Can You Claim Deduction under Section 57 Without Proof?
The Income Tax Appellate Tribunal (ITAT) recently dealt with a case involving a disallowance of ₹58.83 lakh claimed as a deduction under Section 57 of the Income-tax Act, 1961. The amount was disallowed by the Assessing Officer due to insufficient evidence. But the ITAT wasn’t satisfied with the AO’s action either — it has now remanded the matter back for re-examination.
If you’re claiming Section 57 deduction, here’s what you must know to avoid similar issues.
What is Section 57 Deduction?
Section 57 allows taxpayers to claim deductions against income from other sources, like:
- Interest received on compensation
- Dividend income (before Section 10(34) was amended)
- Family pension (limited to ₹15,000 or 1/3rd of pension)
- Royalty or fees for technical services
- Rental income (not under house property)
The deduction is allowed only for expenses incurred wholly and exclusively to earn such income.
ITAT Case Summary: Disallowance Under Section 57
Case Title:
Mahendra Kumar Gupta v. ACIT – ITAT Delhi Bench
Assessment Year:
2018–19
Key Facts:
- The assessee declared interest income under “income from other sources”.
- He also claimed ₹58.83 lakh as expenditure incurred to earn that income.
- The AO disallowed the claim citing lack of proof — no vouchers, agreements, or confirmations were submitted.
- The assessee argued that relevant documents were available but not adequately considered.
ITAT Decision:
- The Tribunal remanded the matter back to the AO.
- It noted that a proper opportunity must be given to the assessee to produce supporting evidence.
- Also emphasized the principle of natural justice — the AO must verify, not outright reject.
What This Means for Taxpayers
To successfully claim deduction under Section 57:
✅ Maintain complete documentation — agreements, bills, proof of service, payment records.
✅ Ensure nexus between expense and income — the cost must directly relate to income earned.
✅ Respond promptly during assessment — non-cooperation often leads to disallowance.
✅ Understand that AO cannot reject claims arbitrarily — natural justice demands fair hearing.
Section 57 Deduction: Checklist to Avoid Disallowance
| Requirement | Must-Have Proofs |
|---|---|
| Expense wholly/exclusively for earning income | Invoices, contracts, payment proof |
| Nexus between expense and income | Interest workings, supporting documents |
| Claimed under “Income from other sources” | Proper classification in ITR |
| Evidence produced before AO | Copies of all documents during scrutiny |
Expert Tip: Document Before You Claim
“In high-value claims like this, the AO will ask for every rupee’s proof. If you can’t show a direct link between income and expense, your claim is gone. Treat tax deductions like a court case — evidence wins.”
– Tax Practitioner, Delhi
Legal References for Section 57
- Section 57 of the Income-tax Act, 1961
- CBDT Circular No. 5/2001 – Clarifies deduction applicability
- ITAT Delhi in Mahendra Kumar Gupta v. ACIT – Remand for fair hearing
- Income Tax Act – Section 57 (official link)
Related Efiletax Reads
- Section 56 vs Section 57: Income from Other Sources
- How to Handle Scrutiny Notices and Prevent Penalties
FAQs
Q1. Can I claim deduction for interest on loan taken to earn interest income?
Yes, but you must show proof that the loan was taken for earning that specific income.
Q2. Can salary or consulting fee paid to manage investments be deducted under Section 57?
Only if you can prove it was exclusively for earning that income.
Q3. What happens if I don’t have proper bills?
The AO may disallow the deduction. ITAT may remand it, but that’s time-consuming and risky.
Final Words
Section 57 deductions are often misunderstood and overclaimed. Without concrete evidence, even genuine claims can be denied. The ITAT’s order gives taxpayers a chance to set things right — but don’t count on second chances. Prepare in advance, keep your records tight, and consult experts.
Need help responding to scrutiny or planning deductions smartly?
👉 Get expert tax support at Efiletax.in today.
Summary
ITAT Delhi remands a ₹58.83 lakh deduction claim under Section 57 due to lack of evidence. Learn what documents are required, how to establish expense-income nexus, and practical tips to avoid disallowance when filing income from other sources.