2011 (6) TMI 1009

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....,628/- against interest earned on capital investment in the firm, which was disallowed u/s 14A r.w.r 8D of I T Rule by the Assessing Officer . 3. The assessee is a partner in the firm/S Signet Chemical Corporation. He has earned interest @ 12% on the capital contributed in the partnership firm as per the partnership deed. Part of the capital in the firm contributed out of the money borrowed from the bank. The assessee had claimed interest expenditure of Rs. 24,40,917/- paid on the bank overdraft facility in the capital assets against the interest income of Rs. 1,46,13,460/- earned on the capital invested in the firm. The total interest received by the assessee includes the interest of Rs. 40,66,150/- earned from the firm only in the....

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....hip firm and the profit sharing ratio. He has referred the details of the capital balances of various partners in the firm and profit sharing ratio amongst the partners and submitted that there is no direct relation between the profit sharing ratio of the partners and their capital invested in the partnership firm. He has supported the order of the CIT(A) and submitted that it is settled proposition of law that the interest paid on funds for the purpose of contribution in the partnership firm cannot be treated as expenditure incurred for earning profit in the partnership firm. Moreover, in the partnership deed, interest payment is provided on the capital invested by the partner; therefore, there is no direct nexus between the capital i....

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....e above chart that the profit sharing ratio of the various partners is different from the percentage of the profit to capital invested. Moreover, when the interest received from the partnership firm is treated as business income in the hands of the partners as per sec. 28(v) then any expenditure incurred in relation to the earning of the said income, which is treated as income from business or profession is allowable claim against the said income. An Identical issue has been considered and decided by the coordinate Bench of the Tribunal in the case of Delite Enterprise (P) Ltd (supra), in which one of us - Judicial Member - is the party, wherein the Tribunal has decided the issue in para 13 as under: "13. From the facts mentioned a....