2021 (2) TMI 169

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.... in relation to business of the assessee. 3. The assessee is an individual. The assessee filed his Income tax return for the AY 2016-17 on 21.12.2016, declaring Total Income of Rs. 8,01,860/-. The assessee is a partner in the firm M/s Rama Hi-Power Tech and all income from the partnership firm including interest on capital, remuneration, commission, etc are includible as income under the head 'Profits & Gains from business or profession' u/s.28(vi) of the Income Tax Act, 1961(Act). As per clause 4 of the partnership deed dt. 17.11.2002 of M/s Rama Hi- Power Tech, all the partners are entitled to interest on capital to the extent of 12% p.a. for the capital invested in the firm. It is the plea of the assessee that the partners hav....

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....on of income as given above does not reflect this position, the correct position is that is a claim for set off of loss under the same head of income i.e., intra head adjustment which is permitted u/s.70 of the Act. 6. The Assessing Officer however held that no income has accrued to the assessee from the partnership business during the financial year 2015-16. The expenses do not have any nexus with the other source of income under the head PGBP i.e., vehicle hire, consultancy or commissioner expense. Hence, the interest expense was proposed to be disallowed u/s 37 of the Income tax Act as the expenses were 'not laid out wholly and exclusively for the purpose of business or profession'. The assessing officer also held that no inte....

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....e partners on mutual consent postponed this withdrawal of funds keeping in mind the financial losses being made by the partnership firm. The necessary Income Tax Returns & Balance sheet of Partnership firm was also filed before the AO. However, since the funds were borrowed from external sources, interest was payable by the assessee to its unsecured lenders. The partner claimed the deduction which it was entitled u/s 36(1)(iii) and 37 with income earned from other sources of income under the same head i.e. Vehicle hire, Commission Income and Consultancy income. This resulted in a loss arising from one source under the head business which was set-off with another source of income under the head of PGBP in terms of section 70. 9. Interest,....