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2006 (10) TMI 255 - AT - Income TaxDisallowance of car expenses - incurred as partner of the partnership firm - Expenditure incurred in relation to income not includible in total income - theory of apportionment - HELD THAT:- We find that car expenses have been incurred by the assessee either for the purpose of partnership business or for personal use. The source of business income is only one. Travelling in the car is either for personal use or for the purpose of his profession in the partnership. Therefore, in our opinion, it has to be held that car was used for the purpose of his profession which generated income partly exempt u/s 10(2A) and partly taxable. Therefore, the contention of the assessee that car was used only for earning remuneration from the partnership firm cannot be accepted. Similarly, other expenses related to the profession carried on by him and therefore, related to both types of income. Theory of apportionment - In our view, it would be reasonable to apportion the expenditure on the basis of the ratio of the income which is exempted and the income which is taxable. In the present case, a chart has been given in the statement of facts filed by the assessee before the CIT(A). According to this chart, the exempted income u/s 10(2A), while the remuneration received from the firm which is taxable as stated in the assessment order. Therefore, it would be reasonable to disallow on pro rata basis. The Order of the CIT(A) is, therefore, set aside and the Assessing Officer is directed to re-compute the disallowance accordingly. However, it is, clarified that assessee himself has disallowed 20% for personal use and therefore, the disallowance u/s 14A is to be made with reference to the balance 80% of the expenditure. In the result, appeal of the assessee stands dismissed while the appeal of the revenue is partly allowed.
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