

When the tribunal reviewed the records, accounts, and income computation, it noted that the assessee had explicitly linked the claimed interest expense with the interest income offered to tax. The tribunal further noted that the genuineness of the expenses was never a disputed topic before the lower authorities. It further asserted that to fulfil the requirements of Section 57(iii), the expense must be incurred for earning income, and it is not obligatory that the expense should immediately result in income.

Accordingly, the tribunal noted that the assessee had explained the clear link between the borrowed funds and the interest income. Therefore, the tribunal allowed the Rs. 50.91 lakh deduction claimed by the assessee and deleted the earlier disallowance of the same. In conclusion, the assessee’s appeal was allowed.