The Tax Publishers2020 TaxPub(DT) 5122 (Mum-Trib)

INCOME TAX ACT, 1961

Section 57(iii)

Once the borrowings were accepted as genuine and one to one nexus is found to have been proved that the said borrowings were indeed utilised for investment in a partnership firm wherein assessee was a partner, there cannot be any question of disallowance of interest on the borrowings.

Income from other sources - Deduction under section 57(iii) - Borrowed funds invested in partnership firm -

Assessee had made borrowings from parties @15% per annum and had invested the same in the partnership firm where he is a partner, wherein he earned interest @12% per annum. AO sought to disallow the difference in interest rates @3% under section 57(iii) under the head 'Income from other sources' while completing the assessment. Held: Certain borrowings were made by the assessee at reduced rate of interest. Once the borrowings were accepted as genuine and one to one nexus is found to have been proved that the said borrowings were indeed utilised for investment in a partnership firm wherein assessee was a partner, there cannot be any question of disallowance of interest on the borrowings. Relying on Rajendra Prasad Moody's case [(1978) 115 ITR 519 (SC) : 1978 TaxPub(DT) 1028 (SC)] AO was directed to delete the disallowance of interest under the head 'Income from other sources'.

Followed:Rajendra Prasad Moody [(1978) 115 ITR 519 (SC) : 1978 Taxpub(Dt) 1028 (SC)].

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13


INCOME TAX ACT, 1961

Section 57(iii)

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