TMI Blog2020 (12) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... s of partner only when it is due or received by him from such partnership firm. In the present case, no such interest was due to the assessee or received by him from the partnership firm of M/s. Sai Prestige Development on the capital account as a partner and the same therefore, could not be brought to tax as the business income of the assessee. As noticed that such interest on notional basis was not added by the Assessing Officer to the total income of the assessee but the deduction claimed by the assessee on account of interest paid on the debit balances of capital account with other firms was disallowed by him to the extent of interest attributable to the credit balance of capital accounts / with M/s. Sai Prestige Development on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee is directed against the order of Ld.CIT(A)-3, Pune, dated 12.06.2019 and the solitary issue involved therein relates to the disallowance of ₹ 24,00,480/- made by the Assessing Officer and confirmed by the ld. CIT(A) on account of interest. 2. The assessee in the present case is an individual who is a partner in eight partnership firms. The return of income for the year under consideration was filed by him on 17.10.2016 declaring a loss of ₹ 20,74,862/-. During the course of assessment proceedings it was noticed by the Assessing Officer that the assessee has claimed deduction on account of interest paid on the debit balance of his capital account with some partnership firms amounting to ₹ 26,16,913/-. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the book profit of the firm. This presupposes that there should be book profits. If book profits are not there then such interest will not be allowed to the firm. The partners of the partnership firm can decide amongst themselves whether interest can be charged in a particular year or not. It cannot be thrust upon the firm. He placed his reliance in the case of Tulsa Ram Kanhaiyalal Vs ITO 25 SOT 402(Jodhpur) wherein it was held that it is prerogative of firm whether to charge interest or not. He also enclosed an addendum signed by all partners about charging of interest in the firm M/s. Sai Prestige Developments for AY 2016-17. 3. The submissions made by the assessee as above were not found acceptable by the Assessing Officer. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the assessee before the ld. CIT(A) in support of his case on this issue. The ld. CIT(A) did not find merit in the same and proceeded to confirm the disallowance made by the Assessing Officer on account of interest for the following reasons given in paragraph No.5.3 of his impugned order. 5.3. DECISION:- The observations of the AO, submissions of the appellant and the material on record have been considered. 5.3.1 On this issue, the Assessing Officer observed that the assessee has claimed interest expenses on payment to partnership firms of ₹ 26,16,913/- (Profile Developers of ₹ 24,10,333/-, Kamdhenu Developers of ₹ 79,934/- Profile Projects of ₹ 1,26,646/-) on capital withdrawn from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project gets completed. The appellant relied upon an addendum to subsequent assessment year that clause of interest payment was waived off for the year under consideration. The addendum submitted before the AO was on a plain paper and not on a stamp paper which was not authentic and was considered as an afterthought to give legitimacy to the transactions already carried out. 5.3.4. It is seen that the AR of the appellant has stated that there is no income in firm so no interest has been charged. The partnership deed says that 12% interest is to be paid. The appellant depends on the addendum signed by all the partners about charging of interest in the firm M/s Sai Prestige Development for A.Y. 2016-17 which was not accepted by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee by partnership firm of M/s. Sai Prestige Development, it is observed that this is not the basis on which the impugned addition was made by the Assessing Officer and sustained by the ld. CIT(A). It is no doubt true that as per clause (v) of section 28 of the Income-tax Act, 1961 (hereinafter referred to as the Act‟) any income inter-alia, on account of interest on the capital account of a partnership firm is chargeable to tax under the head Profits and gains of business or profession in the hands of partner only when it is due or received by him from such partnership firm. In the present case, no such interest was due to the assessee or received by him from the partnership firm of M/s. Sai Prestige Development on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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