While deleting the addition, the Income Tax Appellate Tribunal (ITAT) Rajkot Bench has ruled that, Interest Expenses claimed by partners relating to their professional activities are allowed expenses.
The assessees, Anilbhai Chunilal Bhayani and Ashwinbhai Chunilal Bhayani, are partners having income from freight charges from transport business.
In the case of Anil Chunilal Bhyani, return of income has been filed declaring total income at rs.4,64,370 and in the case of Shri Ashwin Chunilal Bhayani of Rs.3,44,750. Both the returns were processed under section 143(1) of the Act, and thereafter, they were selected for scrutiny assessment. During the assessment proceedings it was noticed by the Assessing Officer (AO) that the assessee had claimed an expenses of Rs.16,76,190/- [in the case of Shri Anil Chunilal Bhayani] and Rs.16,90,458 [in the case of Shri Ashwin Chunilal Bhayani] from operating of two trucks respectively.
The AO further noticed that these trucks were not shown in their respective balance sheets for the year under consideration, and therefore, he doubted the authenticity of the claim. It was explained by the assessees that the same were taken on hire basis, and therefore, they were not shown in the balance sheets. The assessees had filed bills/vouchers related to support the expenses claimed by them. However, the AO did not satisfy with the explanation of the assessee for the reason that assessee has not furnished contract agreement and payment of hire charges to the owner of the truck. He further observed that on perusal of the cash and bank book, there were no entries demonstrating any payment made towards hire charges, therefore, assessee failed to prove expenses towards hire charges paid to the owners resulting in respective additions.
Vice President Rajpal Yadav and Accountant Member Amarjit Singh sided with the assessee and held “it is to be appreciated that once factum of carrying out of any business is being accepted, then all resultant expenses are to be allowed to the assessee. We have found that both the assessees were engaged in transportation business. They have earned professional receipts from transport business. Both the assessees were partners in the firms. They have earned share of profit from the partnership firms as well as interest income. The ld.CIT(A) has also accepted partly this pleading of both the appeals. Considering the above facts, once it is accepted that they were partners in the firm and they have income which is to be assessed as business income, then all consequential expenditure pertaining to this business are to be allowed.”
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