Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (6) TMI 1067 - AT - Income TaxDisallowing the Interest paid to bank on notional basis being the amount Used by one of the partners - nexus between the withdrawals by Partner and usage of borrowed funds - AO noted that Partner had used borrowed funds for his personal use by withdrawing capital from firm’s funds and interest on the said borrowed capital used for personal purpose by way of withdrawal by Shri Kanwal Khurana, partner was disallowed - 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 - HELD 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 recompute the interest expenditure relatable to such amounts by taking the day to day balance of all the three partners and also by ignoring the profits credited to the partners’ capital account at the close of the year. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and recompute the disallowance in the hands of the assessee in accordance with our directions. The ground of appeal raised by the assessee is thus, allowed for statistical purposes.
|