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Deputy Commissioner of Income Tax, Circle-2, Jaipur. Versus M/s Man Made

2015 (12) TMI 608 - ITAT JAIPUR

Diversion of interest bearing funds to one of its partner Shri Deepak Khanna for non business purposes - CIT(A) deleted the addition - Held that:- The interest in the case of firm has to be calculated on both the accounts of the partner in debit and credit by the Assessing Officer not only debit balance of the partner. The firm had not charged or paid any interest to the partner either on debit or credit since inception. Therefore, there is no justification in calculating the disallowance on deb .....

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IT (A)-I, Jaipur for A.Y. 2008-09. The sole ground of appeal is against deleting the addition of ₹ 11,43,263/- made by the Assessing Officer as the assessee firm has diverted the interest bearing funds to one of its partner Shri Deepak Khanna for non business purposes. 2. The assessee firm is engaged in the business of manufacturing and export of handmade woolen carpets, durries and fabrics. It filed return on 17/11/2008 at ₹ 40,29,390/-. The case was scrutinized U/s 143(3) of the In .....

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see vide letter dated 10/11/2010. The assessee s reply was reproduced by the Assessing Officer on page 2 of the assessment order. After considering the assessee s reply, the ld Assessing Officer held that interest payable on capital is governed by the terms and conditions laid down in the partnership deed to this effect. If partnership deed does not allow interest to partners then it is not open for the partners to claim interest on their capital. The partnership deed does not and cannot depict .....

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ach partner is a separate legal entity. Cumulative balance has not evidence in the eyes of law. If this fund was might have available with the firm, the firm might have paid less interest and debited less expenses. He further relied on the following case laws:- (i) CIT Vs. H.R. Sugar Factory (P) Ltd. 187 ITR 363 (Alld). (ii) CIT Vs. Abhishek Industries Ltd. 286 ITR 1 (2006) P&H. (iii) Indian Metals & Ferro Alloys Ltd. Vs. CIT 193 ITR 344. By following the above decisions, the ld Assessin .....

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not charged any interest on the capital account of the partners nor any interest has been paid. 2) Moreover, while the debit balance in the account of Shri Deepak Khanna, one of the partners was ₹ 95,27,195/-, the credit balance in the capital account of Smt. Arti Khanna, the other partner was ₹ 95,49,041/-. Therefore, if the interest paid was to be calculated then it would nullify the interest to be received from the other partners of the firm. 3) The case laws relied on by the A.O. .....

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ence to rebut or controvert this finding of the ld. CIT(A) so the matter is covered by his judicial pronouncement. In view of the above discussions and the facts of the case, the disallowance of interest of ₹ 11,43,263/- is deleted. 4. Now the Revenue is in appeal before us. The learned D.R. has supported the order of the Assessing Officer. 5. At the outset, the learned AR for the assessee has submitted that the interest on capital to the partners is governed by the provisions in the partn .....

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