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of <h1>Net Interest Paid to Partners Only Disallowed u/s 40(b) of Income Tax Act; Previous Guidance Overruled.</h1> The circular addresses the treatment of interest transactions between a firm and its partners under section 40(b) of the Income Tax Act. Initially, it was decided that only the net interest received or paid should be considered for assessment. However, subsequent instructions contradicted this by adding the gross interest paid to the partner back to the firm's income. Due to legal challenges, the Board clarified that only the net interest paid by the firm to the partner should be disallowed under section 40(b). This instruction supersedes previous contradictory guidance and applies to all pending assessments without affecting completed ones.
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