Asian Tea Company, Borsad V. The Income tax Officer,Ward-3(4), Petlad

ITA 258/AHD/2011

• Counselvise Citation: 25820514 RSA 2011
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y C SURTI
• Assessee Lawyers: B T THAKKAR
• Section: 80C; 143(3); 250

Judgement Text

1 ITA.NO.258/AHD/2011 ASSESSMENT YEAR 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, A HMEDABAD. (BEFORE SHRI BHVNESH SAINI & SHRI A. MOHAN ALANKAMO NY) I.T.A. NO.258/AHD/2011 (ASSESSMENT YEAR 2006 07) ASIAN TEA COMPANY, 14-B, MAHATMA GANDHI GUNJ, GANDHI GUNJ, BORSAD, GUJARAT. (APPELLANT) VS. INCOME TAX OFFICER, WARD 3(4), INCOME TAX OFFICE, R.K. BUILDING, NR. RLY CROSSING, PETLAD, DIST. ANAND. (RESPONDENT) PAN: AADFM 9634 P APPELLANT BY : SHRI B.T. THAKKAR. RESPONDENT BY : SHRI Y. C. SURTI. DATE OF HEARING : 16-9-2011. DATE OF PRONOUNCEMENT : 14/10/2011S ( (( ( )/ )/)/ )/ ORDER PER: SHRI A. MOHAN ALANKAMONY,A.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE E X-PARTE ORDER OF THE LD. CIT(A)-I, BARODA NO.CAB-I/117/08-09 DATED 2-11- 2010 FOR THE A.Y, 2006-07 PASSED U/S. 250 R.W.S. 143(3) OF THE ACT. 1 ITA.NO.258/AHD/2011 ASSESSMENT YEAR 2006-07 2 2. AMONGST THE TWO GROUNDS RAISED BY THE ASSESSEE T HE ONLY ISSUE SURVIVING FOR ADJUDICATION IS WITH REGARD TO THE AD DITION OF RS.1,18,800/- MADE U/S. 36(1)(III) OF THE ACT. 3. THE ASSESSEE IS A FIRM, FILED ITS RETURN OF INC OME ON 4-9-2006 DECLARING ITS TOTAL INCOME AT RS. 4,56,080/-.THE CA SE WAS SELECTED FOR SCRUTINY, THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 10-10-2008. 4. THE LD. A.O. OBSERVED THAT THE ASSESSEE-FIR M HAD ADVANCED AN AMOUNT OF RS.12 LACKS TO THE PARTNERS OF THE FIRM FOR INVE STMENTS IN THEIR PERSONAL PPF ACCOUNT. THE LD. A.O. FURTHER OBSERVED THAT THE ASSESSEE-FIRM HAD NOT CHARGED INTEREST ON SUCH ADVANCES MADE TO THE PARTN ERS THOUGH THE FIRM HAD INCURRED FINANCIAL CHARGE ON THE AMOUNT WITHDRAWN B Y THE PARTNERS TO THE EXTENT OF 12% PER ANNUM. ON QUERIED, THE ASSESSEE S TATED THAT THE INVESTMENT WAS MADE IN THE PPF ACCOUNT BY THE FIRM IN THE NAME S OF THE PARTNERS. THE LD. AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESS EE AND DISALLOWED THE INTEREST PAID BY THE ASSESSEE TO THE PARTNERS TO TH E EXTENT OF RS. 1,18,800/- FOR THE OPENING BALANCE OF INVESTMENT OF RS.9,90,000/- MADE BY THE ASSESSEE THROUGH ITS PARTNERS U/S. 36(1)(III) OF THE ACT. TH E LD. AO HAD MADE A CLEAR FINDING THAT THE INVESTMENT OF RS.9,90,000/- WAS MA DE IN THE PERSONAL NAME OF THE PARTNERS AND DEDUCTION U/S. 80C WAS ALSO CLA IMED IN THE PERSONAL RETURNS OF THE PARTNERS. THEREFORE INTEREST @ 12% O N THE OPENING BALANCE OF RS 9,90,000/- AMOUNTING TO RS. 1,18,800/- HAS TO BE DISALLOWED FROM THE INTEREST PAID TO THE PARTNERS BY THE ASSESSEE. ON A PPEAL BEFORE THE LD. CIT (A), IT WAS HELD THAT THE INVESTMENTS MADE BY THE F IRM WERE NOTHING BUT IN 1 ITA.NO.258/AHD/2011 ASSESSMENT YEAR 2006-07 3 THE NATURE OF WITHDRAWALS FROM THE CAPITAL ACCOUNT AND THEREFORE THE AO WAS JUSTIFIED IN NETTING OF THE INTEREST ON THE CAP ITAL BALANCES OF THE PARTNERS. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 5. LD. AR SUBMITTED A XEROX COPY OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR ENDED 2005-06 BEFORE US AND DREW OUR ATTENTION TO THE INTEREST AND DISCOUNT INCURRED BY THE ASSESSEE WHICH WAS ONLY RS.70,526/- AND ARGUED THAT THE APPELLANT HAD NOT INCURRED ANY FINANCIAL CHARGE ON THE AMOUNT INVESTED IN THE PARTNERS NAME TOWARDS PPF ACCOUNT AND THEREFORE THE DISALLOWANCE MADE BY THE AO AND F URTHER CONFIRMED BY THE CIT(A) IS NOT WARRANTED. IT WAS THEREFORE PRAYED BY THE LD. AR THAT ADDITION MADE ON THIS COUNT MAY BE DELETED. 6. LD. DR OPPOSED TO THE SUBMISSIONS OF THE L D. AR AND POINTED OUT THAT THE ASSESSEE HAS PAID INTEREST TO THE PARTNERS TO T HE EXTEND OF RS.6,10,452/- OTHER THAN INTEREST AND DISCOUNT OF RS.70,526/- WHI CH NEEDS TO BE NETTED FROM THE INTEREST ON PAYMENT TOWARDS INVESTMENTS MA DE BY THE FIRM IN THE NAME OF THE PARTNERS SINCE IT IS NOTHING OTHER THAN IN THE NATURE OF DRAWINGS. LD. DR ARGUED THAT SINCE THE INVESTMENT MADE BY THE FIRM IN THE NAME OF THE PARTNERS OF THE FIRM AMOUNTS TO DRAWINGS OF THE PAR TNERS, INTEREST TO THAT EXTEND CANNOT BE CHARGED TO THE PROFITS AND LOSS AC COUNT OF THE FIRM. LD. DR PRAYED THAT THE ORDER OF THE LD. AO WHICH WAS SUBSE QUENTLY CONFIRMED BY THE CIT (A) MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREF ULLY PERUSED THE MATERIALS BEFORE US. FROM THE FACTS BEFORE US IT IS APPARENT THAT THE ASSESSEE IS PAYING INTEREST ON THE PARTNERS CREDIT BALANCE TO THE PAR TNERS AND FURTHER THE ASSESSEE HAD WRONGLY STATED THAT THE INVESTMENTS MA DE IN THE NAME OF THE PARTNERS PERSONNEL NAME AS THE INVESTMENT OF THE F IRM. THE INVESTMENT MADE BY THE FIRM IN THE NAME OF THE PARTNERS HAS TO BE NECESSARILY TREATED AS 1 ITA.NO.258/AHD/2011 ASSESSMENT YEAR 2006-07 4 DRAWINGS BY THE PARTNERS AND THUS REDUCE FROM THE C REDIT BALANCE STANDING TO THEIR NAME. WHEN THAT IS DONE WHICH IS THE CORRECT STATE OF AFFAIRS, TO THAT EXTEND THE INTEREST PAYABLE TO THE PARTNERS HAS TO BE REDUCED AS RIGHTLY POINTED OUT BY THE REVENUE TO ARRIVE AT THE CORRECT INCOME OF THE ASSESSEE. FROM THE PROFIT AND LOSS STATEMENT SUBMITTED BY THE APPELLANT IT IS EVIDENT THAT THE ASSESSEE HAD PAID INTEREST OF RS.6,10,452/ - TO THE PARTNERS AND CHARGED TO THE PROFIT AND LOSS ACCOUNT OTHER THAN R S. 70,526/- SHOWN AS INTEREST AND DISCOUNT EXP. THUS THE LD. AO HAD RIGH TLY MADE THE ADDITION OF RS. 1,18,800/-. THE ALTERNATE ARGUMENT OF THE LD. A R IS NOT TENABLE THAT IN THE EVENT THE INTEREST IS DISALLOWED THEN IT MAY RE STRICTED TO RS.70,526/- BECAUSE THE LD. A.O HAD IN FACT DISALLOWED THE INTE REST OF RS.1,18,800/- FROM THE INTEREST PAID TO THE PARTNERS OF RS. 6,10,452/- DISCLOSED IN THE PROFIT AND LOSS STATEMENT. THEREFORE WE DO NOT HAVE ANY HESITA TION TO CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. IT IS ORDERED ACC ORDINGLY. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 14-10- 2011. SD/- SD/- ( BHAVNESH SAINI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. DATED: 14 - 10 - 2011. S.A.PATKI. 1 ITA.NO.258/AHD/2011 ASSESSMENT YEAR 2006-07 5 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD 1.DATE OF DICTATION 16 -09 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16/09/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 14-10-2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 14-10 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25-10-2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 25- 10-2011. 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..