ORDER 

PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER :

The Assessee is in appeal before us against the order of Ld.Commissioner of Income Tax(Appeals)-5, Vadodara [‘CIT(A)’ in short] dated 17/05/2018 passed for Assessment Year (AY) 2012-13.

2. The solitary grievance of the assessee is that the Ld. CIT(A) erred in disallowing the total interest expenditure of Rs.10,40,977/- made by the Assessing Officer u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

3. Brief facts of the case are that assessee has filed his return of income on 31/07/2012 declaring total income of Rs.NIL. The case was picked up for scrutiny and after serving statutory notice and seeking reply of the assessee, Assessing Officer noticed that assessee had borrowed money from various parties and interest thereof Rs.10,47,877/- and thus made disallowance u/s.14A of the Act.

4. Aggrieved by the order of the AO, assessee preferred an appeal before Ld.CIT(A), who after considering the case of both the parties, dismissed the appeal filed by the assessee.

5. Aggrieved by the order of the ld.CIT(A), now the assessee is further in appeal before us.

6. The solitary ground raised by the assessee relates to challenging the order of ld.CIT(A) in upholding the order of Assessing Officer while disallowing the interest expenses of Rs.10,47,877/- u/s.14A of the Act.

7. The Ld.AR appearing on behalf of assessee reiterated same arguments as were raised by him before CIT(A) and had also relied upon the written submissions submitted before us and the same is reproduced hereunder:

" “Undisputedly interest expenditure was incurred for earning profit from the firms. The Hon'ble Special Bench of IT AT in the case of Vishnu Anand Mahajan Vs ACIT (2012) 137 ITD 189 (Ahd)(SB) has held that share income of the partner from partnership firms is not liable to be taxed u/s. 10(2A) and in such cases, provisions of Section 14A would apply to disallow expenditure incurred on earning such income. Accordingly, relying upon the binding decision of Hon'ble Special Bench of I TAT, I hold that the appellant is not entitled to claim interest expenditure incurred for earning exempt income from partnership firms. In view of the decision of Hon'ble Special Bench being the latest one has to be considered instead of decisions relied by the Ld. AR. Accordingly, the disallowance made by the AO is confirmed and both the grounds of appeal are dismissed."

Therefore your appellant preferred appeal before the Hon'ble ITA r on following grounds "On the law and facts of the case of your appellant, the Ld. A.O. has erred in disallowing the total interest expenditure of Rs. 10,40,877/- u/s 14A of the Income Tax Act, 1961"

1. Facts In Brief

1.1. Your appellant is an Individual and regularly assessed to Tax at Vadodara. For the Asst. year 2012-13, your appellant had filed his return of income on 31.07.2012 declaring loss of Rs. 85,299/- and claimed refund of Rs. 33,000/-

1.2. The return of income of your appellant consists of income from Salary, capital gain and income from other sources. Copy of acknowledgement of return of income along with statement of income is enclosed herewith at page no. 06 to 08.

1.3. During the assessment proceedings, the Ld. A.O. called for the details of the interest expenses of Rs. 10,40,877/- claimed under the head income from other sources.

1.4. In response to the same, the appellant submitted to the Ld. A.O. the details of interest expenses like ledgers of parties from whom unsecured loans were taken, copy of confirmations of parties etc.

1.5. It was also submitted to the Ld. A.O. that the interest expenses paid were towards unsecured loans taken for investment towards capital in partnership firms namely Sandeep Enterprise, Gajanand Enterprise and Vallabh Enterprise. Copies of capital account of the appellant in the partnership firms were duly furnished to the Ld. A.O. and filed the revised statement of income considering interest received from partnership firm as income from business