IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SRI MAHAVIR SINGH, JM& HONBLE S RI SHAMIM YAHYA, AM ] ITA NO.1273/KOL/2012 ASSESSMENT YEAR : 2007-08 ( APPELLANT ) (RESPONDENT) M/S. G.M.BUILDERS .. -VS- D.C.I.T., CIRCLE-49, KOLKATA KOLKATA (PAN:AAEFG 2025 P) FOR THE APPELLANT SHRI MIRAJ D.SHAH, FCA FOR THE RESPONDENT SHRI A.P.ROY, SR.DR DATE OF HEARING : 15.09.2014 DATE OF PRONOUNCEMENT : 14. 10.2014. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. C.I.T.(A)- XXXII, KOLKATA DT. 30.07.2012 AND PERTAINS TO ASSES SMENT YEAR 2007-08. 2. THE ISSUE RAISED IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2,96,815 /-. 3 .THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLAT. DURING THE COURSE OF ASSESSMENT THE AO NOTED THAT THE PARTNERS ARE MAINTAINING FIXED CAPITAL ACCOUNT AND CURRENT ACCOUNT. THE TOTAL FIXED CAPITA L OF THE FOUR PARTNERS WAS OF RS.4 LAKHS AND DEBIT BALANCE (NET) OF THE PARTNERS AS PE R PARTNERS CURRENT ACCOUNT WAS RS.66.91 LAKHS. AO FURTHER OBSERVED THAT THE FIRM H AS TAKEN SECURED LOAN FROM THE BANK AMOUNTING TO RS.15.59 LAKHS AND UNSECURED LOAN OF RS.43.57 LAKHS. AO OBSERVED THAT IN THE P& L A/C INTEREST FOR RS.2,96,815/- HAS BEEN DEBITED. AO FURTHER OBSERVED THAT IT IS TRUE THAT THERE ARE NON INTEREST UNSECUR ED LOAN ALSO. HOWEVER, AO HELD THAT SINCE THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.2 ,96,815/- AND HAS ALLOWED THE PARTNERS TO WITHDRAW HUGE WITHDRAWAL FROM THE FIRM THE ASSESSEE HAS DIVERTED INTEREST ITA.NO.1273/KOL/2012 G.M.BUILDERS,KOL A.YR.2007-08 2 BEARING FUND FOR NON BUSINESS PURPOSE. AO DID NOT A CCEPT THE ASSESSEES SUBMISSION THAT THE ASSESSEE HAS RECEIVED HUGE INTEREST FREE A DVANCES FROM THE PARTIES WHICH ARE UTILIZED TO GIVE ADVANCES TO THE PARTNERS. ACCORDIN GLY AO DISALLOWED A SUM OF RS.2,96,815/-. THE LD.CIT(A) CONFIRMED THE ACTION O F AO. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL B EFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PER USED THE RECORDS. IN THIS CASE THE ASSESEE HAS HUGE ADVANCES RECEIPT FROM THE CUST OMERS ON WHICH NO INTEREST IS PAYABLE. IT IS ALSO NOTED THAT ASSESEES PARTNERS H AVE OVER DRAWN THEIR ACCOUNT AND NO INTEREST IS CHARGEABLE ON THE WITHDRAWALS BY THE PA RTNERS. AO HAS DISALLOWED INTEREST PAYMENT OF RS.2,96,815/- BY HOLDING THAT THERE IS D IVERSION OF INTEREST BEARING FUNDS TO PARTNERS. IN THIS REGARD IT IS THE CONTENTION OF TH E ASSESSEES LD. COUNSEL IS THAT FIRSTLY THE SECURED LOAN WAS FOR PURCHASING OF A CAR HENCE THE SAME CANNOT BE SAID TO BE USED FOR MAKING ADVANCES TO THE PARTNERS. ANOTHER CONTEN TION IS THAT ASSESSEE HAS RECEIVED A SUM OF RS.3,49,91,268/- AS ADVANCE FROM CUSTOMERS. THESE ADVANCES ARE FOR BOOKING OF FLAT AND NO INTEREST HAS BEEN PAID ON THE SAME. FURTHER MORE THE LD. COUNSEL OF THE ASSESSED DREW OUR ATTENTION TO THE AMOUNT WITHDRAWN BY THE PARTNERS DURING THE YEAR. HE REFERRED TO THE ADVANCES RECEIVED FROM CUSTOMERS AND SUBMITTED THAT ALL THE WITHDRAWALS WERE OUT OF THE ADVANCES RECEIVED. WE F IND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LD COUNSEL OF THE ASSESSEE. ADMIT TEDLY THE ASSESSEE HAS RECEIVED HUGE ADVANCES WHICH ARE NON INTEREST BEARING. THE A SSESSEES COUNSEL HAS ALSO LINKED THE WITHDRAWALS BY THE PARTNERS WITH THE RECEIPT OF THE ADVANCES IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION THERE IS C ONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE LD.COUNSEL OF THE ASSESSEE THAT INTEREST BEARING FUNDS WERE NOT USED TO GIVE ADVANCES TO THE PARTNERS. IN THESE CIRCUMST ANCES, IN OUR CONSIDERED OPINION THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE OF RS.2,96,815/-. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT THE DISALLOWANCE OF INTEREST EXPENDITURE AMOUN TING TO RS.2,96,815/- IS NOT JUSTIFIED AND ACCORDINGLY DISALLOWANCE IS DELETED. ITA.NO.1273/KOL/2012 G.M.BUILDERS,KOL A.YR.2007-08 3 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE COURT ON 14.10.2014. SD/- SD/- [ MAHAVIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 14.10.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. G.M.BUILDERS, C/O D.J.SHAH & CO., KALYAN BHAWAN, 2, ELGIN ROAD, KOLKATA- 700020. 2 D.C.I.T., CIRCLE-49, KOLKATA. 3 . CIT(A)-XXXII, KOLKATA. 4. CIT KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES