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TMI Blog2021 (12) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... AO u/s. 131 and deposed that she has advanced the said amount to the assessee - AO found that there were cash deposits of exact amount in bank accounts of the two lenders just prior to the cheques being issued to the assessee. It is also seen that the existing bank balance prior to these deposits are kept as it is. One of the lender Smt. Sonalben Shah explained this cash deposits as loans received in cash from 6 persons. All loans are just below ₹ 20,000/- (the permissible limit) and all 6 are not income tax assessees. So Ld. AO arrived at conclusion that the creditworthiness of lender and genuineness of transaction is not established. In case of late Shailesh Savani, the cash deposits were not explained by his legal heir. We note that assessee has failed to discharge his onus of establishing creditworthiness and genuineness, therefore, we confirm the order of ld. CIT(A).- Decided against assessee. - ITA Nos. 38 & 332/SRT/2019 - - - Dated:- 21-12-2021 - SHRI PAWAN SINGH, JM And DR. A.L.SAINI, AM Assessee by : Shri Anil K.Shah, Advocate Respondent by : Mrs. Anupama Singla Sr.DR ORDER PER DR. A. L. SAINI , ACCOUNTANT MEMBER Captioned two appeals file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee argues before us that section 14A of the Act is not applicable to the assessee because the interest and remuneration received from the partnership firm is taxable income in the hands of the partner. However, ld. DR for the Revenue relied on the stand taken by the assessing officer. 9. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. We note that assessee has invested in partnership firm out of own funds alongwith some borrowed funds. These amounts have been invested in the partnership firm as a capital contribution. The assessee is getting interest from the partnership firm on his contribution @ 12% and such interest is assessable u/s. 28 of the Act, as a business income. Therefore, it should not be brought in the ambit of the provision of 14A of the Act, for that reliance can be placed on the judgment of the Co-ordinate Bench of Mumbai in the case of Asstt. Commissioner of Income-tax, Circle-19(2) Mumbai vs. Shri Harish P Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted 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 assessee has relied upon the order of the Tribunal in the case of ACIT vs Delite Enterprise (P) Ltd. reported in 136 TTJ 663, copy of which is placed on record. 5 We have considered the rival contention and perused the relevant material on record. As per the details of the capital contribution by the partners and the profit sharing ratio at page 15 of the paper book, it is clear that there is no direct relation between the balance of capital contributed by the partners and the profit sharing ratio. The analysis, which is placed at page 15 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same funds were invested in M/s. Sreenath Enterprises. One to one nexus between the borrowed funds as invested in partnership firm was proved by the assessee. The extent of contribution of capital by partners or the proportion is not determinative of the profit sharing ratio. A partner may have 90% share in the profits of the firm with capital contribution of 10%. So there is no correlation between the extent of capital contribution and share in the profits of the firm. On the other hand, interest income from the firm has always a direct and immediate relation with the capital contribution. Interest is allowed on the capital contributed by a partner in firm irrespective of the profit sharing ratio. If some funds are borrowed and invested in the firm as capital, it is only the relation between the interest paid on such borrowed funds 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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