G.S SETHI & COMPANY, JALANDHAR V. INCOME TAX OFFICER WARD-1 (5), JALANDHAR

ITA 181/ASR/2021

AI Insights

The case involves G.S. Sethi & Co., the appellant, contesting an order from the Commissioner of Income Tax (Appeals), which confirmed a disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961, amounting to Rs. 25,87,115. The disallowance was initially made by the Income Tax Officer, Ward-1(5), Jalandhar, due to the assessee's use of funds advanced to a partner without charging interest, which was deemed to have no nexus with the overdraft account. The CIT(A) recalculated the addition but maintained a significant portion of it. The assessee argued that the recalculation denied them a reasonable opportunity to rebut, leading to the appeal. The Income Tax Appellate Tribunal found merit in the assessee's claim of denial of natural justice and remitted the matter back to the CIT(A) for a fresh examination.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 114888 (ITAT-AMRITSAR)
• Duration Of Justice: 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-12-2022
• Assessment Year: misc
• Appeal Filed On: 12-12-2022
• Other Referred Cases: ITA No. 813/Chd/2017
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 G.S. Sethi & Co. 19/1Madhuban Colony, Basti Bawa Khel Rajnagar, Jalandhar. [PAN:AAGFG2468L] (Appellant) Vs. ITO- Ward 1(5), Jalandhar. (Respondent) Appellant by Sh. Nikhil Goyal, Adv. Respondent by Sh. RadheyShyam Jaiswal, Sr.DR Date of Hearing 12.12.2022 Date of Pronouncement 20.12.2022 ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals),NFAC, Delhi,[in brevity the ‘CIT(A)’] bearing appeal DIN & Order No.ITBA/NFAC/S/250/2021-22/1036390339(1), date I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 2 of order 14.10.2021, the order passed u/s 250of the Income Tax Act 1961, [in brevity the Act] for A.Y. 2013-14.The impugned order was emanated from the order of the ld. Income Tax Officer Ward-1(5),Jalandhar, (in brevity the AO) order passed u/s 143(3)of the Act date of order 30.12.2019. The assessee taken the following grounds which are extracted as below: “1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest u/s 36(1 )(iii) to the extent of Rs. 25,87,115/-. 2. The order passed by the Learned CIT(A) is bad in law as the same has been passed without complying with the directions issued by the Hon’ble ITAT Bench, Chandigarh. 3. That the Ld. CIT(A) erred in passing an order u/s 250 of the Income Tax Act, 1961 without appreciating facts of the case on record. 4. The Learned CIT(A) has gravely erred in law and facts of the case in misconstruing the scope and ambit of the provisions of section 36(1)(iii) of the Act and therein making disallowance of interest to the extent of Rs. 25,87,115/-. 5. That the appellant craves leave to add, amend, alter, or delete the grounds of appeal before the appeal is finally heard I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 3 or disposed of appeal before the appeal is finally heard or disposed of.” 2. Brief fact of the case is that theaddition was made u/s 36(1)(iii) for utilising the funds as advanced to the partner which is without charging the interest. The grievance of the assessee is that the assessee utilised the fund from his trading fund. The overdraft account was not any nexus for advancement the partner. Accordingly, the proportionate interest in relation to the advance paid was added back with the total income of the assessee. The assessee debited interest expenses amount of Rs.39,69,660/- on account of bank overdraft in P & L a/c. From copy of the bank statement i.e., Hindu Cooperative Bank, providing by the assessee to the ld. AO that the rate of interest charged 15.5%. Hence, applying the same rate on advance paid amount of Rs.2.14,07,203.77/-,which is working out to Rs.33.18,117/-. Theamount of Rs.33,18117/- was added back with the total income of the assessee u/s 36(1)(iii) of the Act. The assessment order was framed as per direction of the ITAT, Chandigarh Bench bearing ITA No. 813/Chd/2017 date of order 13.07.2018. Later on, the assessee’s jurisdiction was changed and the assessment was completed by the jurisdictional AO at Jalandhar. The aggrieved I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 4 assessee filed an appeal against the order of the ld. AO before the ld. CIT(A). After considering the submission of the assessee the ld. CIT(A) has re-calculated the partner’s current account on basis of transfer of amount. In the order, the ld CIT(A) had tried to depict the direct nexus between trading receipt and the amount transfer to partner’s account- as advance. The amount of addition was recalculated very efficiently by the ld. CIT(A) and restricted to Rs. 25,87,115/-. The appeal of the assessee was partly allowed. The addition was restricted to Rs.25,87,115/-. 3. The ld. Counsel for the assessee argued that the advance to the partner has no nexus with the overdraft amount. There is direct nexus with advance paid&amount of the trading receipt. So, the addition u/s 36(1)(iii) is abrogated. 3.1 He further arguedthat the recalculation of the ld. CIT(A) had denied the reasonable opportunity to rebut by the assessee. Accordingly, the natural justice was denied. 4. The ld. Sr. DR argued & fully relied on the order of the ld. CIT(A) in page no. 31 to 34, para 5.7.1 to 5.8.1 which is extracted as below:- I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 5 I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 6 I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 7 I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 8 I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 9 I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 10 5. We heard the rival submission relied on the documents available in the record. After a thoughtful consideration it is observed that the re-calculation made by the ld. CIT(A) is very logical and had considered the transactions among overdraft account, trading account& the partner’s capital account. In respect to this recalculation, the ld. Counsel for the assessee was unable to submit any calculation to rebut before the Bench to establish its fact. But from the order of the ld. CIT(A) it is clear that this issue was not be allowed to rebut the assessee during hearing. So, the assessee should get a reasonable opportunity to peruse the issue for substantiate its claim. Reasonable opportunity of hearing was denied. In view of these discussions, as also bearing in mind the entirety of the case, we deem it fit and proper to remit the matter back to the ld. CIT(A), for adjudication de novo in accordance with the law and by way of a speaking order. The assessee should cooperate with the revenue authority during the hearing. Ordered, accordingly. I.T.A. No.181/Asr/2021 Assessment Year: 2013-14 11 6. In the result, the appeal of the assessee bearing ITA No.181/Asr/2021 is allowed for statistical purposes. Order pronounced in the open court on 20.12.2022 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE ) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order