9911796707
TMI Blog2021 (12) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as 'the Act') 17.03.2016 and 30.11.2017 respectively. 2. Since both appeals relate to same assessee, common and identical issues are involved, therefore these appeals have been clubbed and heard together and a consolidate order is being passed for the sake of convenience and brevity. 3. At the outset, Learned Counsel for the assessee, informs the Bench that in case of ITA No. 332/SRT/2019, for AY 2015-16, the assessee does not wish to press ground no. 2 and 3, therefore grounds Nos. 2 and 3 are dismissed, as not pressed. 4. Ground No. 1 in assessee's appeal ITA No. 38/SRT/2019 for AY 2013-14 and ground No. 1 in ITA No. 332/SRT/2019 for AY 2015-16 are common and identical wherein addition under section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the partnership firm, as per partnership deed and by virtue of being partner, the assessee is getting his share of profit, which is exempted from tax. He has further contended that the capital of the assessee in the firm has direct nexus with the shares of the profit. Therefore, from the combined reading of sec. 14A with sec. 10(2A), it is clear that the share of profit from the partnership firm being exempted u/s. 10(2A) and expenditure incurred in relation to this income is not allowable as deduction. Thus, the ld. DR submitted that the Assessing Officer is justified in disallowing the proportionate interest expenditure as attributable to the income earned being the share of profit of the partnership firm, which is exempt. 4.1 On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t page 15 of the paper book are as under: Name of the partner par Opening capital balance Closing capital balance Average capital Share of profit earned % share of profit as per deed % of profit to capital invested HPS 129,758,837.80 173,294,865.97 151,526,851.89 18,455,638.70 25% 12.18 BHS 64,936,063.16 103,144,263.10 84,040,163.13 18,455,638.70 25% 21.96 PDS 31,334,927.05 40,885,899.53 36,110,413.29 7,382,255.48 10% 20.4 NPS 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 1.82 crores has direct and sole relation with the interest income of Rs. 2.34 crores. When the interest income of Rs. 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax. One of the two lenders (Shri Shailesh Savani) is since deceased, another lender, Smt. Sonalben Shah is alive. Smt. Sonalben Shah appeared before Ld. AO u/s. 131 and deposed that she has advanced the said amount to the assessee. The Ld. 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 Rs. 20,000/- (the permissible limit) and all 6 are not income tax assessees. So Ld. AO arrived at conclusion that the creditworthiness ..... X X X X Extracts X X X X X X X X Extracts X X X X
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