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2021 (10) TMI 450 - AT - Income TaxDisallowance of interest u/s. 36(1)(iii) - partners of the assessee firm had over withdrawn an amount as in excess of what was brought by them in the firm - HELD THAT:- A.R. had tried to dissect the negative balances appearing in the partners capital account. Bypassing the accumulated losses, the ld. A.R. had tried to impress upon us that a cumulative consideration of the net amount of capital introduced by the partners over the years revealed that there was no overdrawing of the respective capital accounts. Explanation of the assessee is devoid and bereft of any reasoning - it is a matter of fact that the partners of the assessee firm had debit balances in their capital accounts at the beginning of the accounting year, which pursuant to the further withdrawals carried out by them during the year had resulted to a 'debit balance' in the capital account at end of the year too - the assessee did not have any interest free advances - now when the partners of the assessee firm had clearly over withdrawn an amount in excess of what was brought by them in the firm, therefore, the lower authorities had rightly concluded that the correlating interest expenditure pertaining to the amount so overdrawn was liable to be disallowed u/s.36(1)(iii) - lower authorities had rightly concluded that the correlating interest expenditure pertaining to the amount so overdrawn was liable to be disallowed u/s. 36(1)(iii) - Decided against assessee. Disallowance of the entire amount of interest expenditure u/s. 40(a)(ia) - Assessee firm had during the year under consideration paid certain amounts to NBFC's for interest, prepayment charges and loan processing fees - benefit of the '2nd proviso' to Sec. 40(a)(ia) - scope of amendment - HELD THAT:- As the assessee would be eligible for the benefit of the '2nd proviso' to Sec. 40(a)(ia) of the Act, though subject to the satisfaction of the conditions therein contemplated. We, thus, in terms of our aforesaid deliberations restore the matter to the file of the A.O. with a direction to reconsider the disallowance u/s. 40(a)(ia) of the aforesaid amounts subject to the satisfaction by the assessee of the requisite conditions contemplated in the '2nd proviso' to Sec. 40(a)(ia) of the Act. At this stage, we may herein observe that the A.O. shall in the course of the set-aside proceedings consider the 'Form No. 26A' that was filed by the assessee with the ITO (TDS)-1(3)(3), Mumbai on 18.07.2019. Post-amended Sec. 40(a)(ia) of the Act the disallowance therein contemplated was liable to be restricted to the extent of 30% of the amount in question as regards which the assessee had defaulted the TDS provision under Chapter XVII-B - We are of the considered view that the claim of the ld. A.R. that the disallowance, if any, u/s. 40(a)(ia) was liable to be restricted to the extent of 30% of the sum payable does not merit acceptance and is accordingly rejected. The Ground of appeal No. 2 is dismissed.
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