2025 (6) TMI 1140

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.... SONJOY SARMA: This appeal is filed by the assessee against the order dated 25.11.2024 by the CIT(Appeal, ADDl/JCIT(A)-4, Chennai (hereinafter referred to as 'CIT(A)'] for the assessment year 2006- 07. 2. Brief facts of the case are that the assessee is a firm engaged in finance and money lending. The assessee has filed return of income for assessment year 2006-07 declaring total income of R....

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.... firm is following cash system of accounting, where expenditure is claimed only when it is actually paid. Though Rs. 52.82 lakhs was payable to the partner @12 p.a., the firm paid only Rs. 5,00,000/- due to lack of funds. The assessee relied on the decision of Mumbai Bench of the Tribunal in the case of ITO vs. MM Textiles (31 SOT 207). However, the Assessing Officer rejected the explanation and h....

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....rest paid to partners was duly authorized by partnership deed and within permissible limit of section 40B of the Act. He submitted that act does not prescribe any condition that the capital introduced by the partners must be utilized exclusively for business purposes to allow interest u/s 40B, further the assessee earned business income by way of interest from M/s Muthoot Fincorp Ltd. to the tune ....

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....ion 40B permits deduction to interest paid to the partners provided that it is authorized by the partnership deed not exceeding 12% with simple interest per annum. In the present case, the assessee paid interest in accordance with terms and conditions of the partnership firm and rate of interest did not exceed 12% p.a. and moreover the assessee-firm is following cash basis accounting and payment o....