9911796707
TMI Blog2014 (6) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... s) -II, Ludhiana has erred in law and facts in confirming the action of Ld. AO in disallowing the Interest paid to bank on notional basis amounting to Rs. 10,16,397.00 being the amount Used by one of the partners ignoring A) the Partners Capital Account in totality and Term and Conditions of the Partnership Deed, the basic documents for forming the partnership firm. B) and also without establishing any nexus between the withdrawals by Partner and usage of borrowed funds C) and also treating the Partner of the Firm as an Independent entity. 2. Moreover, The Id. Commissioner of Income tax (appeals) -II, Ludhiana has erred in law and facts in confirming the action of Ld. AO in calculating the notional Interest on arbitrary basis ignori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debit balance of Rs. 94,12,693/- at the close of the year as against which the other two partners Shri Mohinder Mohan Khurana and Shri Surinder Lal Khurana had credit balances of Rs. 38,44,234/- and Rs. 52,41,884/- respectively. The net capital balance of the partners was debit Rs. 3,26,575/-. During the year under consideration, the assessee had claimed interest expenditure to bank at Rs. 792,226/- and interest on loans at Rs. 753,804/-. The 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. Consequently, the interest related to such borrowed capital by the partner Shri Kanwal Khurana was to be disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urana is to be considered for computing the disallowance of interest under section 36(1)(iii) of the Act. However, the 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. 9. The assessee by way of ground No. 2 has raised the issue against percentage rate to be applied for calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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