HARSHADKUMAR RAJNIKANT SHAH,VADODARA vs. ITO WARD 3(1)(2), VADODARA

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ITA 1536/AHD/2024Status: DisposedITAT Ahmedabad20 March 2025AY 2013-14Bench: Shri Sanjay Garg (Judicial Member)1 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the introduction of capital in a firm is a capital investment and not a business activity. The interest expenditure incurred on borrowed funds introduced as capital cannot be related to the business expenditure of the firm or the assessee, and thus cannot be allowed as a deduction.

What were the facts?

The assessee borrowed funds and introduced them as capital in a firm, earning remuneration and interest income. The assessee claimed deduction for interest expenditure on these borrowed funds.

What were the issues?

Whether interest expenditure on funds borrowed and introduced as capital in a firm is allowable as a deduction.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: Shri Sanjay Garg

For Appellant: Shri Kush Mehta, A.R

आदेश/ORDER The present appeal has been preferred by the assessee against the order dated 28-06-2024 passed by Commissioner of Income Tax (Appeals), Addl/JCIT(A)-12 Mumbai [hereinafter referred to as “CIT(A)”] arising out of the order passed u/s. 143(3)r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2017-18.

2.

Adjournment application has been filed on behalf of the ld. D.R. stating therein that she was not well. Identical type of application has been filed in all the cases fixed for today. It will not be appropriate to adjourn all the matters. Since there is not any complicated issue involved in this appeal and the matter can be decided after going through the records and after hearing the ld. A.R., therefore, I proceed to decide this appeal.

3.

The sole issue involved in this appeal relating to the disallowance of interest claimed by the assessee in the return of income. The ld. counsel for the assessee has submitted that the funds were borrowed by the assessee and that very funds were introduced as capital in the firm by the assessee. That the assessee earned remuneration and interest income on the capital and also share out of profits of the said firm. The ld. counsel for the assessee has submitted that the interest expenditure on the borrowed capital, which was introduced in the firm was for the business purpose and hence the same was rightly claimed as deduction.

4.

I have considered the aforesaid contentions and have also gone through the records. In this case, the assessee has borrowed funds and the same were introduced in the firm as capital of the assessee. The introduction of capital in the firm can neither be said to be business activity of the assessee in his individual capacity nor the said expenditure can be directly related to any income of the assessee for which the aforesaid interest expenditure can be said to have been incurred. Borrowing of funds and earning of interest in capital introduced in firm are separate activities. The introduction of capital in a firm is a capital investment of the assessee. The firm is a separate entity, therefore, the said interest expenditure can neither said to be related to the business expenditure of the firm nor of the assessee and same cannot be allowed as a deduction. There is no merit in the appeal and the same is dismissed.

5.

In the result, the appeal of the assessee is dismissed.

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