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TMI Blog2012 (6) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... ew partners for sharing of profits by the partners Alt the partners, including the appellant, are entitled to the profit sharing as per the partnership deed and the same was not dependent on contribution of funds made by the partners. Hence, CIT(A) rightly held that the provisions of section 14A are not applicable in the present case - Decided in favor of assessee. - IT APPEAL NO. 1328 (MUM.) OF 2009 - - - Dated:- 13-6-2012 - R.S. SYAL, VIVEK VARMA, JJ. ORDER Vivek Varma, Judicial Member The appeal filed by the department emanates from the order of the CIT(A)-XII, Mumbai, dated 16.12.2008. 2. The grounds raised by the department are as under :- 1. "On the facts and circumstances of the case and in law, the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio amongst the partners including the assessee. On perusal of the said clause, it is seen that the contribution of capital or profit by way of loan were not the conditions while admitting the assessee in the partnership firm. The partners are entitled to their share of profits as per the partnership deed and such, share of profit is not dependent on contribution of funds made by the partners. The AO has estimated and apportioned interest expenses of Rs. 33,08,179 towards earning of exempt income and accordingly computed income after disallowing u/s 14A. 4. The A.O. took up the assessment proceeding and sought an explanation from the assessee that when interest payment is more than interest received and moreover interest free income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lite Enterprises 31,90,09,749 31,90,09,749 31,90,09,749/ 718,77,84,183=4.44% Radiant Texfab Pvt. Ltd. 31,90,34,792 31,90,34,792 31,90,34,792/ 718,77,84,183=4.44% Total 395,98,84,183 322.79,00,000 718,77,84,183 100% Thus it can be seen while the profit sharing ratio is 1:1:98 the ratio of capital contribution is 4.44 : 4.44 : 91.12' showing high degree of correlation between the capital contribution and profits shared. The assessee has used the borrowed funds from M/s Reliance Capital Limited to invest in M/s Shreenath Enterprises and various shares and securities. The total sales in various shares and securities are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised interest bearing loan from Reliance Capital Ltd. The said Loan had been utilized by the appellant for the purchase of shares and also for making capital contribution to M/s Shreenath Enterprises in which the appellant was a partner. Thus, to the extent the interest bearing loan has been used for making contribution, there is a direct nexus between the loan obtained from Reliance Capital Ltd. and contribution made to the partnership firm. In other words, there is a direct nexus between the amount taken and loan given in respect of funds borrowed from Reliance Capital to the appellant had incurred an interest expenditure of Rs. 10,41,51,584/- against which the appellant has received interest of Rs. 10,38,04,143/- from Shreenath Enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital contribution by the partner as one of the conditions for a partnership firm. Section 4 of the Indian Partnership Act defines partnership to mean the relation between the persons who have agreed to share profit of business carried on by all or any of them acting for all Therefore, the sharing of profit or losses is the determinative factor for the existence of the partnership firm. M/s. Shreenath Enterprises was formed as a Partnership firm vide Partnership Deed dated 24th July, 2000 and the appellant was admitted as a partner in the said partnership. firm vide admission agreement dated 1 January, 2004. Clause (5) of the admission agreement sets out the profit sharing ratio amongst the partners including the appellant. Nowhere in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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