Disallowance of the loss from business being the interest paid to the firm on overdrawn capital balance in the firm.

Last updated: 18 January 2021

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Quick Summary

This Income Tax Appellate Tribunal case concerns an individual who claimed a significant amount of accrued interest on a loan as a business loss. The interest was related to an overdrawn capital balance in a firm. However, the Assessing Officer disallowed this claim, finding the assessee's arguments inconsistent. The tribunal's decision ultimately brought this interest amount to tax.

Court :
ITAT Hyderabad

Brief :
This is assessee’s appeal for the A.Y 2016-17 against the order of the CIT (A)-5, Hyderabad, dated 18.09.2019.

Citation :
ITA No.1754/Hyd/2019

IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad SMC Bench, Hyderabad
(Through Video Conferencing)

Before Smt. P. Madhavi Devi, Judicial Member
ITA No.1754/Hyd/2019
Assessment Year: 2016-17

Shri Vinay Kumar Dhanpal
Nizamabad
PAN:ASIPD1411C
(Appellant)

Vs.

Income Tax Officer
Ward-1
Nizamabad
(Respondent)

Assessee by: Sri M.V. Anil Kumar
Revenue by: Sri Sitarama Rao, DR

Date of hearing: 07/01/2021
Date of pronouncement: 08/01/2021

ORDER

This is assessee’s appeal for the A.Y 2016-17 against the order of the CIT (A)-5, Hyderabad, dated 18.09.2019.

2. Brief facts of the case are that the assessee individual, deriving income from house property and other sources, filed his return of income for the A.Y 2016-17 on 29.3.2017 admitting total income of Rs.2,54,740/-. The return was selected for limited scrutiny through CASS citing the following:

Reason Description:Negative income from partnership firmresulting in reduction of the taxable income (Schedule BP of ITR)

Issue: Whether loss from partnership firm is admissible”.

3. The assessee was required to furnish certain specificinformation and the assessee furnished the same. On verificationof such information, the AO observed that the assessee hasclaimed to have taken a loan to purchase open land in the year2004-05 and he was regularly paying interest on loan andduring the year of account, the interest accrued was Rs.10,85,360/- which was claimed u/s 36(1) of the I.T. Act. Theassessee has also claimed that he was not given interest as hewas over due to firm and interest was charged from him. Hencehis claim should be allowed. Thereafter, the assessee had takenvarious contentions and the AO finding that the assessee is takingdifferent contentions, did not allow the accrued interest from the assessee while computing his taxable income and accordingly brought the interest to tax.

To know more in details find the attachment file

FAQ :

The main issue was whether the interest paid by an individual on an overdrawn capital balance in a firm could be claimed as a business loss.

The assessee claimed that the accrued interest of Rs. 10,85,360/- on a loan taken to purchase land should be allowed as a business loss, stating that interest was charged to him for being overdrawn in the firm.

The Assessing Officer disallowed the claim because the assessee presented different and inconsistent contentions regarding the interest.

The Assessing Officer did not allow the accrued interest as a deduction and brought the interest amount to tax when computing the assessee's taxable income.