Drawings made for Non-Business purposes are not allowable as Income Tax Deduction: ITAT [Read Order]

The Visakhapatnam bench of the Income Tax Appellate Tribunal (ITAT) has held that drawings made for non-business purposes are not allowable as a deduction under section 36(1)(iii) of the Income Tax Act, 1961

The appellant appealed against the orders of the Commissioner of Income Tax (Appeals) dated 06.12.2019 for the Assessment Year (A.Y.) 2011-12 and 2012-13. The appellant assessee filed a return of taxable income of Rs.65,758/-. The Assessing Officer (AO) completed the reassessment u/s 143(3) and confirmed the addition by holding that the amounts borrowed from the assessee firm are interest-bearing funds in the form of capital from the partners and secured loans.  As per provision 36(1)(iii) of the Income Tax Act, 1961, if any amounts are used for non-business purposes, the same is to be disallowed. CIT(A) held that the partners have made drawings from the assessee firm and used them for non-business purposes and thereby the provisions of section 36(1)(iii)  of the Income Tax Act are applicable. 

 The Tribunal observed that some of the partners have borrowed some interest-free loans from the firm for non-business purposes and the AO rightly disallowed by applying the provisions of 36(1)(iii) of the Act.

The Coram consists of Shri Duvvuru  R L Reddy, Judicial Member and Shri S Balakrishnan, Accountant Member didn’t find any infirmity in the orders passed by the AO as well as the CIT(A) and dismissed the appeal.  Shri S.P.G. Mudaliar appeared on behalf of the respondent.

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