1993 (1) TMI 130 - AT - Income Tax

A Firm, A Partner, Assessing Officer, Deduction Of Interest, Firm Assessment, Interest Payable, Partner s Share In Income Of Firm

Summary

Issues:
1. Disallowance of interest paid by the assessee
2. Deletion of addition made under sections 69 & 69A of the IT Act

Issue 1: Disallowance of interest paid by the assessee
The Assessing Officer disallowed the deduction claimed by the assessee for interest paid on loans under section 57(iii) of the IT Act. The AO found that loans from certain parties were deposited in the loan account of a company where the assessee was a director, and loans taken from other parties were for advancing to a firm where the assessee was a partner. The AO relied on various judicial pronouncements to support his decision, emphasizing that the purpose of expenditure must be to make or earn income. The CIT (Appeals) upheld the disallowance without providing detailed reasons, leading to an appeal by the assessee. The ITAT, after considering the submissions and records, found that the interest paid for advancing to the firm was allowable under section 67, not section 57(iii. The ITAT directed the AO to allow the deduction under section 67 and also allowed the remaining interest paid by the assessee.

Issue 2: Deletion of addition made under sections 69 & 69A of the IT Act
The Assessing Officer treated a portion of the assessee's declared income as unexplained investment and unexplained cash under sections 69 and 69A of the IT Act as the nature and sources of such income were not explained. However, the CIT (Appeals) deleted the addition, stating that since the income was declared and taxed, it could not be treated as unexplained investment or cash. Upon review, the ITAT found that the deletion of the amount by the CIT (Appeals) was not justified. The ITAT reversed the decision of the CIT (Appeals) and confirmed the order of the Assessing Officer, stating that the income declared by the assessee should not have been deleted from the computation of income.

In conclusion, the ITAT dismissed both the assessee's and the revenue's appeals, upholding the disallowance of interest under section 57(iii) but allowing it under section 67, and reversing the deletion of income under sections 69 and 69A, confirming the order of the Assessing Officer in this regard.