TaxTMI 
TaxTMI 
2017 (5) TMI 423
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.... after accepting that investment in partnership firm was for the purpose of carrying on business by the partner however assessee had claimed that all income whether interest, remuneration and share of profit derived by the partner/s were by virtue of the investments made therein. 3. That the CIT(A) failed in giving clear direction for excluding investment of Rs. 3,75,00,000/- made in shares yielding no taxable income out of total investment of Rs. 4,42,52,726/- while working out the disallowance as per Rule 8D(2). 4. The brief facts arising in this case are that the assessee derived income from proprietory concern M/s Surya Jot, Sri Ganganagar carrying on business in grains, arhat etc. and also a partner in three partnership firms. Income from those firms were declared as under:- Name of the firm Share of Profit Interest Remuneration Total Income M/s Behiari Lal Lila & Sons Nil (-) Rs. 149243 Rs. 66796 (-) Rs. 82447 M/s Venteshwara Nil 378590 Rs. 370423 Rs. 749013 M/s Rudrakash Art & Craft Nil Nil 0 0 0 Total Income from these firms Rs. 666566 Expenses for interest paid (-) Rs. 889805 Deficit income from firms (-)....
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....hat interest & remuneration was nothing but was part of the divisible profit. Case laws entailing different set of facts & context would not support him. Contrarily appellant refers to (2016) 70 ITCL 425 -Udhavdas Mohandas Rupchandani Vs ACJT - Mumbai Tribunal had held that interest bearings funds were invested as partner in partnership firms from which along with share of profit he was receiving remuneration and interest which was taxable in his hands. Remuneration and interest received by the partner was assessable as income from business therefore deduction of interest paid was allowable. Similar judgments were given in Delite Enterprises (P) Ltd VsACrr(2011) 134 TTJ663 (Mumbai Tribunal) & Sudhir Dattaram Patil Vs DCIT (2005) 2 SOT 678 (Mumbai). Appellant also submits that interest payments of Rs. 889805 were relating to interest of Rs. 446415 paid to M/s Aishwarya Traders + Rs. 253590 to Vimlu Devi A Rs. 189800 to Karuni Lila claimed against income of Rs. 666566 from the said partnership firms which left deficit of Rs. 223239 the same was adjusted against Net Profit of Rs. 522494 from the sole proprietary concern M/s Surya Jot thereafter disallowance of Rs. 660458 on the bas....
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....st as per Rule 8D(2) was not correct in view of following calculation made: (i) Whole amount of expenditure if it is directly relating to exempt income which is not applicable in present case): (ii) In case of expenditure of interest which is not directly relatable to an)' particular income then it is to be computed in a specified manner: A x B / C = 889805 x 6182096 / 18484778 = Rs. 297559 Amount of expenditure of Interest - Rs. 889805 Average of Investment yielding exempt Income - Rs. 6182096 Average of Total Assets - Rs. 18484778 (iii) 0.5% of Averaged Investment yielding exempt income 0.50% x 6182096 Rs. 30410 Accordingly disallowance if held to be sustained then it would be Rs. 327959 (Rs.297559 + Rs. 30410) instead of Rs. 660458 therefore remaining is to be removed. " 6.1 The ld. CIT(A) has held as under:- "a. There is no dispute regarding the fact that the assessee has invested loans in his partnership firm and immovable properties and claimed interest against the business income invested in properties. As much as that there is a direct nexus between the borrowed funds and the investment made in the firm. b. The investment in the partnership fi....
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....ng exempt Income - Rs. 6182096 Average of Total Assets - Rs. 18484778 iii) 0.5% of Averaged Investment yielding exempt income = 0.50%x 6182096 Rs. 30410 Having held that sec. 14A is applicable in this case, I am of the view that disallowance has not been correctly worked out by the Assessing Officer as he has overlooked Rule 8D of I. T. Rules. 1962 which provides for method of calculation of such disallowance u/s 14A. I am of the considered view that Rule 8D of Income Tax Rule should be applied in this case to work out the correct disallowance as this Rule provides for method for determining amount of expenditure in relation to income not includible in the total income. The aforesaid rule 8D has been inserted by the I.T (Fifth Amdt.), Rule, 2008 with effect from 24- 3-2008. As discussed above, I have already held that disallowance u/s 14A of the IT Act, 1961 is attracted in this case and since at the time of making the disallowance u/s 14A and calculating the same Rule 8D was in existence, the Assessing Officer is directed to work out the disallowance as per the provision of Rule 8D. With these directions, the grounds of appeal are disposed of the same are treated as pa....