SHRI ASHWINBHAI LALJIBHAI VARADIA,SURAT vs. THE INCOME TAX OFFICER, WARD-9(1), SURAT

This appeal filed by the Assessee is directed against the order of Commissioner of Income-Tax (Appeals)-V, Surat [in short “the CIT(A)”] dated 08-10-2014, for the assessment year 2011-12.

Ground No.1 relates to disallowance of interest of Rs.4,40,484/- on the ground that the same cannot be set-off against interest income under the head income from other sources in as much as the interest paid is for the introduction of capital in the firm. 3. Brief facts of the cases are that the AO found that the assessee has claimed expenses of Rs.4,40,484/- against the interest income of Rs.21,513/- shown in the head income from other sources thereby claiming a loss from interest from other parties at Rs.4,18,331/-. The AO disallowed the claim of Ashwinbhai Laljibhai Varadia v. ITO, Ward-9(1),Surat/ITA. 3267/AHD/2014/A.Y.2011-12 Page 2 of 4 expenses u/s.57 as the assessee failed to establish that these expenses were actually incurred to earn the interest income shown under the head income from other sources. The assessee submitted that unsecured loan amounting of Rs.2,87,63,400/- were taken from various parties and invested in partnership firm namely Asmi Enterprises, Abhed Enterprises & Akshar Enterprises. The interest of Rs.4,40,484/- on unsecured loan is eligible to be set-off u/s.70 & 71 of the Act against the interest income of Rs.1,04,342/- on capital invested in three partnership firms.

Being aggrieved, the assessee carried the matter before the ld. CIT(A). However, the CIT(A) observed that the appellant has raised unsecured loan and the paid interest on these accounts. These loans were utilized for capital introduction and various partnership firms immediate wherein the assessee is a partner. He has received interest from various partnership firms and shown interest of income under the head income from business or profession. The appellant had submitted before the AO vide reply dated 20-01-2014 that he has no business activities during the year under consideration. The appellant had borrowed unsecured loans and had invested/utilized the same in the partnership firm. The appellant has claimed set-off the interest of Rs.4,40484/- u/s.70 & 71 of the Act against the interest income of Rs.1,04,342/- section 70 & 71 as incorporated in Chapter-VI which deals with aggregation of income and set-off of loss. The appellant failed to show that how these expenses were actually incurred to interest income shown under the head income from other sources. The interest from business or profession and therefore the claim of the appellant has rightly disallowed by the AO.