TW VENTURES LLP,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR

ITA 378/JPR/2026Status: DisposedITAT Jaipur08 October 2026AY 2016-1711 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that for investments in sister concerns (Ground 1), the assessee failed to demonstrate commercial expediency. While investments in group companies for controlling interest can be considered commercially expedient, the assessee did not establish that the borrowed funds were used for these investments. The Tribunal noted that the partners' capital accounts showed debit balances for most of the year, indicating that interest-bearing funds might have been diverted. The Tribunal upheld the disallowance in principle but set aside the quantum for recomputation. For partners' debit balances (Ground 2), the Tribunal found that withdrawals by partners are inherently for personal purposes. The assessee did not provide any business purpose for these interest-free advances, and the accounts did not support the claim that they came out of profits and day-to-day cash flow. Therefore, Ground 2 was dismissed. Regarding the quantum of disallowance (Ground 3), the Tribunal found that the assessee's working for partners' accounts correctly set off interest for credit periods, but it omitted interest on the opening investment. The AO's working was not on record. Consequently, the Tribunal restored the quantum of disallowance for both investments and partners' debit balances to the AO for recomputation. The AO was directed to compute interest on daily balances, allowing set-off for credit periods for partners, and on daily balances from April 1, 2015, for investments, at the rate of 12%. Ground 3 was allowed for statistical purposes.

What were the facts?

The assessee, TW Ventures LLP, formerly Truworth Stone Care LLP, engaged in floor maintenance for hotels, filed its return for Assessment Year 2016-17. The Assessing Officer (AO) noted significant interest payments on unsecured loans while the assessee held substantial investments in unlisted shares of group companies yielding no income, and partners had debit balances in their capital accounts. The AO disallowed interest expenses, considering these as non-business related. The Commissioner of Income Tax (Appeals) upheld the AO's disallowance. The assessee appealed to the Income Tax Appellate Tribunal (ITAT). The dispute involves disallowance of interest expenses related to investments in sister concerns and interest-free advances to partners.

What were the issues?

1. Whether the investment of Rs. 169.50 lacs in unlisted shares of sister concerns was for business purposes or to acquire controlling interest, and if the disallowance of Rs. 6,37,700/- out of interest expenses on this count by the AO and confirmed by the CIT(A) is justified. - Assessee's contention: Investments were for business purposes and to acquire controlling interest, citing commercial expediency and relying on S.A. Builders Ltd. v. CIT(A), Munjal Sales Corporation v. CIT, and CIT v. Jugal Kishore Dangayach. They argued that unsecured loans did not increase significantly, and investments were funded by fresh capital and profits, not borrowed funds. The AO wrongly excluded opening credit balances and took an inconsistent stand compared to the previous assessment year. - Revenue's contention: The assessee paid interest on borrowings while partners had interest-free debit balances and funds were locked in non-income-generating shares, with no evidence of commercial expediency. 2. Whether interest-free advances to partners were given for business purposes due to commercial expediency, and if the disallowance of Rs. 16,23,125/- out of interest paid on this count by the AO and confirmed by the CIT(A) is justified. - Assessee's contention: Advances were for business purposes and commercial expediency. The AO's calculation was incorrect, and the previous year's assessment did not disallow interest on similar facts. - Revenue's contention: Supported the orders of the authorities below, highlighting interest-free debit balances of partners and non-income-generating investments. 3. Whether the calculation of the disallowance of Rs. 16,23,125/- by the AO is correct.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, JAIPUR

Before: Shri Kuldip Singh & Shri Prakash

PER : PRAKASH, ACCOUNTANT MEMBER:-

1.

This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) [Addl/JCIT(A)-1, Bengaluru] [hereinafter referred to as “the learned CIT(A)”] dated 30.12.2025 arising out of the assessment order dated 01.11.2018 passed by the Assessing Officer [ACIT, Circle-2, Jaipur] (hereinafter referred to as “the AO”) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the TW Ventures LLP Act”). The assessee was formerly known as Truworth Stone Care LLP and the assessment order was passed in that name.

2.

The gr

The order continues below.

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