Duplicate taxation of disallowed interest prevented; verify AOP return and delete corresponding entry in member assessment.

Where an AOP has disallowed interest in its return and added it back to total income under the tax law, the same interest should not be taxed again in the hands of an individual member because that would produce duplicate taxation; the correct remedy is for the Assessing Officer to verify the AOP's return to confirm the disallowance or offer of the interest and, if confirmed, delete the corresponding entry from the member's assessment. The record contained no contrary evidence to displace the asserted factual treatment by the AOP, and the matter is restored to the AO for verification and adjustment.

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Issues: Whether interest income of Rs. 59,08,339/- which was disallowed suo-motu in the hands of the AOP under Section 40(b) of the Income-tax Act, 1961 can be treated as taxable income in the hands of a member of the AOP.

Analysis: The issue turns on whether an amount of interest that has been disallowed and added back to the total income of the AOP under Section 40(b) of the Income-tax Act, 1961 can later be taxed as income in the hands of an individual member of that AOP. The material on record establishes that the interest in question was disallowed by the AOP in its return under Section 40(b). Given that treatment, taxation of the same amount again in the hands of a member would result in duplicate taxation. The appropriate course identified is to verify the return of the AOP to confirm whether the interest had been offered or otherwise treated as income by the AOP; if so, the corresponding entry in the member's assessment must be deleted. The record does not contain contrary evidence to displace the factual position asserted regarding the AOP's disallowance under Section 40(b).

Conclusion: The interest income of Rs. 59,08,339/- shall not be taxed again in the hands of the member if it was disallowed and added back in the return of the AOP under Section 40(b) of the Income-tax Act, 1961; the matter is restored to the Assessing Officer to verify the AOP's return and, if the AOP has offered or disallowed the interest as stated, delete the interest from the member's assessment.

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