Case Law Details
Rajesh Madanmohan Chaudhary Vs ITO (ITAT Pune)
The assessee in the present case is an individual who is a partner in eight partnership firms. The return of income for the year under consideration was filed by him on 17.10.2016 declaring a loss of Rs.20,74,862/-. During the course of assessment proceedings it was noticed by the Assessing Officer that the assessee has claimed deduction on account of interest paid on the debit balance of his capital account with some partnership firms amounting to Rs.26,16,913/-. He also noted that the said debit balances were on account of withdrawals made on capital accounts which were utilized for making investment in the capital account of another partnership firm M/s. Sai Prestige Development amounting to Rs.2,00,04,000/-. On the said capital account, no interest however, was received by the assessee in spite of specific provision contained in the partnership deed of M/s. Sai Prestige Development to pay interest @ 12% on the partners capital.
In the present case, no such interest was due to the assessee or received by him from the partnership firm of M/s. Sai Prestige Development on the capital account as a partner and the same therefore, could not be brought to tax as the business income of the assessee.
It is however, noticed that such interest on notional basis was not added by the Assessing Officer to the total income of the assessee but the deduction claimed by the assessee on account of interest paid on the debit balances of capital account with other firms was disallowed by him to the extent of interest attributable to the credit balance of capital accounts / with M/s. Sai Prestige Development on the basis that there was diversion of interest bearing capital for making investment in the capital of M/s. Sai Prestige Development. Having regard to all the facts of the case, I am of the view that even this basis adopted by the authorities below to make the impugned addition on account of disallowance of interest is not sustainable. Even if it is assumed for the sake of arguments that the entire capital in the partnership firm of M/s. Sai Prestige Development was invested by the assessee from the capital withdrawn from other partnership firms, the said investment in the capital of M/s. Sai Prestige Development was made by the assessee for the purpose of business in as much as income received from the partnership firm of M/s. Sai Prestige Development in the form of profit, remuneration or interest was chargeable in his hands under the head „Profits and gains of business or profession”. The withdrawals made by the assessee from the other partnership firms on which interest was paid by him, thus, were not utilized for non-business purpose and interest paid thereon in my opinion, cannot be disallowed on the ground that there was utilization of corresponding funds for non-business purpose as alleged by the authorities below. I therefore, find no merit in the impugned order of ld. CIT(A) confirming the disallowance made by the Assessing Officer on account of interest and deleting the said disallowance, I allow this appeal of assessee.
FULL TEXT OF THE ITAT JUDGEMENT
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