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TMI Blog2020 (12) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 402(Jodhpur) wherein it was held that it is prerogative of firm whether to charge interest or not. He also enclosed an addendum signed by all partners about charging of interest in the firm M/s. Sai Prestige Developments for AY 2016-17." 3. The submissions made by the assessee as above were not found acceptable by the Assessing Officer. According to him, the amount withdrawn from his capital account with some partnership firms was given by the assessee to another partnership firm namely M/s. Sai Prestige Development and by not charging interest on the said amount from M/s. Sai Prestige Development and claiming deduction on account of interest paid on debit balances of capital account with other firms, the assessee had made an attempt to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been considered. 5.3.1 On this issue, the Assessing Officer observed that the assessee has claimed interest expenses on payment to partnership firms of Rs. 26,16,913/- (Profile Developers of Rs. 24,10,333/-, Kamdhenu Developers of Rs. 79,934/- Profile Projects of Rs. 1,26,646/-) on capital withdrawn from the firm whereas interest on capital invested was not charged in firm Sai Prestige Development amounting to Rs. 2,00,04,000/-. Therefore the Assessing Officer added an amount of Rs. 24,00,480/- , being interest calculated @12 on sum invested in Sai Prestige Development. 5.3.2 In this case, it is seen that the assessee is paying interest to partnership firms from which he has withdrawn capital. However, it is seen that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no income in firm so no interest has been charged. The partnership deed says that 12% interest is to be paid. The appellant depends on the addendum signed by all the partners about charging of interest in the firm M/s Sai Prestige Development for A.Y. 2016-17 which was not accepted by the Assessing Officer as it was on a plain paper and instead of a stamp paper which was not authentic. Thus, it is held that the AO was justified in making addition on account of interest expenditure @ 12% i.e. Rs. 24,00,480/- on capital invested by partners in Sai Prestige Development of Rs. 2,00,04,000/-. Accordingly, Grounds No.1 to 9 of the appellant are DISMISSED and addition of Rs. 24,00,480/- is confirmed." Aggrieved by the order of ld. CIT(A), the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains of business or profession" in the hands of partner only when it is due or received by him from such partnership firm. 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. 8. 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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