2014 (6) TMI 1067

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.... 1. The Id. Commissioner of Income tax (appeals) -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 act....

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....placed at page 4 of the Paper Book. One of the partner Shri Kanwal Khurana had a net 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 interes....