TaxTMI 
TaxTMI 
2023 (3) TMI 195
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.... made by the A.O. invoking Sec. 14A, without appreciating the facts and the law properly. The disallowance u/s. 14A made by the A.O. and confirmed by the Ld. CIT(A) is arbitrary and not justified. 3. Ld. CIT(A) erred in not adjudicating upon ground No. 3 taken by the appellant regarding disallowance of Rs. 28,600/- on account of donation. 4. The appellant reserves the right to add, amend or modify any of the ground/s of appeal." 2. Succinctly stated, the business premises of the assessee firm which is engaged in construction business was visited by the department u/s. 133A of the Act on 09.04.2013. The assessee firm, thereafter, filed its return of income for A.Y. 2014-15 on 15.10.2014, declaring an income of Rs. 69,310/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O. that the assessee firm was constituted vide a partnership deed dated 05.03.2009 comprising of four partners who represented their respective firms, as under: a. Shri Suresh Chandra Dayabhai Manik (Representative of a firm namely Manik Brothers Raipur) b. Shri Hemendra Kumar Da....
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....fit & loss account on interest bearing borrowed funds, which, he was of the view could safely be related to its exempt income yielding investments in mutual funds. The A.O. on the basis of his aforesaid observations worked out the disallowance u/s. 14A at Rs. 13,19,518/-, viz., (i) U/rule. 8D(2)(ii): Rs. 12,50,745/-; and (ii) U/rule 8D(2)(iii) : Rs. 68,773/-. The A.O. further disallowed the assessee's claim for deduction of donation of Rs. 28,600/-. Accordingly, the A.O. vide his order passed u/s. 143(3) of the Act dated 29.12.2016 assessed the income of the assessee firm in the status of an "AOP" at Rs. 14,17,430/-. 5. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success. 6. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me. 7. I have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. A.R. to drive home his contentions. 8. My indulgence in the present appeal has been sought for adjud....
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..... 10. It is in the background of the aforesaid position of law that I shall now look into the sustainability of the view taken by the A.O. that the assessee was liable to be assessed as an "AOP". Although, it is observed by the A.O. that the assessee firm was comprising of the aforesaid four partnership firms as partners, but the said observation had been rebutted by the Ld. Authorized Representative (for short 'AR'), on the ground that those were the respective individuals, viz. (i) Shri Suresh Chandra Dayabhai Manik; (ii) Shri Hemendra Kumar Dayabhai Manik; (iii) Shri Paresh Kumar Dayabhai Manik; and (iv) Shri Yogesh Kumar Dayabhai Manik who had associated in their individual capacities, though, representing their respective firms, to constitute the assessee firm, viz. M/s. D.M. Builders. It was averred by the Ld. AR that there was no restriction on nominating a person to become a partner in a firm in his individual capacity. The Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon'ble Supreme Court in the case of Rashik Lal & Co. Vs. CIT (1998) 229 ITR 458 (SC). My attention was drawn by the Ld. AR to the relevant observations of the H....
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.... exempt income yielding mutual funds, therefore, no disallowance of any part of the interest expenditure could have been made in its hands. My aforesaid view that when both interest free funds and interest-bearing funds are available, then, it can safely be presumed that the interest free advances or investments in exempt income yielding assets were made out of the interest free funds is supported by the judgment of the Hon'ble High Court of Gujarat in the case of Pr. CIT Vs. Sintex Industries Ltd. (2018) 403 ITR 418 (Guj.). Also, a similar view had been taken by the Hon'ble High Court of Bombay in the case of HDFC Bank Ltd. Vs. DCIT, (2016) 383 ITR 529 (Bom). I, thus, in terms of my aforesaid observation that the assessee had sufficient interest free funds available with it to source the investments in exempt income yielding mutual funds, thus, vacate the disallowance of Rs. 13,19,518/- made/sustained by the lower authorities u/s. 14A of the Act. Thus, the Ground of appeal No. 2 raised by the assessee is allowed in terms of my aforesaid observations. 14. I shall now deal with the issue as to whether or not the lower authorities had rightly concluded that the assessment in....
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....deal with the proposition that as to whether or not such an arrangement is as per the mandate of law. It would be apposite to refer to the judgment of the Hon'ble Apex Court in the case of Ram Laxman Sugar Mills Vs. CIT (1967) 66 ITR 613 (SC). The Hon'ble Apex Court in the aforesaid case, had observed, that the mere fact that the manager of a HUF describing himself as a representative of the family had entered into an agreement of partnership with other persons could not form a basis to infer that an agreement of partnership was intended contrary to law between the HUF and other partners. For the sake of clarity, the relevant observations of the Hon'ble Apex Court are culled out as under: "7. In ascertaining the legal effect of a transaction the court seeks in the first instance to determine the intention of the parties, and when ambiguous expressions are used the court may normally adopt that interpretation which upholds the deed, if the parties thereto have acted on the assumption of its validity. From the mere fact that the manager of a Hindu undivided family describing himself as representing the family entered into an agreement of partnership with other persons, ....
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....d by the Hon'ble Apex Court that even if a person nominated by the HUF joins a partnership, then the partnership will be between the nominated person and the other partners of the firm. It was further observed by the Hon'ble Court that where the Karta of an HUF enters into a partnership agreement with a stranger, the Karta alone in the eyes of law is the partner. For the sake of clarity the relevant observations of the Hon'ble Apex Court, are culled out, as under: "8. An HUF cannot be in a better position than a firm in the scheme of the Partnership Act. The reasons that led this Court to hold that a firm cannot join a partnership with another "individual" will apply with equal force to an HUF. In law, an HUF can never be a partner of a partnership firm. Even if a person nominated by the HUF joins a partnership, the partnership will be between the nominated person and the other partners of the firm. Having regard to the definition of "partnership" and "partners" and in view of the principle laid down in Dulichand's case (supra), it is not possible to hold that an HUF being a fluctuating body of individuals, can enter into a partnership with other individual partne....