Interest expenditure disallowance fails where trust funds were invested and partly deployed as loans, making the addition unsustainable.

Interest expenditure paid to members of a GPF Trust could not be disallowed in full merely on the asserted absence of nexus between funds received and income earned, where the trust's funds were sourced from employee subscriptions, invested to generate income, and partly deployed as loans and advances. The issue was treated as covered by the assessee's own earlier year decision, and the addition was directed to be deleted. The earlier reasoning also noted that the enhancement had been made without proper opportunity, engaging principles of natural justice, which reinforced the unsustainable nature of the disallowance.

---

---

Issues: Disallowance of interest expenditure paid to members of a GPF Trust on the ground of absence of nexus with income earned.

Analysis: The issue was treated as covered by the decision in the assessee's own case for an earlier assessment year. The relevant reasoning adopted that the trust's funds were sourced from employee subscriptions, invested for earning income, and partly deployed as loans and advances, so the interest expenditure could not be disallowed in entirety merely on the premise that there was no nexus between funds received and funds applied. The earlier view also noted that the enhancement had been made without proper opportunity, engaging principles of natural justice.

Conclusion: The addition was directed to be deleted and the disallowance of interest expenditure was held unsustainable.

---