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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 ..... een the capital contribution and the share of profits of partners. b. The assessee has earned both taxable as well as exempt income in the form of interest & share of profit from M/s Shreenath Enterprises. c. The assessee has earned exempt income also on account of the capital introduced in the firm and this capital has come from the loan taken from Reliance Capital Ltd. on which it is paying interest, the addition made by the AO by invoking the provisions of section 14A is correct." 3. The basic facts of the case are : The appellant is a trust engaged in the business of shares and securities and a partner of a partnership firm M/s Shreenath Enterprises. During the year under reference, the Appellant had obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.11.2007. After considering the submissions of the assessee, the A.O. makes the following observations : As per agreement dt. 1-1-2004 between the three partners of M/s Shreenath Enterprises i.e. M/s Deite Enterprises Pvt Ltd, M/s Radian Texfab Pvt. Ltd and the assessee point no.5 states that the net profit / loss of the partnership will be shared between the partners in the ratio of 1:1:98. On going through the capital account of all the three partners in M/s Shreenath Enterprises, it is seen that the assessee has an opening balance of Rs. 332,13,49,642 and has made an addition of Rs. 322,79,00,000 during the year. Whereas Delite Enterprises has an opening balance of Rs. 31,90,09,749 and Radian Texfab Pvt. Ltd. has an opening balance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total of sale of shares & securities (Rs. 56,77,14,519), 'interest received from partnership,, firm (Rs. 10,38,04,143) and share of profit from partnership firm (Rs. 2.20,29,243). As the profits from the partnership firm of Rs. 2,20,29243 is exempt in the hands of the assessee, the proportionate interest cost incurred for the same is hereby disallowed under the provisions of section 14A of the I.T. Act, 1961 The disallowance on this account works out as under: = 10, 41, 51,584 x 2,20,29,243 56,77,14,519 + 2,20,29,243,+ 10,38,04,143 = 33,08,179 The AO, thus made a disallowance of Rs. 33,08,179/- as expenses attributable u/s 14A of the Income Tax Act. 5. Being aggrieved, the assessee moved its grievance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest income is subject to the share of profit from the firm is exempt u/s. 10(2A) of the Act. According to the Assessing Officer the interest expenditure incurred by the appellant has resulted into taxable as well as tax free income and hence that portion of the interest expenditure which relates to the share of profit is Liable to be disallowed in terms of section 14A of the Income Tax Act, 1961. The Assessing Officer has given the details of capital contributed by all the three partners including the appellant in order to substantiate his contention that the share of profit received by the partner is directly in proportion to the capital contributed by the partners. On the other hand, the appellant is of the view that there is no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership deed deals with the, capita/loans introduced by the partners to the firm. It clearly states that the partners may introduce capital and or give Loan to the firm which shall carry interest @ 12% annum or any other rate has been mutually agreed upon". 6. Against this decision of the CIT(A), the department is in appeal before the ITAT. 7. Before us, the DR relied on the assessment order and on being asked as to which is the exempt income which is being considered by the A.O. for the purposes of disallowance u/s 14A, the DR replied it was the share from the profit of firm which has been considered. 8. The AR on the other hand reiterated the submissions made before the CIT(A) and emphasized its submissions made before the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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