TaxTMI 
TaxTMI 
2023 (8) TMI 1520
X X X X Extracts X X X X
X X X X Extracts X X X X
....e already discussed and declared in para 5.5 of order dated 29-03-2023 is illegal, bad in law and be quashed as the same is beyond the scope of Section 154 of the Act. 2. The ld. PCIT has erred on facts and in law in holding that disallowance u/s 14 is required to be made in respect of interest of Rs. 10,55,82,853/- paid/ credited on the partners capital account (Rs. 10,41,43,027) & bank interest (Rs.14,39,826) without appreciating that interest on partners capital account being allocation of profit is a revenue neutral transaction and it is not an expenditure of interest paid on capital borrowed for the purpose of business.'' 2.1 Apropos Ground 1 and 2 of the assessee, brief facts of the case are that the Ld. PCIT in its order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s 36(1)(iii) by restricting the deduction as per provisions of section 40(b)(iv) of the Act. Hence a mistake apparent from record has crept in which is rectified by directing the AO to verify the same and decide as per law. 2.2 During the course of hearing, the ld. AR of the assessee prayed to quash the order of the ld. PCIT with the submissions that an issue which is deliberated and discussed in the order and thereafter a view has been taken on that issue, again taking another view on the same issue is not a mistake apparent on record but is a change of opinion. In the present case, on the issue as to whether interest paid to partners on their capital is to be considered for disallowance u/s 14A has been deliberated by the PCIT at Para....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case Munjal Sales Corporation Vs. CIT 298 ITR 298. We find that it is incorrect on the part of the ld. PCIT to state that finance cost has not been considered by her while discussing the disallowance u/s 14A of the Act. It is noted that this issue has been deliberated by the ld. PCIT at para 5.5 (i) of her order u/s 263 of the Act which for ready reference is reproduced as under:- "Explanation of assessee regarding claim of finance cost of Rs. 10,85,82,853/- (correct amount Rs. 10,55,82,853/-) in the P&L A/c is acceptable as this payment is a provision of interest on capital to partners and has no revenue impact because one side it is deductible expenses to the firm, on other side all the partners has included such income in their ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... view of Section 40(b)(iv) of the Act, it held that under the scheme of Chapter IV-D that assessee has to prove that it was entitled to claim deduction for payment of interest on capital borrowed u/s 36(1)(iii) and not disentitled u/s 40(b)(iv) of the Act. Hence, the decision of Munjal Sales Corporation vs CIT (supra) is entirely on different facts and not related to Section 14A of the Act. Even otherwise, the view taken by the AO is in consonance with the view taken by the Coordinate Bench of ITAT Pune Bench in the case of Quality Industries vs JCIT (2016) 161 ITD 217 wherein it was held that interest paid on capital account of the partners cannot be considered for disallowance u/s 14A of the Act. The relevant finding at Para 11.5 of the o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to parties other than partners, in our view, would be subjected to provisions of r. 8D(2)(ii) of the Rules. Similarly, in the absence of any specific plea from assessee towards disallowance under r. 8D(3), we hold it sustainable in view of express mandate of law. The matter is accordingly remanded back to the file of the AO for recomputation of disallowance under r. 8D r/w s. 14A of the Act in terms of our opinion expressed herein above. Following the above decision, Hon'ble ITAT, Jaipur Bench in case of ASK Partners Vs. ACIT ITA No.187/JP/2017 order dt. 31.12.2018 (Case laws compilation PB 7-14) has also held that payment of interest to the partners as per the provision of partnership deed is not subject to disallowance u/s 14A read....