TaxTMI 
TaxTMI 
2012 (6) TMI 356
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....t: a. There was a nexus between the capital contribution and the share of profits of partners. b. The assessee has earned both taxable as well as exempt income in the form of interest & share of profit from M/s Shreenath Enterprises. c. The assessee has earned exempt income also on account of the capital introduced in the firm and this capital has come from the loan taken from Reliance Capital Ltd. on which it is paying interest, the addition made by the AO by invoking the provisions of section 14A is correct." 3. The basic facts of the case are : The appellant is a trust engaged in the business of shares and securities and a partner of a partnership firm M/s Shreenath Enterprises. Durin....
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....sessee made detailed submissions vide submission dated 26.11.2007. After considering the submissions of the assessee, the A.O. makes the following observations : As per agreement dt. 1-1-2004 between the three partners of M/s Shreenath Enterprises i.e. M/s Deite Enterprises Pvt Ltd, M/s Radian Texfab Pvt. Ltd and the assessee point no.5 states that the net profit / loss of the partnership will be shared between the partners in the ratio of 1:1:98. On going through the capital account of all the three partners in M/s Shreenath Enterprises, it is seen that the assessee has an opening balance of Rs. 332,13,49,642 and has made an addition of Rs. 322,79,00,000 during the year. Whereas Delite Enterprises has an opening balance of Rs. 31,90,09,....
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....h Enterprises has already been, proved above. Thus, interest paid to M/s Reliance Capital Ltd should be distributed proportionately. amongst the total of sale of shares & securities (Rs. 56,77,14,519), 'interest received from partnership,, firm (Rs. 10,38,04,143) and share of profit from partnership firm (Rs. 2.20,29,243). As the profits from the partnership firm of Rs. 2,20,29243 is exempt in the hands of the assessee, the proportionate interest cost incurred for the same is hereby disallowed under the provisions of section 14A of the I.T. Act, 1961 The disallowance on this account works out as under: = 10, 41, 51,584 x 2,20,29,243 56,77,14,519 + 2,20,29,243,+ 10,38,04,143 = 33,08,179 The A....
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....sing officer is that the appellant has received income in two forms from M/s. Shreenath Enterprises viz., interest on contribution and share of profit. White the interest income is subject to the share of profit from the firm is exempt u/s. 10(2A) of the Act. According to the Assessing Officer the interest expenditure incurred by the appellant has resulted into taxable as well as tax free income and hence that portion of the interest expenditure which relates to the share of profit is Liable to be disallowed in terms of section 14A of the Income Tax Act, 1961. The Assessing Officer has given the details of capital contributed by all the three partners including the appellant in order to substantiate his contention that the share of profit r....