TaxTMI 
TaxTMI 
2025 (2) TMI 1856
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.... of interest expense more so when the Ld. Assessing Officer herself accepted the amount of unsecured loans as genuine thereby leaving no scope for doubting the genuineness of interest expense. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT (A), NFAC erred in restricting the deduction of interest expense only to the extent of interest income thereby maintaining the disallowance on account of interest expense to the extent of Rs. 20,46,265/- out of the total disallowance of Rs. 34,38,533/- made by the Ld. Assessing Officer without properly appreciating the facts of the case and submissions made before him. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A), NFAC erred in restricting the deduction of interest expense only to the extent of interest income thereby maintaining the disallowance on account of interest expense to the extent of Rs. 20,46,265/- out of the total disallowance of Rs. 34,38,533/- made by the Ld. Assessing Officer even when the entire amount of interest expense on unsecured loans was allowable as deduction under section 36(1)(iii) of the Income-Tax Act, 1961 since the unsecured ....
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....ness or profession, which was sought to be set off/adjusted by the assessee with the income from house property and income from other sources. Assessing Officer observed that the assessee has taken interest bearing loans and the same were invested in the partnership firm namely Freedom Shoes LLP, from where the assessee is earning income by way of remuneration, interest and share in profits. The assessee participated in the assessment proceedings at the fag-end when the assessment was getting time barred, and submitted the details, which were found by the Assessing Officer to be not complete. The assessee submitted before the AO during assessment proceedings that the assessee has taken loans and has invested funds in the partnership firm from where the assessee earns the income in the form of remuneration, interest and share in profits. That the assessee paid interest of Rs. 50,83,665/- on loan taken from ICICI Bank and other private persons. The assessee claimed to have enclosed confirmation of unsecured loans. The details of interest paid were also enclosed. The assessee also submitted that the assessee is not carrying any such business where the books of accounts are required to....
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.... was partner, namely Freedom Shoes LLP, and further for rest of the interest expenses which is claimed as deduction against income earned by the assessee cannot be allowed as per AO because of the fact that the genuineness of the interest expenses claimed are not established. 3.1 The Assessing Officer further disallowed loss of Rs. 10,06,265/- claimed by the assessee under the head "Profits and Gains of Business and profession", which the assessee sought to adjust/set off against income from house property and income from other sources. Thus, as against the returned income of Rs. 5,17,690/-, the Assessing Officer assessed the income of the assessee to the tune of Rs. 49,62,488/-. 4. Aggrieved, the assessee filed first appeal with the CIT(Appeals), and the ld. CIT(Appeals) partly allowed the appeal of the assessee. The ld. CIT(A) observed that the assessee has 25% share in partnership firm M/s Freedom Shoes LLP. The assessee has earned interest income of Rs. 30,37,400/- on capital employed in the said firm, and against that the assessee has claimed interest expenses of Rs. 50,83,665/-. The ld. CIT(A) observed that the assessee has borrowed funds from the private parties at the....
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....olding the interest expenditure paid by the assessee on the borrowed funds to be excessive vis a vis interest received by the assessee. It was submitted that as per provisions of the Income Tax Act, only interest @ 12% on capital invested by partners can be paid/allowed as deduction in the hands of the firm, and rest is to be disallowed as per provisions of the Act. Thus, there was no error on the part of the assessee charging 12% interest on the capital invested in the partnership firm, Freedom Shoes LLP. It was submitted that disallowance of Rs. 10,06,265/- was double addition and the same ought to have been deleted. 6. Ld. Sr. DR, on the other hand, relied upon the order of ld. CIT(Appeals). 7. I have considered rival contentions and perused the material on record. I have observed that the assessee filed return of income on 06.03.2017, declaring total income of Rs. 5,17,690/-. Assessee is drawing income from house property, income from other sources, and also income by way of remuneration, share of profits from the partnership firm namely Freedom Shoes LLP as well as income from interest from the said partnership firm on the capital contributed by the assessee. Case of the....
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.... to tax under the head 'income from Profits and Gains from Business or Profession'. It is also stipulated in the Act that the partnership firm shall be allowed interest paid on capital of the partners @ 12% and any excess is to be disallowed in the hands of the partnership firm (Section 40(b)(iv)). The assessee has charged interest @ 12% from the said partnership firm. It is also observed that the assessee has incurred interest expenditure of Rs. 50,83,665/-, which is sought to be adjusted under and head profits and gains from business or profession. Said expenses of Rs. 50,83,665/- constitute interest on loan to the tune of Rs. 49,90,463.25, brokerage expenses of Rs. 31,500/- and processing fee on ICICI loan of Rs. 61,701.50, paid by the assessee. The net income, which is declared under the head "profits and gain from business or profession" is a loss to the tune of Rs. 10,06,265/-. Proceeding further, it is observed that the Assessing Officer made enquiries with respect to the interest paid on various loans raised by the assessee. The Assessing Officer made enquiries and delved into finding out creditworthiness of the lenders and genuineness of the loans. The Assessing Officer af....
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.... the tune of Rs. 34,38,533/- on the ground that creditworthiness of the lender as also genuineness of the interest expenses could not be proved, is not challenged by the Revenue either by filing appeal against the order of ld. CIT(Appeals) nor any cross objection has been filed by the Revenue and hence, the order of assessment which stood merged with CIT(Appeals)'s appellate order has attained finality so far as Revenue is concerned. In my considered view, the assessee has invested Rs. 2,75,00,000/- in the capital of partnership firm Freedom Shoes LLP and said investment in capital of the partnership firm carries the interest @ 12% as claimed by the assessee. Income-tax Act itself stipulates that the partnership firm shall be allowed interest paid at the capital @ 12% and any excessive interest shall be disallowed in the hands of the firm and will not be allowed as deduction while computing income from business or profession. Reference is drawn to provisions of Section 28(v), 40(b) and Section 184 .Thus, I do not hold any infirmity so far as charging of interest @ 12% by the assessee from the partnership firm, as it carries the force and mandate of law(Section 40(b)) so far as allo....
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....are of loss from partnership firm. There is share of positive profit from the partnership firm Freedom Shoes, LLP to the tune of Rs. 5,94,609/- which the assessee earned and claimed exemption u/s 10(2A). The aforesaid loss of Rs. 10,06,265/- has arisen from set off of interest paid on loans raised by the assessee from ICICI Bank and private parties to be set off against the income from remuneration from the partnership firm Freedom Shoes LLP and interest income from capital invested in partnership firm Freedom Shoes, LLP. The income from interest earned on capital invested in the partnership firm by the partner as well remuneration of partner from partnership firm is chargeable to tax under the head Profits and Gains of Business or Profession. The assessee has paid interest on loans borrowed from ICICI Bank and from private parties. The assessee has negative income after such set off under the head Profits and Gains of Business or Profession, which is sought to be set off against income from house property and income from other sources. I do not find any restriction in such set off keeping in view the provisions of section 71, which reads as under : Set off of loss from on....