APURVA ASHWIN DESAI ,MUMBAI vs. ITO WARD 27(3)(1) , MUMBAI

PDF · subscribers
ITA 1265/MUM/2025Status: DisposedITAT Mumbai03 July 2025AY 2018-19Bench: SHRI NARENDRA KUMAR BILLAIYA, HON'BLE (Accountant Member), SHRI SANDEEP SINGH KARHAIL, HON'BLE (Judicial Member)1 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 if borrowed funds are invested as capital in a partnership firm, the interest paid on such borrowings should be allowed as a deduction. The revenue should not benefit from an inadvertent error in claiming the interest under the wrong head.

What were the facts?

The assessee, an individual and partner in M/s. Sun VUB, borrowed funds to invest as capital in the firm and paid interest on these borrowings. This interest was claimed under the head "income from other sources". The Assessing Officer (AO) disallowed this claim.

What were the issues?

Whether interest paid on borrowed capital invested in a partnership firm can be disallowed if claimed under the head "income from other sources" due to an inadvertent mistake.

Which sections of the Income-tax Act were involved?

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SANDEEP SINGH KARHAIL, HON’BLE

For Respondent: Shri Aditya M. Rai, Sr. D/R
Hearing: 01/07/2025Pronounced: 03/07/2025

आदेश/O R D E R

PER NARENDRA KUMAR BILLAIYA, AM:

1.

This appeal by the assessee is preferred against the order dated 03/02/2025 by NFAC, Delhi [hereinafter “the ld. CIT(A)”] pertaining to AY 2018-19.

2.

The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of Rs. 71,39,907/- made by the AO by disallowing the claim of interest paid on borrowed capital.

3.

None appeared on behalf of the assessee in spite of notice. We decided to proceed ex-parte. The ld. D/R was heard at length. Case records carefully perused.

2 4. Briefly stated the facts of the case are that the assessee is an individual and is a partner in M/s. Sun VUB from which he derives income from share of profit. The assessee had borrowed funds for investing in partnership firm and on this borrowing, he has paid interest. The borrowing and the payment of interest has not been doubted but the claim of interest paid by the assessee on such borrowings has been disallowed for the simple reason that inadvertently, the same was claimed under the head “income from other sources”.

5.

After giving a thoughtful consideration, we are of the considered view that once it has been accepted that the borrowed funds on which interest is paid is invested as capital in the partnership firm, any interest payment should be allowed as deduction from the share of profit and the interest received on capital. Merely because by an inadvertent mistake the interest has been show under the head “income from other sources”, the revenue should not be benefitted by such inadvertent error. We accordingly direct the AO to allow the claim of interest.

6.

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 3rd July, 2025 at Mumbai.

Latest GST High Court judgments

Search GST case law →