9911796707
Advanced Search 
TMI Blog2021 (11) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... observed the computation of income under the head Income from business as under : Sr. No. Particulars 1. Profit Before tax as per Profit and Loss Account 51,235 Less : Any other exempt Income (98,433) (47,198) 2. Profit from Firm : M/s Ramanand Kidarnath International Remuneration 1,29,32,962 Interest 87,87,718 Profit 50,55,951 Less : Interest Interest on SVC T/C 242 6,94,387 Interest Paid to Aqua Steel 1,80,000 Interest Paid to Park Tools Ltd. 1,20,000 Reha Goenka 1,47,892 Shreya 1,69,758 13,12,037 Less: Profit Exempt u/s 10(2A) 50,55,951 2,04,08,643 Profit and Gains from Business and profession 2,03,61,445 3. From the above computation, he observed as below: "4.1 It can be observed from the above computation that the assessee has adjusted the interest paid on Loan to his income from firm. It is a clear proposition in Income tax Act. 1961 that only those expenditures can be allowed as deductions, which are used for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the assessee in the case of firm mentions that the interest on capital shall be provided at the rate of 12% which comes to Rs. 97,73,354/-. This means that the interest paid by firm on capital is itself less than what it should have been, so there is no question of the amount of Rs. 87,87,718/- having included the amount of interest on funds extended by the partner to the firm. Also, the assesse during the course of hearing could not prove that he has received any amount of interest on funds extended to the firm whereas he is claiming the interest as deduction on the same amount in his computation of income Further, the P&L account submitted by the firm has separate head for interest paid on partners' capital and interest paid on other loans. There also, it is not mentioned that any amount of interest other than the interest on capital has been paid by the firm to the partner. Therefore, it is clear that the firm has not paid any interest on funds taken from partner other than capital, which means the partner has not received any business income against the borrowed funds on which the deduction is claimed. In view of the above discussion, it is clear that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has earned Rs. 50,55,951/- as profit from firm which is claimed as exempt and the interest on borrowed funds is being claimed by him as expenditure. Therefore, the firm and partner being two separate legal entities for the purpose of Income Tax Act, it amounts to claiming an expenditure against exempt income which would attract provisions of section 14A in the light of Goderj Soaps & Boyce Ltd. In this regard, the assessee was show caused by letter dated 14/12/2015 as to "Interest expenditure has been claimed in computation against the income from partnership firm which is exempt. In such a case why disallowance u/s 14A should not be made." In reply the assessee submitted his response vide letter dated the relevant portion of which is reproduced here "With reference to the query raised by your goodself regarding disallowance us 14A on interest expenses, we have to state that the amount of loan borrowed by the assessee has been lent to Ms. Ramandnd Kidernath International on which interest has been earned. The assessee has capital of Rs. 9.52 Crores and the investment in the firm is Rs. 8.14 Crores as on 31.03.2013. No part of the borrowed funds from others has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxability of any income and tax liability thereupon is to be decided independent of the each other depending upon the facts and circumstances of the case. In this regard, the position has also been clarified by THE ITAT AHMEDABAD BENCH (SPECIAL BENCH) in the case of Vishnu Anant Mahajan vs. Assistant Commissioner of Income-tax, Circle 5, Baroda, wherein the Hon'ble tribunal held that share income of a partner from firm has to be excluded from his total income liable to tax and in such a situation, provision contained in section 14A will come into operation and any expenditure incurred in earning said share income has to be disallowed. B) If the assessee's contention that "the exempt amount has already been taxed in the hands of firm and is actually not exempt", is accepted then by this logic even the dividend income claimed as exempt by the share/fund holders should not attract the provisions of section 14A because the companies/funds have already paid Dividend Distribution Tax on that income and thus the section itself should become redundant and ultra vires, but the validity of the section has been upheld by Bombay High Court in the case of Godrej and Boyce. Also, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained the disallowance of interest without considering the decision of the Special Bench in the case of Vishnu Mahajan wherein the Special Bench held that expenditure proportionate to the exempted income should be disallowed. 6. Before us, the Ld. AR brought to our notice the observation of the Assessing Officer at page 2 of the order and he submitted that the capital of the assessee is Rs. 9.32 crores whereas investment in the firm is Rs. 8.14 crores as on 31.03.2013. He submitted, it clearly indicates that the assessee has not utilized the borrowed funds for the purpose of investment in shares. He relied on the decision of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom). Further, he submitted that the Assessing Officer relied on the case of Vishnu Anant Mahajan v. ACIT (2012) 147 TTJ (Ahd)/(SB) 142 which is distinguishable to the facts of the present case. 7. On the other hand, the Ld. DR relied on the orders of lower authorities. 8. Considered the rival submissions and material on record. We noticed from the records submitted before us that the assessee has computed the income from business as under : Sr. No. Particulars 1. Profit Before tax as per Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, we noticed that the assessee has own funds by way of capital is Rs. 9.52 crores and borrowed funds from other to the extent of Rs. 2.4 crores. Whereas, the assessee has invested Rs. 8.4 crores in M/s. Ramanand Kidernath International and balance funds were invested in various land and building properties and in some stock of shares. From the above balance sheet it is not individually identifiable how the own funds were utilized by the assessee. It is not possible to identify whether the assessee has fully introduced the capital in the firm or utilized certain own funds in the properties. It is fact that the assessee has borrowed certain funds and utilized the same in the firm. In our considered view, the assessee has duly earned the interest income from the firm and also incurred interest expenditure on the funds utilized for the purpose of the business. Therefore, the assessee is eligible to claim the above expenditure independently against the income earned by the assessee. It is important to note that the earning of interest income is restricted by the provision of section 40(b) whereas assessee has to incur interest expenditure as per agreement with the lenders. The source ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
