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2022 (1) TMI 926 - AT - Income TaxDisallowance of interest expenditure - Corresponding to interest on debit balance of partner - amounts withdrawn by the partner for the payment of income-tax from the partnership firm - AR submitted that undisputedly the assessee had withdrawn the amounts for the purpose of payment of tax and had claimed interest paid on the debit balance on account of excess borrowings, whereas, the firm had shown interest charged from the assessee as its income - only reason for which AO made the impugned disallowance is that the assessee had made withdrawals for the purpose of payment of taxes and had claimed interest such paid as expenditure - HELD THAT:- We agree with the contention of the Ld. AR that since the assessee partner is entitled to interest received on the credit balance of capital, which becomes his ‘income’, similarly, the assessee / partner is also liable to pay interest on the debit balance / excess withdrawals from the partnership firm and by the same reasoning and logic it become as expenditure which is to be deducted while computing the taxable income of a partner of the firm. In our view too, once the partner has withdrawn an amount from the firm, it becomes immaterial as to what end it put to use. The amounts withdrawn may be utilised by the assessee / partner for the purpose of meeting house-hold expenses, making investments or even for the purpose of paying tax and it is not within the purview of the Income-tax authorities to determine and dictate as to how the funds so withdrawn are put to use by the assessee / partner. Although, it is a settled proposition that the tax paid in respect of income is not a deductible expense, it is not the case here. Both the lower authorities below to have entirely misconstrued the factual matrix and have proceeded on an assumption that the assessee / partner was claiming expenditure in respect to income tax / advance tax paid, whereas, the assessee has only claimed expenditure in respect of interest on excess withdrawals made, which were utilised for the purpose of paying income tax / advance tax. Therefore, in our considered opinion, both the lower authorities have entirely missed the case in point and have made the impugned disallowance which cannot be sustained - we direct the Assessing officer to delete the impugned disallowance .
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