ITAT Grants Final Opportunity to Assessee on Section 57 Interest Deduction Claim

The present appeal has been filed by Sweetyben Ankitkumar Shah against the Income Tax Officer, Ward 5(3)(2) in the ITAT Ahmedabad, challenging the order dated October 31, 2025, passed by NFAC, Delhi for AY 2017-18.

The assessee filed the income tax return for the year 2017-18 on December 25, 2017, and declared zero income. The case was selected for limited scrutiny to check a deduction claimed under income from other sources. During assessment, the AO found that the assessee had claimed a large deduction of Rs. 2,04,84,570 as interest paid under section 57. However, the assessee did not give any proper explanation or show how this interest expense was connected to the interest income earned. Since this link was not proved, the AO rejected the deduction. As a result, the assessment was completed on December 28, 2019, determining the total taxable income at Rs. 8594470.

Being aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) through the impugned order and the appeal of the assessee was dismissed.

The assessee then approached the tribunal, during the hearing, AR submitted that in Form No. 35, the email ID of the Chartered Accountant (consultant) was given. However, that CA did not appear before the CIT(A) during the case proceedings, and he also did not inform the assessee that the CIT(A) had passed the order.

So, he requested that one more chance be given to explain the claim of interest deduction under Section 57. The DR, however, supported the earlier orders. After considering both sides, the Tribunal noted that the assessee did not cooperate at any stage, neither before the AO nor before the CIT(A), despite getting several opportunities.

The assessee also failed to show how the interest expense claimed as a deduction under section 57. It is the assessee’s responsibility to follow up on her case. However, to give one final chance in the interest of justice, the Tribunal decided to send the matter back to the CIT(A) for fresh consideration, but only after imposing a penalty of Rs 10,000, which must be paid to the Prime Minister’s National Relief Fund within 15 days. If the assessee again fails to cooperate, the CIT(A) will be free to decide the case based on available records. As a result, the tribunal allowed the appeal of the assessee for statistical purposes.