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Section 14 a disallowance

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04 October 2016 QUERY U/S 14A OF THE INCOMETAX ACT
A Joins a firm as a partner.
He invested - capital - own funds Rs.10 Lakhs and
He borrowed funds to the extent of Rs.20 Lakhs and invested in the firm towards capital.
He is eligible for interest on capital investment and remuneration as a working capital.
Balance profit shown in the firm is exempt u/s 10(2A).
The Assessing Officer propose to impose the provision of Sec 14A as he is showing the profit of the firm u/s 10(2A) after deducting interest part on 20 lakhs capital which is borrowed fund.
Whether his action is correct.?
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CA.Hanumantha Reddy

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CA.Hanumantha Reddy (Expert)
04 October 2016 No. Per my knowledge the AO is not correct and it cannot be construed as Dividend u/s 2(22).
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