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TMI Blog1985 (4) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that the accounts of all the partners showed opening debit balances. Subsequently, they also withdrew funds to the extent of Rs. 1,10,772. Further, the firm had suffered loss. After adjusting these amounts, the partners' accounts showed further debit balances. The assessee did not furnish details of the withdrawals for the personal expenses of the partners. The ITO estimated them at Rs. 50,000. He then held that the borrowings to the extent of this amount had not been utilised for the purposes of the assessee's business. He calculated an interest of Rs. 9,000 on this amount and disallowed it in the computation of the assessee's total income. 2. The assessee appealed to the AAC. It was submitted before the latter that with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has furnished before me the details of the interest of a few earlier years to show that it was always claimed on payment basis and had also been allowed by the ITO on that basis. This, therefore, proves the assessee's case that it had been following Mixed system of accounting with reference to the payment of interest. The interest was claimed and also allowed on the basis of actual payment. That method which has been regularly followed by the assessee cannot now be disturbed by the ITO only for the purpose of making some disallowance. If this is permitted, then it will disturb the assessee's accounts of the earlier year as well as subsequent years which is uncalled for. I, therefore, agree with the finding of the AAC that no disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdraw from the capital supplied by it thereby depleting the capital, the fact that part of the amounts borrowed was later on used for personal expenses did not deprive the assessee of the benefit of deduction of the entire interest paid on borrowed capital. While dealing with the matter at p. 471 of the report, the Court held that "the family was surely entitled to withdraw from the capital supplied by it with the result of the capital being deleted." In other words, the finding in this case was based on the fact that the withdrawal could be related to the capital supplied by the assessee. In the case before us, on the other hand, there is no capital invested by the partners. I have already mentioned above that their opening balances we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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