PRAVINKUMAR VALJIBHAI THAKKER,AHMEDABAD vs. THE DEPUTY COMMISSIONER OF INCOME TAX, WARD 3(1)(1), AHMEDABAD, AHMEDABAD

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ITA 956/AHD/2026Status: DisposedITAT Ahmedabad30 July 2026AY 2016-173 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 lower authorities were not justified in disallowing the interest expenditure incurred for earning net interest income. The assessee had offered the net interest income for taxation, and the genuineness of the interest paid was not disputed.

What were the facts?

The assessee borrowed funds and advanced them on interest. In the current year, the assessee borrowed a larger sum to repay earlier loans and advance the remaining funds at a higher interest rate, earning net interest income. The AO disallowed the interest expenditure, citing a lack of nexus.

What were the issues?

Whether interest expenditure incurred for earning interest income is allowable when the nexus between borrowed funds and advanced funds is questioned.

Which sections of the Income-tax Act were involved?

Section 57

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: Shri Sanjay Garg & Shri Narendra Prasad Sinha

For Appellant: Shri Parimalsinh B Parmar, AR
Hearing: 20/07/2026Pronounced: 30/07/2026

आदेश/O R D E R

Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), ADDL/JCIT(A)-7, Mumbai [hereinafter referred to as ‘Ld. CIT(A)’] dated 12/12/2025 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2016- 17.

2.

The assessee in this appeal is aggrieved by the action of the Ld. CIT(A) in confirming the addition made by the Assessing Officer (in

ITA No.956/Ahd/2026 Pravinkumar Valjibhai Thakker vs. DCIT Asst.Year 2016-17 2 short “the AO”) of Rs. 47,91,218/- on account of disallowance of interest expenditure u/s 57 of the Income Tax Act.

3.

The brief facts of the case are that the assessee, in the earlier A.Y. 2014-15, borrowed certain interest free funds from certain relatives. However, he advanced the same on interest to one Satyam Developers and offered interest income, so earned, for taxation. However, during the year under consideration, the assessee had to pay back the amount borrowed from his relatives, therefore, he borrowed a sum of Rs. 9.74 crores from certain other five parties, out of which, he repaid the earlier borrowed amount to his relatives and advanced the remaining amount to one party namely Yash Ghanshyam Brahmbhatt at a higher rate of interest. After deducting the interest paid to the creditors, the assessee offered the resultant/net interest income for taxation amounting to Rs. 10.62 lakhs. The AO, however, disallowed the interest expenditure claimed of Rs. 47.91 lakhs, observing that the assessee had failed to prove the nexus between the amount borrowed and the amount advanced.

4.

In appeal, the assessee furnished the requisite documents and details. The Ld. CIT(A) categorically noted that there was no doubt about the genuineness and quantum of interest paid. He further observed in the facts and circumstances of the case, which are based on documents available on record, refinancing of earlier loans was one possible explanation of the fund movement. Having recorded the aforesaid factual findings, the Ld. CIT(A) proceeded to observe that the day to day mapping of funds was not available and there was timing of

ITA No.956/Ahd/2026 Pravinkumar Valjibhai Thakker vs. DCIT Asst.Year 2016-17 3 sequence problem etc. In our view, the general observations of the Ld. CIT(A), without disputing the fact on the file that the assessee had borrowed the funds for further advancing of the same on higher rate of interest are not enough to justify the confirmation of impugned disallowance. The assessee by offering the borrowed funds at higher rate has earned interest income of Rs. 10.62 lakhs which has been offered to taxation. There is no justification on the part of the lower authorities in disallowing the interest expenditure incurred by the assessee for earning the net interest income, therefore, the addition made by the lower authorities on account of disallowance of interest expenditure is ordered to be deleted.

4.

In the result, the appeal of the assessee stands allowed.

Order pronounced in the Open Court on 30/07/2026.

Sd/- Sd/- (Narendra Prasad Sinha) (Sanjay Garg) Accountant Member Judicial Member अहमदाबाद/Ahmedabad, िदनांक/Dated 30/07/2025 Tanmay, Sr. P.S. TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु� अपील ( ) / The CIT(A)-(NFAC) 5. िवभागीय �ितिनिध आयकर अपीलीय अिधकरण अहमदाबाद /DR,ITAT, Ahmedabad. , , 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad

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