The assessee, Rajesh Madanmohan Chaudhary is an individual who is a partner in eight partnership firms. The return of income for the year under consideration was filed by him declaring a loss of Rs.20,74,862. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed deduction on account of interest paid on the debit balance of his capital account with some partnership firms amounting to Rs.26,16,913.
The AO also noted that the said debit balances were on account of withdrawals made on capital accounts which were utilized for making investment in the capital account of another partnership firm M/s. Sai Prestige Development amounting to Rs.2,00,04,000.
On the said capital account, no interest however, was received by the assessee in spite of specific provision contained in the partnership deed of M/s. Sai Prestige Development to pay 12% interest on the partners capital.
The AO observed that the amount withdrawn from his capital account with some partnership firms was given by the assessee to another partnership firm and by not charging interest on the said amount and claiming deduction on account of interest paid on debit balances of capital account with other firms, the assessee had made an attempt to shift the loss of the partnership firm to himself.
Mr. C.V. Deshpande, counsel for the assessee mainly reiterated before the Tribunal the submissions made on behalf of the assessee before the authorities below in support of the assessee’s case that the disallowance of interest made by the Assessing Officer and confirmed by the ld. CIT(A) on a notional basis is not sustainable.
On the other hand S.P. Walimbe, counsel for the respondent Authority has strongly relied on the orders of authorities below in support of the Revenue’s case that the disallowance made by the Assessing Officer on account of interest is correctly sustained by the CIT(A).
The coram headed by the Vice President, P.M. Jagtap noted that the withdrawals made by the assessee from the other partnership firms on which interest was paid by him, thus, were not utilized for non-business purpose and interest paid and cannot be disallowed on the ground that there was utilization of corresponding funds for non-business purpose as alleged by the authorities below.Subscribe Taxscan AdFree to view the Judgment