Indiana Textiles Mill, Kolkata V. I.T.O.,Ward-44(1), Kolkata

ITA 1877/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9129 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 09-08-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANTA KHANRA
• Keywords: Depreciation

Judgement Text

ITA NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT I.T.A. NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL,.............................. .........................................APPELLANT C/O. SUBASH AGARWAL & ASSOCIATES, ADVOCATES, SIDDHA GIBSON, 1, GIBSON LANE, SUITE NO. 213, 2 ND FLOOR, KOLKATA-700069 [PAN: AAAFI6173Q] -VS.- INCOME TAX OFFICER,................................ ......................................RESPONDENT WARD-44(1), KOLKATA, 3, GOVERNMENT PLACE (WEST), KOLKATA-700001 APPEARANCES BY: SHRI SUBASH AGARWAL, ADVOCATE, FOR THE APPELLANT SHRI JAYANTA KHANRA, JCIT, FOR THE RESPONDEN T DATE OF CONCLUDING THE HEARING : DECEMBER 16, 2019 DATE OF PRONOUNCING THE ORDER : JANUARY 10, 2020 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-13, KOLKATA DA TED 24 TH JUNE, 2019. 2. THE ISSUE INVOLVED IN GROUND NO. 1 OF THE ASSESS EES APPEAL RELATES TO THE DISALLOWANCE OF RS.12,08,832/- MADE BY THE A SSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF INT EREST EXPENDITURE. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AND DEA LING IN HOSIERY GOODS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 28.09.2013 DECLARING TOTAL INCOME OF RS.14,86,150/- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSES SING OFFICER THAT THE ITA NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL 2 ASSESSEE-FIRM ON THE ONE HAND HAD PAID SUBSTANTIAL INTEREST ON THE SECURED AND UNSECURED LOANS BORROWED BY IT, WHILE S HRI O.P. AHUJA, ONE THE PARTNERS OF THE ASSESSEE-FIRM, ON THE OTHER HAN D, HAD WITHDRAWN AN AMOUNT OF RS.1,10,95,830/- AS ON 01.04.2012. BY TRE ATING THE SAME AS DIVERSION OF BORROWED FUNDS BY THE ASSESSEE, THE AS SESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST ATTRIBUTABLE TO THE DEBIT BALANCE IN ONE OF THE PARTNERS CAPITAL ACCOUN T SHOULD NOT BE DISALLOWED. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE PARTNERS CAPITAL AS A WHOLE WAS HAVING A POSITIVE B ALANCE OF ABOUT RS.6,00,00,000/- AND THE WITHDRAWAL OF EXCESS CAPIT AL BY ONE OF THE PARTNERS WAS AN INTERNAL ARRANGEMENT BETWEEN THE PA RTNERS. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABL E BY THE ASSESSING OFFICER. ACCORDING TO HIM, HAD THE CONCERNED PARTNE R NOT WITHDRAWN EXCESS AMOUNT FROM HIS CAPITAL ACCOUNT, THE FIRM WO ULD NOT HAVE REQUIRED TO BORROW LOAN TO THAT EXTENT AND THE BURDEN OF INT EREST WOULD HAVE BEEN LESSER. HE ACCORDINGLY TREATED THE INTEREST ATTRIBU TABLE TO THE DEBIT BALANCE IN ONE OF THE PARTNERS CAPITAL ACCOUNT AT R S.12,08,832/- BY APPLYING THE RATE OF 12% PER ANNUM AND MADE A DISAL LOWANCE OUT OF INTEREST TO THAT EXTENT. ON APPEAL, THE LD. CIT(APP EALS) CONFIRMED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER OBSERVIN G THAT THERE WAS A DIVERSION OF BORROWED FUNDS BY THE ASSESSEE-FIRM FO R ALLOWING WITHDRAWAL OF EXCESS CAPITAL BY ONE OF THE PARTNERS. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, SUFFICIENT OWN FUNDS IN THE FORM OF CAPITAL OF OTHER PARTNERS WERE AVAILABLE WITH THE A SSESSEE-FIRM AT THE RELEVANT TIME AND SINCE THE EXCESS WITHDRAWAL FROM HIS CAPITAL ACCOUNT WAS MADE BY ONE OF THE PARTNERS FROM THE SAID OWN F UNDS AVAILABLE WITH THE ASSESSEE-FIRM, THE DISALLOWANCE OF INTEREST AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) WAS N OT WARRANTED. THE OVERALL BALANCE IN THE CAPITAL ACCOUNT OF ALL THE P ARTNERS WAS TO THE TUNE ITA NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL 3 OF ABOUT RS.6,00,00,000/- AND THE SAME BEING MUCH M ORE THAN THE EXCESS WITHDRAWAL OF CAPITAL OF ABOUT OF RS.1,00,00,000/- MADE BY ONE OF THE PARTNERS, I FIND THAT IT IS NOT A CASE OF DIVERSION OF BORROWED FUNDS BY THE ASSESSEE-FIRM FOR ALLOWING EXCESS WITHDRAWAL OF CAP ITAL ACCOUNT BY ONE OF ITS PARTNERS AS ALLEGED BY THE AUTHORITIES BELOW. A S RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) AS WELL AS BEFORE THE TRIBUNAL, IT WAS AN INTERNAL ADJUSTMENT BETWEEN THE PARTNERS OF THE ASSESSEE-FIRM, WHICH ALLOWED EXCESS WITHDRAWAL OF C APITAL TO ONE OF THE PARTNERS FROM THE FUNDS SUFFICIENTLY AVAILABLE IN T HE CAPITAL ACCOUNT OF OTHER PARTNERS. I, THEREFORE, DELETE THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPE ALS) OUT OF INTEREST EXPENDITURE AND ALLOW GROUND NO. 1 OF THE ASSESSEE S APPEAL. 5. GROUNDS NO. 2 & 3 OF THE ASSESSEES APPEAL RELAT E TO THE DISALLOWANCE OF RS.5,17,539/- AND RS.46,918/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON AC COUNT OF DEPRECIATION OF MOTOR CAR AND MOTOR CAR RUNNING EXPENSES RESPECT IVELY. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD PURCHASED A MERCEDES BENZ MAKE CAR AND CLAIMED DEPRECIATION AND RUNNING EXPENSES IN RESPECT OF THE SAID CAR ON THE GROUND THAT THE S AME WAS UTILIZED FOR THE PURPOSE OF ITS BUSINESS. ACCORDING TO THE ASSESSING OFFICER, THE SAID CAR PURCHASED BY THE ASSESSEE WAS A SPORTS CAR AND THE SAME WAS MEANT FOR PERSONAL USE OF THE PARTNERS OF THE ASSESSEE-FIRM A ND NOT FOR THE PURPOSE OF BUSINESS. HE, THEREFORE, DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE ON RUNNING OF THE SAID CAR AMOUNTING TO RS .46,918/- AS WELL AS DEPRECIATION THEREON AMOUNTING TO RS.5,17,539/-. ON APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCES MADE BY THE ASSESSING OFFICER. ITA NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL 4 7. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THESE ISSUES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD A COPY OF BIL L FOR THE CAR IN QUESTION PURCHASED BY THE ASSESSEE TO SHOW THAT THE SAID CAR WAS NOT A SPORTS CAR AS ALLEGED BY THE AUTHORITIES BELOW. THIS DOCUMENTA RY EVIDENCE PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY SHOWS THAT THE ADVERSE INFERENCE DRAWN BY THE ASSESSING OFFICER IN THE MAT TER OF USE OF CAR NOT BEING FOR BUSINESS PURPOSE BUT FOR PERSONAL PURPOSE OF THE PARTNERS OF THE ASSESSEE-FIRM ON THE BASIS OF THE CAR PURCHASED BY THE ASSESSEE BEING A SPORTS CAR WAS NOT CORRECT. BESIDES THE SAID BASI S WHICH IS TURNED OUT TO BE WRONG, THERE IS NO OTHER BASIS GIVEN BY THE AUTH ORITIES BELOW TO DISPUTE THE CLAIM OF THE ASSESSEE THAT THE CAR IN Q UESTION WAS PURCHASED AND USED FOR THE PURPOSE OF ITS BUSINESS. AT THE SA ME TIME, I ALSO FIND MERIT IN THE ALTERNATIVE CONTENTION RAISED BY THE L D. D.R. THAT IN THE ABSENCE OF ANY RECORD MAINTAINED BY THE ASSESSEE IN THE FORM OF LOG BOOK ETC., THE PERSONAL USE OF THE SAID CAR BY THE PARTN ERS OF THE ASSESSEE-FIRM CANNOT BE RULED OUT AND SOME DISALLOWANCE OUT OF TH E EXPENSES AND DEPRECIATION CLAIMED IN RESPECT OF THE SAID CAR IS LIABLE TO BE MADE FOR PERSONAL USE. IN MY OPINION, IT WOULD BE FAIR AND R EASONABLE TO MAKE SUCH DISALLOWANCE ON ACCOUNT OF PERSONAL USE TO THE EXTE NT OF 25%. THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSU E IS ACCORDINGLY MODIFIED AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION ON CAR AND RUNNING EXPENSES OF CAR IS RESTRICTED TO 20%. GROUNDS NO. 2 & 3 OF THE ASSESSEES APPEAL ARE THUS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 10, 2 020. SD/- (P.M. JAGTAP) VICE-PR ESIDENT) KOLKATA, THE 10 TH DAY OF JANUARY, 2020 ITA NO. 1877/KOL/2019 ASSESSMENT YEAR: 2013-2014 INDIANA TEXTILE MILL 5 COPIES TO : (1) INDIANA TEXTILE MILL, C/O. SUBASH AGARWAL & ASSOCIATES, ADVOCATES, SIDDHA GIBSON, 1, GIBSON LANE, SUITE NO. 213, 2 ND FLOOR, KOLKATA-700069 (2) INCOME TAX OFFICER, WARD-44(1), KOLKATA, 3, GOVERNMENT PLACE (WEST), KOLKATA-700001 (3) COMMISSIONER OF INCOME TAX (APPEALS)-13, K OLKATA; (4) COMMISSIONER OF INCOME TAX- , KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.