M/s Polyplastics, Yamunanagar V. DCIT, Yamunanagar

ITA 123/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5438 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.123 /CHD/2011 ASSESSMENT YEAR: 2006-07 M/S POLYPLASTICS, VS. THE D.C.I.T., INDUSTRIAL AREA, CIRCLE YAMUNA NAGAR. YAMUNA NAGAR.. PAN NO. AABFP1915C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SMT.JAISHREE SHARMA, DR O R D E R PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(A), DATED 12.11.2010 REL ATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS UNDER : 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) R5HAS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING DISALLOWANCE OF INTEREST OF RS.96,656/- CLAIMED ON PARTNERS CAPITAL BY RECASTING THE CAPITAL ACCOUNT WHICH IS ARBITRARY AND UNJUSTIFIED. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER NOTED THE ASSES SEE TO HAVE REFLECTED 2 ADVANCES FOR LAND ON THE ASSET SIDE OF THE BOOKS OF ACCOUNT TOTALING RS.17,13,753/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE BUSINESS EXPEDIENCY OF THE SAID ADVANCES WAS NOT JUSTIFIED A S I) THE AMOUNT WAS INVESTED IN RESIDENTIAL PLOT NEITHER IN THE NAME OF THE ASSESSEE, NOR IN THE NAME OF ANY OF THE PARTNERS OF THE FIRM AND II) BOTH THE REGISTERED DEEDS PERTAINED TO THE PLOTS PURCHASED IN THE YEAR 1997 FOR WHICH PAYMENT WAS MADE IN THIS YEAR ITSELF. THE ASSESSING OFFICER NOTED THAT THE PLOT IN YAMUNA NAGAR WAS PURCHASED IN THE NAME OF SHRI BALRAJ GUPTA, WHO IS THE FATHER OF BOTH THE PARTNERS. THU S THE ADVANCE OF RS.1,71,213/- AS PER THE ASSESSING OFFICER WAS A WI THDRAWAL BY THE PARTNERS. 4. WITH REGARD TO THE SECOND ADVANCE FOR PUNE LAND TOTALING RS.15,42,540/-, THE SAID AMOUNT WAS DEBITED TO THE ACCOUNT OF PARTNER, SHRI KAMAL GUPTA IN THE SUBSEQUENT FINANCIAL YEAR. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT RELATING TO THE ADVANCE FOR PUNE LAND SHOULD BE EXCLUDED FROM THE CAPITAL ACCOUNT OF THE PARTNERS AND ACCORDINGLY RECOMPUTATION OF THE INTEREST ON THE CA PITAL BALANCE OF THE PARTNERS WAS WORKED OUT BY THE ASSESSING OFFICER RE SULTING IN EXCESS ALLOWANCE OF INTEREST ON CAPITAL PARTNERS. ACCOR DINGLY, ADDITION OF RS.96,656/- WAS MADE BY THE ASSESSING OFFICER BEING THE INTEREST @ 12% ON EXCESS WITHDRAWAL OF CAPITAL OF RS.8,05,463/-. 5. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER REJECTING THE PLEA OF THE ASSESSEE BOTH ON ACCOUNT OF INVESTM ENT MADE BY SHRI BALRAJ GUPTA IN ASSESSMENT YEAR 1997 IN THE PURCHAS E OF YAMUNA NAGAR PLOT AND ALSO THE COMMERCIAL EXPEDIENCY OF PURCHASI NG THE PLOT IN PUNE. 3 6. SHRI TEJ MOHAN SINGH APPEARED FOR THE ASSESSEE A ND SMT.JAISHREE SHARMA APPEARED ON BEHALF OF THE REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSEE HA D REFLECTED AN INVESTMENT IN YAMUNA NAGAR PLOT AT RS.1,71,213/-, W HICH ADMITTEDLY WAS PURCHASED BY THE ASSESSEE IN 1997. THE SAID PLOT I S A RESIDENTIAL PLOT PURCHASED IN THE NAME OF SHRI BALRAJ GUPTA WHO WAS THE PARTNER AT THE RELEVANT TIME. AFTER HIS DEMISE THE SAID PLOT CONT INUES TO BE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE FIRM, WHICH BUSIN ESS IS BEING CARRIED ON BY THE SONS OF SHRI BALRAJ GUPTA AS PARTNERS. T HE CLAIM OF THE ASSESSEE IS THAT THE CREDIT BALANCE IN THE ACCOUNT OF SHRI BALRAJ GUPTA OF RS.3,69,802/- IS OUTSTANDING TILL DATE AND THE AMOU NT OF ADVANCE FOR PLOT IS ADJUSTED AGAINST THE SAME WOULD STILL RESULT IN A LIABILITY BEING OWED TO SHRI BALRAJ GUPTA. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WHERE ADVANCE FOR PLOT WAS MADE IN THE YEA R 1997 AND IS BEING REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE FROM YEAR TO YEAR AND ALSO THE LIABILITY OF RS.3,69,802/- DUE TO SHRI BALRAJ G UPTA BEING REFLECTED IN WHOSE CASE THE AFORESAID PLOT WAS PURCHASED, WE FIN D NO MERIT IN RECASTING THE CAPITAL ACCOUNT OF THE PARTNERS AND D ISALLOWING ANY PART OF THE INTEREST ALLOWABLE ON SUCH CAPITAL ACCOUNT OF T HE PARTNERS. 8. THE SECOND INVESTMENT MADE BY THE ASSESSEE IS IN RESPECT OF THE ADVANCE FOR THE PUNE PLOT AT RS.15,42,540/-. THE C LAIM OF THE ASSESSEE IN REGARD TO THE AFORESAID INVESTMENT IS THAT THE S AID INVESTMENT HAS BEEN MADE IN THE PURCHASE OF INDUSTRIAL PLOT ON WHICH TH E ASSESSEE HAS SET-UP ITS UNIT IN THE SUCCEEDING YEARS. THE ASSESSEE THU S CLAIMS THE INVESTMENT BEING MADE FOR COMMERCIAL EXPEDIENCY OF THE BUSINES S BEING CARRIED ON BY THE ASSESSEE, THERE IS NOT MERIT IN ATTRIBUTING THE SAID INVESTMENT 4 BEING INVESTMENT MADE BY THE PARTNERS AND ACCORDING LY REWORKING THE CAPITAL ACCOUNT OF PARTNERS AND THE INTEREST ALLOWA BLE THEREON. 9. THE SECOND ASPECT OF THE ISSUE RAISED BY THE ASS ESSEE IS THAT OUT OF ADVANCE OF RS.15,42,540/-, A SUM OF RS.6,34,250/- W AS PAID DURING THE PRECEDING YEAR AND THE BALANCE AMOUNT WAS PAID DURI NG THE YEAR UNDER CONSIDERATION. 10. THE LEARNED A.R. FURTHER POINTED OUT THAT THE P ERUSAL OF THE BALANCE SHEET WOULD REVEAL AN INVESTMENT ALLOWANCE RESERVE OF RS.5,46,320 WHICH IN TURN IS TO BE TRANSFERRED TO THE CAPITAL A CCOUNT OF THE PARTNERS AS THE PERIOD OF THE SAID RESERVE HAD ALREADY EXPIR ED AND SUCH BEING AVAILABLE TO THE ASSESSEE, THERE IS NO MERIT IN DIS ALLOWING THE INTEREST ON ANY PART OF THE CAPITAL ACCOUNT OF THE PARTNERS. 11. ON THE PERUSAL OF THE RECORD WE ARE OF THE VIEW THAT IN CASE THE INVESTMENT IN PURCHASE OF THE PLOT HAS BEEN MADE BY THE ASSESSEE FOR COMMERCIAL EXPEDIENCY, THERE IS NO MERIT IN DISALLO WING ANY PART OF THE INTEREST EXPENDITURE BEING ALLOWABLE ON THE CAPITAL ACCOUNT OF THE PARTNERS, HOLDING SUCH INVESTMENT TO BE THE PERSONA L INVESTMENT OF THE PARTNERS. IT IS AN ADMITTED FACT THAT SUCH INVESTM ENT WAS ROUTED THROUGH THE CAPITAL ACCOUNT OF ONE OF THE PARTNERS IN THE S UCCEEDING YEAR. HOWEVER, THE ASSESSEE HAS ESTABLISHED ITS UNIT IN T HE SAID PROPERTY IN THE SUCCEEDING YEAR WHICH ESTABLISHES THE CLAIM OF COMM ERCIAL EXPEDIENCY BY THE ASSESSEE. HOWEVER, WE FIND THAT NECESSARY EVIDENCE IN THIS REGARD WAS NOT BEFORE THE ASSESSING OFFICER AND ACC ORDINGLY, FOR THE LIMITED PURPOSE OF VERIFYING THE CLAIM OF THE ASSES SEE WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO ESTABL ISH WHETHER THE ASSESSEE HAS UTILIZED THE SAID PLOT OF LAND IN PUNE FOR ITS COMMERCIAL UNIT. IN CASE THE CLAIM OF THE ASSESSEE IS FOUND C ORRECT, THEN THERE IS NO 5 MERIT IN DISALLOWING ANY PART OF THE INTEREST PAID ON THE CAPITAL ACCOUNT OF THE PARTNERS. THE ASSESSING OFFICER AFTER AFFOR DING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE SHALL DECIDE THE ISSUE IN LINE WITH OUR DIRECTIONS. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF APRIL, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 TH APRIL, 2011 RATI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH