9911796707
TMI Blog2014 (6) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... D THAT:- The cumulative capital balance of the partner is negative figure. Consequently, the precedent relied upon by the ld. AR for the assessee is not applicable to the facts of the present case where one of the partner has overdrawn his capital which is over and above the cumulative capital balance (credit) of the other partners and where the assessee had borrowed interest bearing funds, then it cannot be held that there was no diversion of funds for non-business purposes. In view thereof, we hold that the interest relatable to such capital balances over drawn by the partner Shri Kanwal Khurana is to be considered for computing the disallowance of interest under section 36(1)(iii) of the Act. Assessing Officer is directed to recomp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the withdrawals by Partner and usage of borrowed funds C) and also treating the Partner of the Firm as an Independent entity. 2. Moreover, The Id. Commissioner of Income tax (appeals) -II, Ludhiana has erred in law and facts in confirming the action of Ld. AO in calculating the notional Interest on arbitrary basis ignoring the % rate actually paid to the bank. 3. The assessee is aggrieved by the addition of Rs. 10,16,397/-. The brief facts relating to the issue are that during the course of assessment proceedings, the Assessing Officer noted that one of the partner Shri Knawal Khurana had a negative capital of Rs. 94,12,693/- The Assessing Officer noted that Shri Kanwal Khurana had used borrowed funds for his personal use by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st on loans at Rs. 753,804/-. The case of the revenue was that the interest bearing funds were used by the assessee to advance interest free funds to one of the partners who in-turn had utilized the same for personal purposes. Consequently, the interest related to such borrowed capital by the partner Shri Kanwal Khurana was to be disallowed in the hands of the assessee at Rs. 10,16,397/-. 7. The Tribunal vide order in ITA No. No. 198/Chd/2010 dated 30.08.2010 had considered the dispute arising in assessment year 2005-06 wherein one of the partner had overdrawn his capital and utilized the same for non-business purposes but debit balance of the partner was less than the combined credit balances of the other two partners i.e. the cumulated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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