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TMI Blog2011 (6) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 14A r.w.r 8D of I T Rule by the Assessing Officer . 3. The assessee is a partner in the firm/S Signet Chemical Corporation. He has earned interest @ 12% on the capital contributed in the partnership firm as per the partnership deed. Part of the capital in the firm contributed out of the money borrowed from the bank. The assessee had claimed interest expenditure of ₹ 24,40,917/- paid on the bank overdraft facility in the capital assets against the interest income of ₹ 1,46,13,460/- earned on the capital invested in the firm. The total interest received by the assessee includes the interest of ₹ 40,66,150/- earned from the firm only in the capital contributed by it out of bank overdraft. The Assessing Officer made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital balances of various partners in the firm and profit sharing ratio amongst the partners and submitted that there is no direct relation between the profit sharing ratio of the partners and their capital invested in the partnership firm. He has supported the order of the CIT(A) and submitted that it is settled proposition of law that the interest paid on funds for the purpose of contribution in the partnership firm cannot be treated as expenditure incurred for earning profit in the partnership firm. Moreover, in the partnership deed, interest payment is provided on the capital invested by the partner; therefore, there is no direct nexus between the capital invested by the partner and the profit-sharing ratio. The ld AR of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,808,316.93 33,631,006.41 29,219,661.67 7,382,255.48 10% 25.26 PDS HUF 17,876,309.36 22,905,127.69 20,390,718.53 3,691,127.73 5% 18.10 HPS HUF 41,329,555.26 62,683.287.96 52,006,421.61 18,455,638.70 25% 35.49 5.1 It is evident from the above chart that the profit sharing ratio of the various partners is different from the percentage of the profit to capital invested. Moreover, when the interest received from the partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds and interest earned from the firm that exists de hors the share in the profits of the firm. Coming back to the facts of the present case, we find that the interest paid by the assessee at ₹ 1.82 crores has direct and sole relation with the interest income of ₹ 2.34 crores. When the interest income of ₹ 2.34 crores is taxable u/s.28(v) as business income, how and under which circumstances it can be bifurcated into two parts viz., towards interest received and share from firm, is beyond our comprehension. No part of interest expenditure, which is sought to be disallowed u/s.14A, relates to share in profits of partnership firm which is otherwise exempt u/s.10(2A). As there is direct nexus between the funds borrowed on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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