UDAYAN NAVINBHAI PATEL,,AHMEDABAD vs. THE ACIT, CIRCLE-5(2),, AHMEDABAD

This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-5, Ahmedabad dated 22.08.2017 pertaining to A.Y. 2014-15 and assessee has taken solely following ground:

Facts of the case are that the learned AO has disallowed Rs. 4,98,699/- under Section 14A since the RF share from the partnership firm is exempt. In this connection, it may please be noted that the AO has worked out the average investment on the following investments: PPF Rs. 4,55,838 Shares Rs. 50,08,379 Mutual Fund Rs. 79,67,342 Capital Invested in Partnership firm Rs. 6,06,03,335 Total Rs. 7,40,34,894

From the above, it may please be seen that the total investment is Rs. 7,40,34,894 whereas the capital as on 31-03-2014 is Rs. 9.51.65,000 i.e. interest free funds. The copy of Balance Sheet and P & T Account as on 31-03-2014 enclosed. The entire investment is out of interest free funds and therefore the question of disallowance of interest under Section 14A does not arise since the assesses has not incurred any expenditure in earning exempt income, It may please he noted that the interest of Rs. 12,30.014 is claimed as deduction out of interest earned on the capital from the firm. Since the entire interest is claimed as deduction from interest from firm, the question of disallowance under Section 1.4 A does not arise.

The learned AO has stated that the interest expenditure is incurred in claiming exempt income in the form of RF share [3rd Para on Page No. 3 of the

Further Section 40(b) grants deduction of interest to partners on fulfillment of certain conditions mentioned in Section 40(b). Further the interest so paid to the partners is taxable in the hands of partners and therefore it is said that it is appropriation of profit. The profit after remuneration is subject to tax and that the remuneration is also taxable in the hand of partners. And finally A.O. disallowed an amount of Rs. 4,98,699/- u/s 14A.

Thereafter assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the action of the A.O.

We have gone through the relevant record and impugned order. Ld. A.R sole grievance was that lower authorities have not considered papers filed by the assessee and particularly letter dated 19.08.2016 that is reply to notice u/s. 142(1) for assessment year 2014-15 wherein assessee allegedly given all the explanation with regard to above said addition and also submitted other document in support of its contention.

In the interest of justice, we set aside the matter to the file of the A.O. to decide this matter afresh after considering the documents to be placed before the ld. A.O. And thereafter will pass detailed and reasoned order as per provisions of law and after considering the documents to be filed by the assessee.

In the result, appeal filed by the Assessee is allowed for statistical purposes.