M/s Akash Traders, Patiala V. JCIT, Patiala

ITA 1399/CHANDI/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73587 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S R CHHABRA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1399/CHD/2010 ASSESSMENT YEAR : 2007-08 M/S AKASH TRADERS, VS. THE J.C.I.T., NEW ANAJ MANDI, RANGE PATIALA, SIRHIND ROAD, PATIALA. PATIALA. PAN: AAIFA3420A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.R.CHHABRA RESPONDENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 11.03.2014 DATE OF PRONOUNCEMENT : 20.03.2014 O R D E R PER SUSHMA CHOWLA, J.M. : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 13.10.2010 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF LD. C.I.T. (A) PATIALA IS AGAINST THE FACTS AND LAW OF THE CASE. 2. THAT THE LD. C.I.T. (A) PATIALA HAS WRONGLY CONFIRM ED THE DISALLOWANCES OF INTEREST OF RS. 20,66,670/- AS DISALLOWED BY THE LD . A.O. 3. THAT THE LD. C.I.T. (A) PATIALA WRONGLY NOT CONSIDE RED THE FACTS, THAT APPELLANT HAS NOT GIVEN ANY LOAN TO PARTNERS. THOUGH PARTNERS HAV E WITHDRAWN THEIR CAPITAL CONTRIBUTION AS THEY INVESTED IN THE BUSINESS. 4. THAT C.I.T. (A) PATIALA HAS WRONGLY NOT CONSIDERED THE CITED CASE OF HON'BLE HIGH COURT AND SUPREME COURT OF INDIA. 5. THAT YOUR APPELLANT CRAVES LEAVE TO ALTER, TO ADD, TO AMEND, TO MODIFY, TO RECTIFY, TO TAKE FRESH GROUNDS OF APPEAL ON OR BEFORE HEARING O F THIS CASE. 2 3. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF INTEREST OF RS.20,66,670/-. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER NOTED THAT THE ASSESSEE DURING THE YEAR UNDER CONSI DERATION HAD ADVANCED SUM OF RS.26,88,773/- TO SHRI KAMALJEET SI NGH, PARTNER AND RS.81,37,671/- TO SHRI MANGAT RAI GARG, PARTNER . THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN THE BUSINESS EXPEDIENCY TO ADVANCE THE SAID LOANS. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN WHY THE INTEREST RELATING TO SUCH ADVANCES BE NOT DISALLOWED IN VIEW OF THE ASSESSEE HAVING PAID INTEREST ON SECURED AND UNSECURED LOANS . THE ASSESSEE EXPLAINED THAT THE SAID AMOUNTS WERE THE CAPITAL WI THDRAWN BY THE PARTNERS AND THE NET CAPITAL BALANCE OF ALL THE PAR TNERS WAS RS.316709.67. IT WAS FURTHER POINTED OUT BY THE LE ARNED A.R. FOR THE ASSESSEE THAT AS PER THE PARTNERSHIP DEED DATED 1.4.2005, NO INTEREST WAS PAID ON AMOUNT OF CAPITAL CONTRIBUTED OR ADVANCES MADE BY THE PARTNERS TO THE ASSESSEE FIRM. THE ASS ESSING OFFICER OBSERVED THAT THE PARTNER AND PARTNERSHIP FIRM WERE TWO DISTINCT ENTITIES FOR THE PURPOSE OF INCOME TAX AND IF THE A SSESSEES SAID AFFAIRS AND VERSION WERE ACCEPTED, IT WOULD DEFEAT THE PURPOSE OF INCOME TAX ACT. IN VIEW THEREOF, THE ASSESSING OF FICER COMPUTED THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE AC T AT RS.20,66,670/-. 5. THE CIT (APPEALS) UPHELD THE ADDITION MADE BY TH E ASSESSING OFFICER. 6. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADDIT ION. THE LEARNED A.R. FOR THE ASSESSEE PLACED ON RECORD COPY OF PARTNERSHIP DEED AND POINTED OUT THAT AS PER CLAUSE-6 OF THE SA ID AGREEMENT NO 3 INTEREST WAS BEING PAID BY THE ASSESSEE FIRM ON THE CAPITAL CONTRIBUTION OF THE PARTNERS. IT WAS FURTHER POINT ED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT THE ASSESSEE FIR M CONSISTED OF FIVE PARTNERS OUT OF WHICH TWO PARTNERS HAD DEBIT B ALANCE DURING THE YEAR AND OTHER THREE PARTNERS HAD CREDIT BALANC E IN THEIR CAPITAL ACCOUNTS, THOUGH CUMULATIVE CAPITAL BALANCE OF ALL THE PARTNERS WAS CREDIT BALANCE. IT WAS FURTHER POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT THE DETAIL OF COPIES OF THE CAPIT AL ACCOUNT OF ALL THE PARTNERS FOR THE YEAR UNDER CONSIDERATION ARE P LACED AT PAGES 12 AND 13 OF THE PAPER BOOK. THE NEXT PLEA RAISED BY THE ASSESSEE WAS THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUA RELY COVERED BY THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN BHOGAL SONS (REGD.) VS. THE A.C.I.T., LUDHIANA IN I TA NO.567/CHD/2012 RELATING TO ASSESSMENT YEAR 2008-09 ORDER DATED 14.9.2012. 7. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS A PARTNERSHIP FIRM CONSTITUTED OF F IVE PARTNERS. TWO OF THE MAJOR PARTNERS DURING THE YEAR UNDER CON SIDERATION HAD WITHDRAWN SUBSTANTIAL AMOUNT FROM THEIR ACCOUNTS AN D INVESTED THE SAME IN OTHER PARTNERSHIP FIRM. THE WITHDRAWAL OF THE CAPITAL BY THE SAID PARTNERS RESULTED IN THEIR CAPITAL BALANCE TO BE IN DEBIT. THE ASSESSEE, ON THE OTHER HAND, HAD PAID INTEREST ON INTEREST BEARING FUNDS AND THE CASE OF THE AUTHORITIES BELOW WAS THAT IN VIEW OF THE ASSESSEE HAVING INCURRED THE INTEREST E XPENDITURE ON ONE HAND AND ON HAVING ADVANCED INTEREST FREE ADVAN CES TO ITS PARTNER, DISALLOWANCE UNDER SECTION 36(1)(III) OF T HE ACT WAS 4 WARRANTED IN VIEW OF THE RATIO LAID DOWN BY THE HON 'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES [ 286 ITR 1(P&H)]. THE PERUSAL OF THE CAPITAL AMOUNTS PLACED AT PAGES 12 AND 13 OF THE PAPER BOOK REFLECTS THAT OUT OF FIVE PARTNERS CONSTITUTING THE PARTNERSHIP CONCERN, THREE PARTNER S HAD POSITIVE CAPITAL BALANCE AND TWO PARTNERS HAD NEGATIVE BALAN CE IN THE CUMULATIVE BALANCE AT THE CLOSE OF THE YEAR. 9. THE ASSESSEE FIRM IS CONSTITUTED VIDE PARTNERSHI P DEED DATED 1.4.2005. THE COPY OF THE PARTNERSHIP DEED IS PLAC ED ON RECORD. THE CLAUSE-6 OF THE SAID PARTNERSHIP DEED READS AS UNDER: 6. THAT THE FIRM SHALL NOT PAY ANY INTEREST ON THE AMOUNT OF THEIR CAPITAL CONTRIBUTED AND OR ON LOAN ADVANCED B Y THEM TO THE FIRM. WITH MUTUAL CONSENT THE PARTNERS MAY CHANGE THIS CLAUSE AND CHARGE INTEREST @12% PA OR A LOWER RATE OF INTEREST ON THEIR CAPITAL CONTRIBUTED AS MAY BE MUTUALLY DECIDED BY THEM FROM TIME TO TIME, NOT EXCEEDING 12% PA ON THEIR CAPITAL CONTRIBUTION. IT WILL, HOWEVER, BE IN THE DISCRETION OF THE PARTNERS NOT T O ALLOW INTEREST IN A PARTICULAR YEAR OR YEARS OR TO ALLOW INTEREST AT A LOWER RATE AS MAY BE MUTUALLY AGREED AMONGST THEM FROM TIME TO TIME. 10. THUS AS AGREED BETWEEN THE PARTNERS NO INTEREST WAS BEING PAID ON THE CAPITAL CONTRIBUTED BY THE PARTNERS AND EVE ON ANY LOAN ADVANCED BY THE PARTNERS TO THE ASSESSEE FIRM. THO UGH THERE WAS A CLAUSE IN THE SAID PARTNERSHIP THAT WITH MUTUAL CON SENT THE PARTNERS MAY CHANGE THE CLAUSE AND CHARGE INTEREST @ 12% OR LOWER RATE OF INTEREST ON THEIR CAPITAL CONTRIBUTION BUT THE PART NERS HAVE NOT AMENDED THE SAID CLAUSE. THE ASSESSEE HAD FILED AN AFFIDAVIT OF SHRI MANGAT RAI GARG WHO IS ONE OF THE PARTNERS TO THE EFFECT THAT NO INTEREST HAD BEEN PAID ON THEIR CAPITAL BALANCE SINCE INCEPTION TILL DATE. 5 11. IN THE TOTALITY OF THE ABOVE FACTS AND CIRCUMST ANCES, WHERE THE ASSESSEE HAS NET CAPITAL BALANCE, THE ISSUE IS WHET HER ANY INTEREST IS DISALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT AS THE ASSESSEE HAD PAID INTEREST ON INTEREST BEARING FUNDS. 12. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE CHA NDIGARH BENCH OF THE TRIBUNAL IN BHOGAL SONS (REGD.) VS. THE A.C. I.T., LUDHIANA (SUPRA) AND IT WAS HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED I N THE MANUFACTURE OF CYCLE PARTS. THE ASSESSEE FIRM CONS TITUTES OF 15 PARTNERS OUT OF WHICH DEMISE OF ONE PARTNER TOOK PL ACE DURING THE YEAR UNDER CONSIDERATION. THE BREAK UP OF PARTNERS CAPITAL ACCOUNT AS ON 31.3.2008 IS ENCLOSED AT PAGE 9 OF TH E PAPER BOOK. THE OPENING BALANCE OF ALL PARTNERS EXCEPT ONE I.E. SHRI SURINDER SINGH BHOGAL WAS POSITIVE BALANCE TOTALING RS.4.32 CRORES. AFTER ADDITIONS AND WITHDRAWALS MADE BY THE PARTNER DURIN G THE YEAR AND ALSO INCLUSION OF SHARE OF PROFITS FOR THE FINANCIA L YEAR, THERE WERE DEBIT BALANCES IN THE CASE OF FOUR OF THE PARTNERS I.E. S/SHRI DHANWANT SINGH BHOGAL, MOHINDER SINGH BHOGAL, PARDA MAN SINGH BHOGAL AND SURINDER SINGH BHOGAL, ON THE CLOSE OF T HE YEAR I.E. 31.3.2008. IN THE CASE OF ALL OTHER PARTNERS THERE WERE CREDIT BALANCE AS ON THE CLOSE OF THE YEAR I.E. 31.3.2008 AND THE CUMULATIVE CLOSING BALANCE OF THE CAPITAL ACCOUNT O F THE PARTNERS WAS RS.1.65 CRORES. ADMITTEDLY, THE ASSESSEE HAS N OT PAID ANY INTEREST ON THE CAPITAL BALANCES OF THE PARTNERS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD INCURRED IN TEREST EXPENDITURE OF RS.7,56,445/-. THE ASSESSING OFFICE R HAS COMPUTED THE INTEREST RELATABLE TO THE NUMBER OF DAYS ON WHI CH THERE WAS DEBIT BALANCE IN THE CAPITAL ACCOUNT OF FOUR OF THE PARTNERS AS MENTIONED ABOVE. THE PERUSAL OF THE DETAILS TABULA TED AT PAGES 3 AND 4 REFLECT THE BREAK UP OF THE NUMBER OF DAYS RE LATABLE TO IT. THE SAID INTEREST HAS BEEN COMPUTED BY THE ASSESSIN G OFFICER. HOWEVER, NO CREDIT HAS BEEN ALLOWED ON ACCOUNT OF P OSITIVE BALANCE AVAILABLE IN THE CAPITAL ACCOUNT OF THE SAI D PARTNERS OR EVEN THE OVERALL CAPITAL BALANCE OF THE PARTNERS IN TOTALITY AVAILABLE WITH THE ASSESSEE. IN THE CASE OF PARTNE RSHIP FIRM, I.E. THE ASSESSEE BEFORE US, ALL THE PARTNERS HAD MADE C ONTRIBUTIONS BY WAY OF THEIR CAPITAL ACCOUNTS AND CUMULATIVE OPENIN G BALANCES WAS RS.4.32 CRORES ALONGWITH ADDITIONS DURING THE YEAR OF RS.1.27 CRORES AND WITHDRAWALS OF RS.3.93 CRORES. AFTER IN CLUSION OF THE SHARE OF PROFIT AT RS.41.94 LACS, THE NET CAPITAL B ALANCE OF ALL THE PARTNERS I.E. POSITIVE MINUS NEGATIVE CAPITAL BALAN CES WAS RS.1.65 CRORES AT THE CLOSE OF THE YEAR I.E. 31.3.2008. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES WHERE THE PARTNERS THEMSELV ES HAD CONTRIBUTED POSITIVE CAPITAL BALANCES ON WHICH NO I NTEREST WAS PAID BY THE ASSESSEE FIRM, WE FIND NO MERIT IN THE STAND OF THE AUTHORITIES BELOW IN CHARGING INTEREST ON THE NEGAT IVE CAPITAL BALANCE OF SOME OF THE PARTNERS THAT ALSO FOR LIMIT ED NUMBER OF 6 DAYS DURING THE YEAR. IN ANY CASE, THE SAID ACTION OF THE ASSESSING OFFICER IS MISPLACED WHEN NO CREDIT HAS BEEN ALLOWE D ON ACCOUNT OF POSITIVE CAPITAL BALANCE AVAILABLE WITH THE ASSESSE E FIRM IN THE ACCOUNT OF THE AFORESAID PARTNERS, WHO HAD CLOSING NEGATIVE BALANCE AS ON 31.3.2008. IN THE ENTIRETY OF THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE AFORESAID ADDITION MADE ON ACCOUNT OF DEBIT BAL ANCES IN THE CAPITAL ACCOUNTS OF FOUR OF THE PARTNERS. 13. AS THE FACTS OF THE PRESENT CASE ARE IDIENTICAL TO THE FACTS BEFORE THE TRIBUNAL IN BHOGAL SONS (REGD.) VS. THE A.C.I.T., LUDHIANA (SUPRA) AND FOLLOWING THE SAME PARITY OF R EASONING WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.20,66,670/- ON ACCOUNT OF DEBIT BALANCE OF THE P ARTNERS CAPITAL ACCOUNT. THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE ARE THUS ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MARCH, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 TH MARCH, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 7