TaxTMI 
TaxTMI 
2010 (12) TMI 949
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....hese appeals are filed by the appellants-assessees challenging the orders of the Income Tax Appellate Tribunal by common order dt.19.9.2008. 3. The admitted facts are, the appellants-assessees are partners of the partnership firm run under the name and style of M/s.Karnataka Agro Chemicals. Apart from the assessment of partnership firm, the appellants were also assessed to tax in their individual capacity on the returns filed by them. 4. The returns of the appellants-assessees came to be selected for scrutiny for the assessment year 1995-96. Accordingly, the Notice under section 143(2) of the Act came to be issued and the assessing officer passed orders of assessment by allowing the assessees's claim and set off the interest against other taxable income and concluded the same. However, the order of the assessment officer came to be selected for the review under section, 263 of the Act by the Commissioner of Income Tax Karnataka-I on the ground that the assessment was prejudicial to the interest of the revenue. On 29.12.99 orders came to be passed by the Commissioner of Income Tax who directed the assessing officer to disallow the interest paid on borrowed capita....
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.... of Malabar Industries Co.Ltd., vs. CIT reported in 243 ITR 83, in the case of Indian Bank reported in 56 ITR 77, in the case of CIT vs. Sridev Enterprises reported in 192 ITR 165, sought for setting aside the orders of the Tribunal dt.19.9.2008. 8. As against this, the contention of the revenue is that by virtue of proviso to section 14-A assessments cannot be re-opened. It was contended, Indian Bank case deals with exempted income and Rajendra Prasad Moody's case deals with income from other sources, therefore, none of the decisions referred to by the learned counsels for the appellants applies to the facts of the case and the Commissioner was justified in holding that appellants-assessees were not entitled for the deductions from taxable income towards the expenditure which was incurred for investment from a non-taxable source of income. 9. Section 14A of the Income Tax Act reads as under: "1) For the purposes of computing the total income under this Chapter, assessees, no deduction shall be allowed in respect of expenditure incurred by the assessees in relation to income which does not form part of the total income under this act. Provide....
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....was a case where the assessees borrowed monies for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant to the assessment year, but did not receive any dividend on the shares purchased with those monies. It was held that the interest on monies borrowed for investment in shares which had not yielded any dividend was admissible as deductions under section 57(3) of the Income Tax Act in computing its income from dividend under the head "Income from other sources". 14. In the case of CIT vs. Sridev Enterprises, assessees advanced certain amounts free of interest to another firm having common partners. He had also paid interest on monies borrowed by the assessees. The assessees claim for deduction for payment of such interest for the past years in the previous assessment came to be allowed on the assumption that those advances were not out of borrowed funds. 15. In the present case, in the first instance by order dt.24.5.2004 the Tribunal held that after the proviso was inserted to Section 14-A, no deduction shall be allowed in respect of expenditure incurred in relation to income which does not form part ....
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.... the claim of deduction of interest against incomes credited to the profit and loss account without satisfying the interest allocated to the capital contributed in the partnership firm on which whole of the interest has been allowed and the claim was considered under section 263 by the CIT. 18. As a matter of fact, the assessees submitted before the Tribunal that the interest paid is legitimate business expenses against the income even though not taxed in the hands of the assessees's has nevertheless been taxed in the hands of the firm wherein the assessees are partners. Unless there is material to establish the amount being utilised for investment in the firm, there cannot be computation regarding the allowability of the interest paid. The question is whether such material was available? The fact finding authorities have opined that such material was not available in the paper books submitted before the Tribunal at the time of hearing. Therefore, the Tribunal was justified in saying that the assessees himself was not clear about the amount, which could be allocated to the interest paid on the capital by virtue of partnership deed as entered into between the partners and ....