Interest on loan cannot be allowed to be claimed against remuneration from Partnership firm

Ld. AR has submitted that the assessee is a partner in Soundarya Constructions and has filed the return of income claiming the deduction of interest paid on loan amount of 11,45,607/-. It was also the case of the assessee that in the previous years the AOs have allowed the deduction of interest paid on loan amounts. However in the present assessment year, the AO has declined this amount. It was submitted that this is required to be allowed in view of the conjoint reading of Section 10(2A) r.w.s. 28 (v) and section 36(1)(iii) of the Act. It was the contention of the Ld. AR that as per section 36, the amount of interest paid in respect of capital borrowed for profession / business is required to be allowed. It was submitted that the assessee’s income from the firm is required to be taxed as income u/s. 28 as income from business profit for earning salary / remuneration by the partner. As assessee has made the capital contribution to the firm therefore the assessee is entitled to deduction for the interest paid by the assessee.

On the other hand the Ld. DR relied upon the CIT (A)’s order and submitted that this interest payment cannot be permitted to be deducted against the remuneration earned by the assessee. It was submitted that the assessee was a working partner of the firm and the income earned by the assessee has no correlation with the capital contribution made by the assessee.