MAHESH NANJI GAMI,NAVI MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, NAVI MUMBAI

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ITA 1560/MUM/2025Status: DisposedITAT Mumbai24 October 2025AY 2017-183 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the interest expenses of Rs. 48,89,313/- are allowable as a deduction. The reasoning was that the assessee had paid interest on borrowings which were contributed to the capital of a partnership firm, and from this firm, the assessee earned interest income which was offered under the head 'profit and gains from business or profession'. Therefore, in the considered opinion of the Tribunal, the interest paid on borrowings deserves to be allowed from the business income. Even if the assessee had inadvertently claimed the deduction under the head 'income from other sources', the claim under Section 36(iii) was made during the assessment proceedings and should have been allowed. The Tribunal directed the AO to allow the interest of Rs. 48,89,313/- as a deduction from profit and gains from business and profession. No issue was expressly left undecided.

What were the facts?

The assessee, Mahesh Nanji Gami, filed his return of income for Assessment Year 2017-18 on March 16, 2018, declaring a total income of Rs. 1,08,24,270/-. The return was selected for scrutiny. The Assessing Officer (AO) noticed a claim of deduction of Rs. 48,89,313/- under Section 57 of the Income Tax Act, 1961, for interest expenses incurred on borrowings used for capital contribution in a partnership firm. The AO disallowed this claim, finding no nexus with income from other sources. The assessee contended that the interest should have been allowed under Section 36(iii) as it was paid on borrowings invested in the firm's capital, from which interest income was earned under the head 'profit and gains from business or professions'. This contention was rejected by the AO and the National Faceless Appeal Centre (NFAC), Delhi.

What were the issues?

1. Whether the interest expenses of Rs. 48,89,313/- incurred on borrowings for capital contribution in a partnership firm, from which interest income was earned and offered under the head 'profit and gains from business or professions', are allowable as a deduction. This issue turns on the interpretation and applicability of Section 57 versus Section 36(iii) of the Income Tax Act, 1961. Assessee's contentions: The assessee argued that the interest paid on borrowings, which were invested in the capital of the partnership firm, should be allowed as a deduction under Section 36(iii) of the Act. The interest income earned from this capital contribution was offered under the head 'profit and gains from business or professions'. Revenue's contentions: The revenue, through the AO and the ld. CIT(A), contended that there was no nexus between the interest expenses and income from other sources, leading to the disallowance. The judgment does not explicitly record separate arguments for the revenue before the Tribunal, but their stance was to uphold the disallowance.

Which sections of the Income-tax Act were involved?

Section 57,Section 36(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLE

For Appellant: Shri Khushiram Jhadwani, A/R
Hearing: 15/10/2025Pronounced: 24/10/2025

PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assesse is preferred against the order dated 16/01/2025 by NFAC, Delhi [hereinafter “the ld. CIT(A)"] pertaining to AY 2017-18. 2. The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the disallowance made by AO in respect of interest expenses of Rs.48,89,313/- incurred for earning interest income from capital contribution in partnership firm.

3.

Briefly stated that the facts of the case are that the assessee filed his return of income on 16/03/2018 declaring total income at Rs.1,08,24,270/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. While scrutinizing the return of income, the AO noticed that the assessee has claimed a deduction of Rs.48,89,313/- u/s 57 of the Act.

आयकर अपीलीय अधिकरण INCOME TAX APPELLATE TRIBUNAL Ι.Τ.Α. No. 1560/Mum/2025 2

4.

The AO noticed that there is no nexus with the income from other sources and disallowed the claim of interest. The assessee had strongly contended that the same should have been allowed u/s 36(iii) of the Act as interest has been paid on the borrowings invested in the capital of the firm from which the assessee has earned interest on capital under the head "profit and gains from business or professions". This contention of the assessee was dismissed by the AO and disallowed by the ld. CIT(A).

5.

Having heard the rival contentions, we have carefully perused the orders of the authorities below. It is true that the assessee has paid interest on borrowings contributed in the capital of partnership firm from which the assessee has earned interest which has been returned under the head profit and gains from business or profession, therefore, in our considered opinion the interest paid on borrowings amounting to Rs.48,89,313/- deserves to be allowed from the business income. Even if inadvertently the assessee has claimed as deduction under the head income from other sources but the claim u/s 36(iii) of the Act was made during the assessment proceedings itself which was rubbished by the AO but should have been allowed. Therefore, considering the facts of the case in totality, we direct the AO to allow the interest of Rs. 48,89,313/- as deduction from profit and gains from business and profession.

6.

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 24th October, 2025 at Mumbai. (NARENDRA KUMAR BILLAIYA) ACCOUNTANT MEMBER Mumbai, Dated 24/10/2025 *SC SPS

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