Case Law Details
Enco Shoes Vs DCIT (ITAT Delhi)
ITAT Delhi held that notional interest on debit balance of partner’s account not sustainable in absence of information of diversion of interest bearing borrowed funds for non-business purpose. Further, notional interest cannot be charged for taxing in the partner’s debt balance specifically when there is no discussion in the partnership deed
Facts-
The facts noted by AO are that there is debt balance in the partners account of Rs.1,16,50,965/- i.e., in the account of Shri Najmul Hasan and Smt. K. Faiza Simin and further, there is an investment in the name of Shri Najmul Hasan under the Najmul Investment Account of Rs.40 lakhs. The net debt balance in partner’s account adds up to Rs.1,41,78,774/-. According to AO, since there is net debt balance of Rs.1,41,78,774/-, the assessee has diverted interest bearing borrowed funds for the purpose of non-business purposes. Therefore, the AO charged notional interest @ 12% on the net debt balance which worked out to Rs.17,01,453/-. CIT(A) confirmed the action of AO. Being aggrieved, the present appeal is filed.
Conclusion-
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