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TMI Blog2016 (11) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, has erred in disallowing interest expense of Rs. 10,27,507/-. The Appellant respectfully submits that CIT(A) ought to have considered that interest expense was incurred to earn interest income on capital balance in the firm which is taxable as business income and ought to have ignored Appellant's mistake of claiming interest expense as loss under the head "Income from other sources" instead of "Business Loss" as there is no estoppel against law, particularly when the total income, as returned, remains the same." 3. The Brief facts of the case are that the return of income declaring total income of Rs. 19,63,290/- was filed by the assessee on 14th October, 2010 which was processed u/s 143(1) of the Act. The case was reopened u/s 148 of the Act for the reasons recorded as under:- "On perusal of the case records, it is seen that assessee has shown salary income of Rs. 30,00,000/- after claiming deduction u/s 10 and interest income of Rs. 1,08,297/-, the assessee claimed deduction of Rs. 10,27,507/- on account of interest payment against the salary income and interest income. It may be noted that the only allowable deduction out of salary income are profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. that the assessee has taken loan to invest in partnership firm. The share of profit from the partnership is exempt u/s 10(2A) of the Act. The assessee's contention that the loan amount was invested in the partnership firm with the intention of earning interest was not acceptable to the A.O. The A.O. observed that share of profit from capital contribution in the partnership firm is exempt from tax u/s 10(2A) of the Act . Hence, the contention of the assessee that had there been profit in the partnership firm, the assessee would have received interest was not acceptable/teneble. The disallowance u/s 14A of the Act was not worked out by the assessee as observed by the AO. The assessee had made investment in the capital of partnership firm out of loan received from LIC and the assessee has not paid the interest on loan taken for the purposes of earning interest as no interest was received from partnership firm. The A.O. accordingly computed the income of the assessee by disallowing the interest paid to LIC amounting to Rs. 10,27,507/- vide assessment order dated 17th December, 2012 passed u/s 143(3) r.w.s. 147 of the Act. 4. Aggrieved by the assessment order dated 17.12.2012 pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a stray incident instance which is not sufficient to justify the interest payment of an amount as high as Rs. 10,27,507/- on such loans taken. There is no evidence to prove that the assessee's sole intention was to earn interest on capital employed in the firm as against share in profits which is exempted u/s 10(2A) of the Act. The capital of the assessee was not just sufficient even for his 15% share in the firm and is in negative was the observation of learned CIT(A). The ld. CIT(A) accordingly concluded that the assessee has grossly failed to justify that the interest paid of Rs. 10,27,507/- had nexus with any business purposes of the assessee and it is an afterthought just to avoid the payment of taxes. Thus, the ld. CIT(A) upheld the order of the A.O. vide appellate order dated 07-10-20113 passed by learned CIT(A). 6. Aggrieved by the appellate order dated 07-10-2013 passed by the ld. CIT(A), the assessee filed appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted that the assessee has availed LIC loan and interest is paid on the said loan. The assessee has invested the said loan in partnership firm Systematic Exports in which the assessee is partner an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was raised in financial year 2008-09, including interest for financial year 2008-09. We have observed from perusal of Canara Bank Book submitted by the assessee vide paper book/page 4 that the assessee has made payment of Rs. 25,00,000/- on 10-10-2008 to City Apparels vide cheque no. 153747 , Rs. 43,00,000/- to City Apparels vide cheque no. 153748 dated 14-10-2008, Rs. 15,00,000/- to Sushil Goenka HUF vide cheque 153751 on 15-10-2008, Rs. 20,00,000/- to City Apparels vide cheque no. 153752 on 17-10-2008 and also payment of Rs. 10,00,000/- to Systematic Exports vide cheque no. 153753 dated 17-10-2008. Thus, the assessee has invested only Rs. 10 lacs in the firm Systematic Exports out of Rs. 1.19 crore of LIC loan (inclusive of interest for financial year 2008-09) outstanding as at 31-03-2009. Thus, there is a perversity in contention of the assessee and findings of the authorities below as the assessee has not invested the entire proceeds of the LIC loan of Rs. 1.19 crores (inclusive of interest for 2008-09) in the firm Systematic Exports but for Rs. 10.0 lacs as set out above. The capital account of the assessee in books of Systematic Exports also confirms the same. The balance out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the firm Systematic Exports in fact paid interest on capital contributed by the partners when there were profits in the said firm . The share of profits on the capital contributed by the assessee with the partnership firm M/s Systematic Exports , are exempt from tax u/s. 10(2A) of the Act. Thus, necessarily the expenses incurred in relation to earning of the income which does not form part of total income, has to be disallowed as per provisions and mandate of Section 14A of the Act unless it is shown that the interest is paid / payable on the capital contributed by the partner in the firm Systematic Exports which interest is chargeable to tax u/s 28(v) of the Act . Considering the peculiar facts and circumstances of the case, interest of justice will be best served if the matter is set aside and restored to the file of the AO for fresh determination of the issue on merits in accordance with law while also keeping in view our above stated observations in this order. The assessee shall be allowed to file relevant evidences / explanations in his defense. Needless to say proper and adequate opportunity of being heard shall be granted to the assessee in accordance with principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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