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Facts
The assessee paid interest on capital overdrawn from partnership firms. The Assessing Officer disallowed the entire interest expenditure as personal, while the CIT(A) allowed it to the extent of interest income earned from other sources and confirmed the remaining disallowance. The assessee's primary contention is about the quantum of disallowance and the correct computation of carried forward losses.
Held
The Tribunal noted that the assessee was not challenging the disallowance on merits but only the quantum. The CIT(A) had allowed interest to the extent of income from other sources. The Tribunal agreed with the CIT(A)'s finding that the interest expenditure should be allowed to the extent of income earned from other sources, resulting in a modified total income and no carry forward of losses.
Key Issues
Whether the disallowance of interest expenditure paid to partnership firms should be restricted to the amount of interest income earned from other sources and how the carried forward losses should be computed.
Sections Cited
250, 37(1), 57, 56, 147, 148, 143(3)
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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
Assessment Year: 2015-16 Vineet Prakash Pol, V The ACIT, F-16, MIDC, Ambad, s. Circle-1, Nashik. Nashik – 422010. Maharashtra. PAN: ABKPP4357J Appellant/ Assessee Respondent / Revenue Assessee by Shri Sanket Joshi – AR Revenue by Shri Vinod Pawar – Addl.CIT(DR) Date of hearing 08/05/2025 Date of pronouncement 26/05/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commssioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Act, dated31.01.2024for the A.Y.2015-16. The Assessee has raised the following grounds of appeal :
1. The learned CIT(A) erred in confirming the disallowance of Rs.13,81,195 out of the total disallowance of Rs.30,74,834 made by the A.O in respect of interest paid to partnership firms on loans obtained from them without appreciating that the said disallowance was not justified on facts and in law.
2. The learned CIT(A) ought to have appreciated that while computing the total income for A.Y.2015 - 16, out of the total interest expenditure of Rs.30,74,834, the appellant had only claimed deduction to the extent of Rs. 17,20,128 against the income of current year and the balance of Rs. 13,54,436 was carried forward as business loss and therefore, when the CIT(A) had held that the interest expenditure to the extent of Rs. 16,93,639 out of Rs.30,74,834 was only allowable as expenditure, then the disallowance should have been restricted to Rs.26,489 and the balance interest of Rs. 13,54,706 which was never claimed as deduction in the ITR for this year, should not have been disallowed.” Submission of ld.AR : 2. Written submission submitted by the assessee as under : “3] At the outset, the assessee submits that he is not challenging the validity of the disallowance of interest on merits. The only claim of the assessee is that the disallowance should be restricted to the quantum of deduction actually claimed in the ITR for AY.2015-16. 4] The assessee is a partner in two partnership firms from which he had overdrawn capital during A.Y.2015-16. The assessee has paid interest on capital overdrawn of Rs.30.74.834 to the two firms. The assessee has not received any income from the said firms and the assessee has also not derived any other income from the head PGBP during this year. In the ITR filed for A.Y.2015 16. the assessee has declared Loss under the head Business PGBP of Rs 30,74.834 [refer page 5 of ITR Form). 5] Upon perusal of page 10 & 11 of ITR (Schedule CYLA-Details of Income after Set Off of current year losses), it will be noticed that out of the total business loss of Rs.30.74.834 (representing interest paid to two firms), the loss of Rs.26.759 has been set off against LTCG whereas the loss to the extent of Rs. 16.93,639 has been set off against Income from Other Sources and the balance business loss of Rs. 13.54,436 has been carried forward to subsequent year. This fact can also be noticed on perusal of page 12 of ITR (Schedule CFL-Details of Losses to be carried forward to future years). In view of the above facts, it is to be noted that out of the total interest paid of Rs.30,74,834 which constituted current year business loss for A.Y 2015 -16, the assessee has only claimed deduction to the extent of Rs. 17,20,398 (Rs.26.759 Rs.16.93.639) by way of set off against LTCG and IOS and no deduction has been claimed towards balance interest of Rs.13,54,436 which has been carried forward as business loss to subsequent years.
The assessee submits that even if the quantum of deduction towards interest expenditure is to be restricted to Rs.16.93.639 as held by the CIT(A), as against the deduction of interest of Rs.17,20,398 claimed by the assessee in the ITR, then the quantum of disallowance/ addition to the returned income should be restricted to Rs.26.759 and denial of carry forward of balance interest of Rs. 13,54,436 as business loss to subsequent years. Thus, it is prayed that the A.O. may be directed that while computing the total income for A.Y.2015-16, the quantum of disallowance/ addition to returned income should be restricted to Rs.26.759 [as against disallowance of Rs. 13.81,195 confirmed by CIT(A)]. Thus, after the CIT(A)'s decision, the total income for A.Y.2015-16 may be assessed as under- Sr. Particulars Sub- Amount(Rs.) AS per Difference Amount(Rs [To be ITR .) assessed after CIT(A) decision] 1 Income under the head 23,31,500 21,31,500 21,31,500 0 ‘Salaries’ (2,00,000) -After Set off of Current year Loss of Rs.2,00,000 under Head ‘House Property’ 2 Loss under the Head House 0 0 0 Property 3 Income under the Head PGBP 0 0 0 4 Income under the Head 26,759 0 26,759 Capital Gains (LTCG) 5 Income from Other Sources 0 0 0 -After allowing Deduction of Interest paid to Partnership Firms as per decision of CIT(A) Gross Total Income 21,58,259 21,31,500 26,759 6 Deduction under Chapter VI-A (1,65,000) (165,000) 0 7 Total Income 19,93,259 19,66,500 26,759 8 0 13,54,436 Carried Forward Losses 13,54,436 8] In view of the above facts, it is reiterated that after the decision of the Id. CIT(A), the Id. A.O. may please be directed to restrict the quantum of disallowance to Rs.26,759 and assess the total income at Rs. 19,93,259 as against the returned income of Rs. 19,66,500 and assess/allow the quantum of carried forward business loss at Rs. NIL as against Rs. 13,54.436 carried forward as per ITR.” Submission of ld.DR :
Ld.DR for the Revenue relied on the order of the Assessing Officer.
Findings &Analysis : 4. We have heard both the parties and perused the records. In this case, on perusal of the Return of Income, it is observed that Assessee has shown income as under in the Return of Income : Particulars Amount Salary Rs.23,31,500/- Capital Gain Rs.26,759/- Income from Other Sources Rs.16,93,639/- Total Rs.40,51,898/- Particulars Amount set-off of loss Rs.19,20,398/- Gross Total Income Rs.21,31,500/-, Chapter VIA deduction Rs.1,65,000/-, Total Rs.19,66,500/-. Losses of Current Year to be 0 carried forward 4.1 Accordingly, assessee has paid tax for Rs.4,29,923/-.
During the assessment proceedings, Assessing Officer observed that Assessee has paid interest amount of Rs.30,74,834/-. Assessing Officer held that the said amount is not allowable as deduction u/s.37(1) of the Act, as the loan seems to have been used for personal purposes. Accordingly, in the assessment order, Assessing Officer computed the total income as under :
Total income as per original return Rs.19,66,500/- Add: As per discussion in Para No.6 Rs.30,74,834/- Assessed Income Rs.50,41,334/- 5.1 Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A). The relevant paragraph 7.3 of Ld.CIT(A)s’ order is as under : “7.3 The claim of appellant that these loans taken from two partnership firms were advanced to the M/s. Avadhoot Heat Treaters Pvt Ltd and appellant also received interest from the advances which was also offered as income from the other sources in the return of income. On perusal of the computation of income, appellant has disclosed interest from other sources at Rs. 16,93,639/- Under this head interest from other parties at Rs.23,62,600/-Le. from M/s. Avadhoot Heat Treater Pvt Ltd and after adjusting other interest receipts and interest payments net income from other sources arrived at Rs. 16.93,639/- under the income from other sources.
The claim that the loans taken from two partnership firms was mostly advanced to the company M/s. Avadhoot Heat Treaters Pvt Ltd is found to be correct and therefore, the loans were not utilised for personal purpose but utilised in business of the company from which appellant received interest.
Therefore, considering the facts and submission of the appellant, the interest expense on the loans obtained from partnership firms to be allowed u/s.57 of Act as deduction to the extent of the interest income earned u/s.56 of the Act in the head 'income from the other sources. Hence, I allowed interest claim to the extent of Rs.16,93,639/- and confirmed the remaining disallowance of Rs.13,81,195/- (30,74,834 16,93,639) made by the AO. Thus, ground number 1 & 2 are partly allowed.”
5.2 Revenue has not filed any appeal against the said order of the ld.CIT(A). We agree with the ld.AR’s submission that Assessee had shown business loss of Rs.30,74,834/- which was set-off against Income from Other Sourcesof Rs.17,30,128 5.3 Ld.CIT(A) held that Interest Amount of Rs.16,93,639/- is allowable instead of Rs.30,74,834/-. Therefore, after giving effect to the order of the ld.CIT(A), the Total Income would have been Rs.26,759/- and there will not be any carry forward loss.
5.4 Accordingly, Ground No.2 is partly allowed.
Ground No.1 : The Assessing Officer held that Interest paid of Rs.30,74,834/- is not allowable under section 37(1) of the Act, as it is personal expenditure. The ld.AR has made written submission that he is not challenging the validity of the disallowance of interest on merits. Accordingly, Ground No.1 is dismissed as not pressed.
There is a delay in filing appeal before ITAT. We have perused the Affidavit filed by the Assessee and are convinced that there is sufficient and reasonable cause for delay. Hence, the delay is condoned.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 26 May, 2025.