The Commissioner of Income Tax (Appeals), through the National Faceless Appeal Centre (NFAC), has deleted disallowances totalling ₹10,37,048 relating to interest expenditure and a political contribution, finding that the taxpayer had furnished sufficient supporting evidence and the Assessing Officer had not independently verified or rebutted it.

In an order dated July 22, 2026, the appellate authority allowed a deduction of ₹3 lakh under Section 80GGC of the Income Tax Act, 1961, for a contribution to a registered political party. It also directed deletion of a ₹7,37,048 disallowance of interest expenditure linked to the taxpayer’s business and capital investment in a partnership firm.

The appeal, filed by Jayantibhai Madhubhai Savsaviya for Assessment Year 2024–25, was partly allowed.

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Background Of The Assessment

According to the appellate order, the taxpayer had filed his income tax return declaring nil total income. His case was selected for scrutiny under the Computer Assisted Scrutiny Selection system over a large exemption reported under the “Others” category in Schedule EI under the old tax regime.

During assessment, the Assessing Officer disallowed interest expenditure of ₹7,37,048, holding that adequate documentary evidence had not been furnished to establish that the expenditure was incurred wholly and exclusively for earning income. A political contribution deduction of ₹3 lakh under Section 80GGC was also disallowed for want of sufficient supporting evidence.

The taxpayer challenged the assessment order dated March 19, 2026. His grounds included objections to the disallowances, the alleged failure to properly consider documents furnished during assessment, initiation of penalty proceedings under Section 270A, and interest charged under Sections 234A, 234B and 234C.

The appellate order records that no replies were filed in response to notices issued during the appeal proceedings. Nevertheless, the authority examined the supporting material already available on record.

Interest Ledgers And Creditor Confirmations Supported The Claim

On the interest expenditure issue, the appellate authority noted that the taxpayer had submitted relevant ledger accounts and signed creditor confirmations to the Assessing Officer with his reply dated March 1, 2026.

The documents showed interest of ₹5,45,556 paid to individual creditors on unsecured loans at rates ranging from 9% to 12% annually. A separate ledger recorded overdraft interest of ₹1,91,492 paid to ICICI Bank and RBL Bank.

Together, these amounts matched the entire ₹7,37,048 disallowance. The authority found that the claim was directly traceable to the taxpayer’s regular books of account and was neither an estimated nor an ad hoc amount.

The Assessing Officer had acknowledged receiving this material but disallowed the expenditure because loan agreements and bank statements tracing the receipt and utilisation of borrowed funds had not additionally been furnished.

The appellate authority observed that the existence and genuineness of the bank overdraft facilities were not disputed and could readily have been verified. The unsecured loan interest was supported by signed third-party confirmations, but the Assessing Officer neither disputed the creditors’ identities nor undertook an independent inquiry, including verification under Section 133(6).

Absence Of Loan Agreements Did Not Justify Disallowance

The authority also took account of the taxpayer’s capital balance in the partnership firm, which exceeded ₹11 crore as of March 31, 2024, and remuneration and interest income exceeding ₹27 lakh earned from the firm during the year.

These circumstances supported the claim that the funds were deployed in connection with the business and capital investment. The Assessing Officer had produced no positive material showing diversion of borrowed funds for non-business purposes.

On the evidence in this case, the authority held that the absence of loan agreements did not displace the proof of a genuine and quantified interest liability. It concluded that the taxpayer had established the connection between the expenditure and the partnership investment from which taxable remuneration and interest income arose.

The ₹7,37,048 disallowance was accordingly deleted.

Political Donation Documents Satisfied Section 80GGC Conditions

For the ₹3 lakh political contribution, the taxpayer furnished a donation receipt dated February 27, 2024, issued by Rashtriya Nagrik Hak Party, a bank statement establishing payment through banking channels, and the party’s registration certificate under Section 29A of the Representation of the People Act, 1951.

The appellate authority found that these documents satisfied the conditions expressly prescribed under Section 80GGC.

The Assessing Officer had denied the deduction because the taxpayer had not furnished an independent confirmation from the political party or proof that the party had filed its contribution report with the Election Commission of India.

However, the officer had recorded no finding that the donation was fictitious, a sham transaction, or part of a cashback or accommodation arrangement. Nor had an independent inquiry been conducted with the political party.

In these circumstances, the authority held that the disallowance was unsustainable and directed deletion of the ₹3 lakh addition.

Appeal Partly Allowed

The appellate authority treated the jurisdictional objection, the ground concerning consideration of evidence, and the request to amend the grounds as general grounds requiring no separate adjudication.

The challenge to initiation of penalty proceedings under Section 270A was treated as premature. The objection to interest under Sections 234A, 234B and 234C was treated as consequential.

The appeal was therefore partly allowed, with both substantive disallowances—aggregating ₹10,37,048—directed to be deleted.

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