Sarana Brothers, Lakhimpur-Kheri V. Income Tax Officer-1, Lakhimpur-Kheri

ITA 204/LKW/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4011 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH : LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.204/LKW/2016 ASSESSMENT YEAR : 2011-12 M/S. SARANA BROTHERS, OPP. RAILWAY STATION, LAKHIMPUR KHERI. PAN: AAYFS 3429B VS. THE INCOME TAX OFFICER, LAKHIMPUR KHERI. APPELLANT RESPONDENT APPELLANT BY : SHRI RAKESH GARG, ADVOCATE RESPONDENT BY : SHRI AMIT NIGAM, DR DATE OF HEARING : 14.07.2016 DATE OF PRONOUNCEMENT : 31.08.2016 O R D E R THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 18.02.2016 OF THE CIT(APPEALS), BAREILLY ON THE SOL ITARY GROUND THAT THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION O F RS.4,28,869 ON ACCOUNT OF ALLEGED UNEXPLAINED EXPENSES WITH TOTAL DISREGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. DURING THE COURSE OF HEARING OF THIS APPEAL, TH E LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE ASSESSE E IS A PARTNERSHIP FIRM. ANY DEBIT/WITHDRAWAL MADE BY THE PARTNERS ON ACCOUN T OF LIC/MEDICLAIM/ INCOME TAX, ETC. WAS BEING DEBITED TO THE PARTNERS IMPREST ACCOUNTS IN THE ITA NO.204/LKW/2016 PAGE 2 OF 4 BALANCE SHEET BY THEIR NAME. THIS POLICY HAS BEEN FOLLOWED BY THE FIRM FROM YEAR TO YEAR AND SUCH AMOUNTS WERE ACCUMULATED IN THE BALANCE SHEET OF THE FIRM ON THE DEBIT SIDE. THE PAYMENTS TOWARDS PERSONAL DRAWINGS OF THE FIRM HAVE BEEN MADE FROM THE COFFER OF THE FIRM AND THESE FACTS WERE NOT DISPUTED BY THE AO. THE SOLE DISPUT E RAISED BY THE AO IS AS TO WHY SUCH ITEMS HAVE BEEN REFLECTED IN THE BALANC E SHEET OF THE FIRM AND THUS FICTITIOUS ASSETS. 3. THE ASSESSEE HAS EXPLAINED THAT SUCH ASSETS ARE NOT THE ASSETS OF FIRM, BUT INVESTMENTS/DRAWINGS OF PARTNERS WHICH HA VE BEEN DEBITED NOT TO THE CAPITAL ACCOUNTS, BUT TO THEIR PERSONAL IMPREST ACCOUNTS. WHEN THE NET EFFECT OF PARTNERS CAPITAL IS TO BE CALCULATED, THE BALANCE OF SUCH ACCOUNTS WILL BE ADDED BACK AND ADJUSTED SO AS TO ARRIVE AT THE EXACT CLOSING BALANCE IN THE PARTNERS CAPITAL. WITH REGARD TO QUANTUM OF INTEREST PAID TO PARTNERS ON THE CAPITAL BALANCE, IT WAS FURTHER EXPLAINED TH AT SUCH INTEREST HAS BEEN CALCULATED ONLY AFTER ADJUSTING THESE DEBIT BALANCE S PERTAINING TO THE PARTNERS AND OUTSTANDING IN THE BALANCE SHEET. THU S INTEREST ON CAPITAL PAID TO THE PARTNERS IS ALSO ON THE BASIS OF CORREC T CAPITAL WORKED OUT AFTER ADJUSTING THE BALANCES OUTSTANDING IN THE NAME OF T HE PARTNERS. 4. THE AO WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE WAS OF THE OPINION THAT PARTNERS SHOULD HAVE DEB ITED SUCH AMOUNTS TO THE CAPITAL ACCOUNT AND THERE WAS NO MENTION ABOUT THE SCHEME FOLLOWED BY THE PARTNERS IN THE PARTNERSHIP DEED. THE AO ACC ORDINGLY MADE THE ITA NO.204/LKW/2016 PAGE 3 OF 4 ADDITIONS OF THE DEBITS SHOWN IN THE PARTNERS BALAN CE SHEET OF RS.4,28,869, AGAINST WHICH AN APPEAL WAS FILED BEFORE THE CIT(AP PEALS), BUT THE ASSESSEE DID NOT FIND FAVOUR WITH HIM. 5. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS NOT DEBITED THIS AM OUNT TO ITS PROFIT & LOSS ACCOUNT, THEREFORE THERE IS NO QUESTION OF DIS ALLOWANCE OF THE SAME. IT WAS SIMPLY SHOWN IN THE BALANCE SHEET ON THE DEB IT SIDE AND SIMILAR PRACTICE HAS BEEN FOLLOWED IN THE EARLIER YEARS. I T WAS FURTHER CONTENDED THAT THE TOTAL AMOUNT WAS RS.4,28,869 WHICH INCLUDE S OPENING BALANCE OF RS.4,09,860 APPEARING IN THE DEBIT SIDE OF THE BALA NCE SHEET, WHICH HAS BEEN BROUGHT FORWARD FROM THE EARLIER YEARS. SINCE THE AMOUNT HAS NOT BEEN CLAIMED AS AN EXPENDITURE, THE QUESTION OF DIS ALLOWANCE OF THE SAME DOES NOT ARISE. 6. THE LD. DR, ON THE OTHER HAND, HAS PLACED RELIAN CE UPON THE ORDER OF CIT(APPEALS). 7. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE ASS ESSEE SHOULD HAVE DEBITED WITHDRAWALS MADE BY THE PARTNERS TO THEIR C APITAL ACCOUNT INSTEAD OF DEBITING IT IN THE IMPREST ACCOUNT IN THE BALANCE S HEET. NOW THE QUESTION ARISES AS TO WHETHER ON THIS ACCOUNT, DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE IN THE LIGHT OF THE FACTS THA T ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE UNDER THIS ACT. IN THIS RE GARD, I AM OF THE VIEW THAT ITA NO.204/LKW/2016 PAGE 4 OF 4 SINCE THE ASSESSEE HAS NOT DEBITED ITS ACCOUNT TO T HE PROFIT & LOSS ACCOUNT AND HAS NOT CLAIMED ANY EXPENDITURE IN THIS REGARD, THERE WAS NO QUESTION OF DISALLOWANCE BY MAKING ADDITION IN THE HANDS OF THE ASSESSEE. I THEREFORE FIND NO MERIT IN THESE ADDITIONS AND ACCO RDINGLY I SET ASIDE THE ORDER OF THE CIT(APPEALS) AND DELETE THE ADDITION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2016. SD/- (SUNIL KUMAR YADAV ) JUDICIAL MEMBER LUCKNOW, DATED, THE 31 ST AUGUST, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT. BY ORDER ASSISTANT REGISTRAR.