Prove that interest expenditure was attributable to business

Clarify yourself whether you had done business or investment?

Quote 1 " I'm an individual that earns income from business.........."

2. "OR pay income tax on the income I've earned from mutual funds investment...."

I think you will get answer from clear understanding the difference between two.

Hello Dhirajlalji,

Thanks for replying. I had done both, business and investments in mutual funds, and I had income/profit from both.

Busiess was supported by a loan which I'm repaying with interest. Investments are in mutual funds whose divident in tax free.

Loan interest is part of business expenditure and thus deductable. Profits from funds are exempted from tax.

Why does the tax man (INVOKING section 14A) want me to pay income tax on either one of the above even though they are not related?

Tax man wants me to prove that the money I paid the interest with was earned through business and not dividents from tax free mutual funds.

How do I do that? This is harrasement. Pleae help me.

1. By business income, have you taken dividend income as tax-free?  There are traps like these, which ITO cannot allow. 

If you can prove that the loan taken was exclusively utilized for the trading business, and all the incomes from these businesses are assessed for taxation, along with clear demarcation of amount as investment and business capital, I don't think, he can deny anymore.

you have to correlate the transaction i.e. when u receive loan amount nd where u use it...in short u hv to make a statement showing receipt of fund and its utilisation with the help of bank statement...

agreeing with other experts said....
in business if we say exempt income - we can't claim expenses relatable to that income.
You should be able to prove from your books of accounts(from the loan ledger), that all your inflows from loan used in business. And investment is just a financial management.
If you

if you are unable to prove it, it's better to pay tax than appealing against. ITO has a point.