CHIRANJIV CHIRAG PATEL,AHMEDABAD vs. THE DY.CIT, CIRCLE-1(1)(1), AHMEDABAD

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ITA 2481/AHD/2025Status: DisposedITAT Ahmedabad28 January 2026AY 2020-21Bench: Shri Sanjay Garg, Judicial Member And Annapurna Gupta (Accountant Member)3 pages

AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, while acknowledging the assessee's failure to fully explain the higher interest expenditure compared to income, restricted the disallowance to the differential amount of Rs. 6,14,958/-, based on a proposal agreed upon by both parties.

What were the facts?

The assessee incurred interest expenses of Rs. 78,41,666/- on loans obtained from various parties, which were then advanced to others for earning interest income, amounting to Rs. 72.26 lakhs. The Assessing Officer disallowed the entire interest expenditure due to the assessee's inability to establish a direct correlation between the expenditure and income.

What were the issues?

Whether the disallowance of interest expenditure should be restricted to the differential amount when interest expenditure exceeds interest income and the direct nexus is not fully established.

Which sections of the Income-tax Act were involved?

Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “ C ” BENCH, AHMEDABAD

Before: Shri Sanjay Garg & Annapurna Gupta

For Appellant: Shri Aseem L. Thakkar, AR

Hearing: 20/01/2026Pronounced: 28/01/2026

Year : 2020-21 Chiranjiv Chirag Patel The Dy.CIT बनाम/ 18, Pratima Society Circle-1(1)(1) v/s. Navrangpura Ahmedabad – 380 015 Ahmeadbad – 380 009 "थायी लेखा सं./PAN: AGAPP 8874 D (अपीलाथ(/ Appellant) ()* यथ(/ Respondent) Assessee by : Shri Aseem L. Thakkar, AR Revenue by : Shri Rohit Aasudani, Sr. DR सुनवाई की तारीख/Date of Hearing : 20/01/2026 घोषणा की तारीख /Date of Pronouncement: 28/01/2026 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), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 24/11/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2020-2021.

The issue involved, in this appeal, is in relation to disallowance of interest expenses of Rs.78,41,666/-. The claim of the assessee before the lower Chiranjiv Chirag Patel vs. DCIT Asst. Year : 2020-21 authorities was that the assessee obtained loans from various parties which were advanced to other parties for earning of interest income. The assessee has also shown interest income of Rs.72.26 lakhs. The Assessing Officer (AO), however, disallowed the entire interest expenditure claimed by the assessee stating that the assessee was unable to explain the correlation between the interest expenditure and the interest income.

We find that the order of the AO is somewhat cryptic. However, a Court question was asked to the Ld. Counsel for the assessee that the interest income was shown less, whereas, the interest expenditure was on the higher side and if the assessee was taking loan and further advancing the loan at a higher rate to earn the interest income, then the interest expenditure should not be more than the interest income. The Ld. Counsel for the assessee, in this respect, has explained that sometimes the funds obtained on loan could not be further advanced and, therefore, resulting into incurring of interest expenditure. The Ld. Counsel for the assessee has relied upon a chart given in the assessment order to show that the assessee had furnished the nexus between the loan received and loan given to various parties.

3. We have considered the rival submissions and gone through the record. Though the assessee has claimed that there is a nexus between the loan taken and loan further advanced, however, we find that the assessee could not satisfactorily explain the payment on higher side of interest expenditure than the interest income earned. Considering the over all facts and circumstances of the case, it was proposed to the Ld.AR of the assessee that why not the disallowance be restricted to the differential amount between the interest income and the interest expenditure claimed, for which the Ld. AR has given his assent. The Ld. DR also could not rebut the factual Chiranjiv Chirag Patel vs. DCIT Asst. Year : 2020-21 evidence on the file. Hence, as proposed, the disallowance is restricted to the differential amount between the interest income earned and the interest expenditure claimed, which comes to Rs.6,14,958/-.

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

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