2024 (12) TMI 1049

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....ii) of the IT Act, 1961 and should be so allowed in computing total income. 2. The Hon CIT(A) erred in also upholding the alternative argument of the Ld. AO to support the addition of Rs. 69,53,573/-, by relying upon the provisions of section 37(1) of the IT Act, 1961, disallowing interest expenditure incurred on borrowed loans, without appreciating the fact that entire interest expenditure was revenue in nature and incurred wholly and exclusively for the purposes of business and therefore fully allowable as revenue expenditure and hence the disallowance was not justified and bears to be deleted." 2. The assessee is an individual deriving income from House Property, Business, Capital Gains and Interest Income. The assessee filed a return of income for AY 2019-20 on 30.10.2019 declaring total income at Rs. 58,02,470/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The AO during the assessment proceedings noticed that the assessee has earned interest on capital of Rs. 83,78,564/- from M/s Shri Neminath Buildpro and that the assessee has claimed interest under section 36(1)(iii) of the Income Tax Act, 1961 (the Act) to the tune of Rs....

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....rs to be incorrect. 9. The appellant's argument is that it had sufficient capital which could fund non-interest yielding investments. From the balance sheet as on. 31.03.2019, it is seen that the appellant had his own capital amounting to Rs 24,16,96,089/ On the other hand, a total of assets are Rs. 42,99,21,439/- out of which the investment in M/s. Shree Neminath Buildpro is Rs. 14,32,07,359/-. This means that the assets were amounting to Rs. 28,67,14,080/- are non-interest yielding and these assets are more than the total capital of the appellant. Thus, the appellant's own capital of Rs. 11,60,97,108/- is not sufficient to fund the investments on which no interest income is being earned by the appellant. Thus, it is very clear that interest bearing funds were utilized for making non- interest earning investments. 10. The appellant has claimed that all unsecured loans were raised for the purposes of business, however no documentary evidence for this claim has been filed. It may be correct to say that the appellant has substantial amount of investment in various partnership firms but it is not earning any interest on most of these partnership firms and reason of same ha....

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....ct. The ld. DR also submitted that the assessee has not discharged the onus of proving that the interest free investments are made out of own funds and not out of borrowed funds. 6. We heard the parties and perused the material on record. The assessee is a partner in various partnership firms in which the assessee has made an investment to the tune of Rs. 38,21,95,742.11 as of 31.03.2019. Out of this capital with various partnership firms, the assessee is earning interest income only from one firm M/s.Shri Neminath Buildpro and the assessee is also earning remuneration as partner from M/s.Shri Sumatinath Enterprises LLP. The assessee has claimed interest expenditure of Rs. 69,53,573 against these two incomes which have been offered to tax under the head profits and gains from business or profession. The contention of the revenue is that the investment in the partnership from where assessee is earning interest income is very low compared to the borrowed funds. The revenue is also contending that the assessee has utilized the interest bearing funds to make investment in partnership firms from where no income is derived, and that the borrowed funds are also used for giving interest f....

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....rpose of earning that income and appropriate allowances are deductible there from in determining the taxable income of the partner. The Court held that the amount paid as salary and bonus to staff, expenditure for maintenance and depreciation of motor cars and travelling expenses expended by him in earning the income from firm are deductible from the income. The Delhi High Court in CIT v. Sohan Lal Nyyar [1974] 95 ITR 90 held that section 67(3) is not exhaustive and any deduction otherwise allowable under section 37(1) will have to be allowed even if it does not fall within the ambit of section 67(3) of the Act. Salary paid to a manager by a partner for looking after his interest in the firm stands allowed by the Madras High Court in CIT v. S. Meyyappan [1969] 73 ITR 20. Therefore absence of earning any interest income on capital from the firm is no bar to claim the interest paid on borrowings for the purpose of contributing capital to the firm by the assessee as deductible expenditure. In such an event there would be loss under the head "PGBP" subhead "interest, salary from the partnership firm" and the assessee is entitled to set off the said loss against other income under the s....