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2023 (11) TMI 1101 - AT - Income TaxInterest claimed against remuneration from the Partnership firm under the head “income from business & profession” - Setoff / adjustment of interest expenditure with interest received from partnership firm - main source of income to the assessee is only the remuneration and profit earned from the partnership firm - as per assessee he has claimed interest expenditure against the above remuneration for the reason that assessee has borrowed funds and introduced the same in the partnership firm and since the borrowing has a direct connection with the funds introduced in the partnership firm it is a claimable expenditure against the income earned by the assessee from the firm - HELD THAT:- The main source of income is only from these firms and income from other sources. The assessee has also brought to our notice the funds received from loan creditors and also transferring the same amount to the partnership firm. Since the main source of income to the assessee is only the remuneration and profit earned from the partnership firm and whatever the capital borrowed by the assessee was directly introduced in the partnership firm. By looking at the balance sheet, submitted before us, we observe that assessee has own capital and borrowings from family members which is equivalent to the property owned by the assessee. There is direct link with the loan creditors and the capital introduced in the partnership firm. Therefore, it establishes that the funds borrowed by the assessee is directly introduced in the partnership firm. Whether the assessee can claim the interest expenditure against the remuneration received from the firm? - As salary or remuneration received from the firm is no doubt compensation for the services rendered but it is considered as income from business otherwise as a return of share of profits to the partners of the firm. Therefore, the partner should be entitled to all the deductions which he was entitled while computing his share of profits in the firm including the deduction in respect of interest paid on monies borrowed for investment in the firm as capital u/s. 67(3) . As relying on Santosh Kumar Agrawal [2000 (7) TMI 971 - ITAT MUMBAI] assessee has introduced the capital in the firm by borrowing funds from various loan creditors, it has direct nexus with the remuneration and other profits earned by the partners. In this case, assessee has earned only remuneration income from the firm and incurred interest expenditure, therefore should be allowed to claim the interest expenditure. CIT(A) has not addressed the issue under consideration and took it to a different dimension questioning the genuineness of the loan borrowed by the assessee. No concrete findings were given by the Ld.CIT(A) on the borrowings and also did not proceeded to make proper investigation to reach a logical conclusion, rather he proceeded to confirm the additions made by the Assessing Officer. Assessee appeal allowed.
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