Swaraj Enterprises v ITO (2011) - Visakhapatanam Tribunal

Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computed on such reduced capital balances. The Tribunal held that in terms of section 40(b), read with section 28(i) and 29 Assessing Officer is not entitled to disallow payment of interest to partners by re-working capital account balances of partners.