2012 (9) TMI 1051 - AT - Income Tax

Summary

Issues Involved: Appeal against order of Commissioner of Income-tax (Appeals)-II, Ludhiana u/s 143(3) of the Income Tax Act, 1961 for assessment year 2008-09. Grounds of appeal include disallowances of interest expenditure and addition u/s 14A.

Disallowance of Interest Expenditure:
The assessee, a partnership firm, claimed interest expenditure of Rs. 7,56,445. The Assessing Officer disallowed Rs. 5,58,007 based on days balances were advanced to partners and sister concern. The CIT (Appeals) upheld this. The assessee argued no interest was paid on partner balances and no new loans were raised. The ITAT found no merit in charging interest on negative partner balances, directing deletion of the addition.

Addition u/s 14A:
The Assessing Officer disallowed Rs. 29,128 under section 14A for exempt dividend income and long term capital gains. The ITAT directed re-computation considering only dividend income of Rs. 61,125 as exempt. Rule 8D of Income Tax Rules was applied. The ITAT partly allowed this ground.

In conclusion, the ITAT partially allowed the appeal, directing deletion of interest disallowance on partner balances and re-computation of section 14A disallowance based on actual exempt income. The order was pronounced on September 14, 2012.