Thursday, August 14, 2008

INTEREST ON BORROWING IS EXPENDITURE

The Mumbai income-tax tribunal has held that expenditure incurred for earning an income cannot be disallowed for non-receipt of such income. During the year, the assesee had borrowed certain funds and invested the same in a partnership firm. The assessee did not receive any interest during the current year from the amount invested in the partnership firm but paid interest for the borrowed funds. The AO disallowed the interest expenditure on the ground that return on investment in the partnership firm is exempt under section 10(2A) of the Income Tax Act and thus does not form part of total income. Hence in terms of section 14A, the expenditure was not allowable.

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