DCIT, Ghaziabad V. M/s. Ashok Kumar Amit Kumar & Shipra Estates (P) Ltd., Ghaziabad

ITA 3247/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4747 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 26-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH
• Keywords: Business income; Search and seizure; Deemed dividend; Notional interest
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.3247/DEL/2012 3247/DEL/2012 3247/DEL/2012 3247/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2007 2007 2007 2007- -- -08 0808 08 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, 1,1, 1, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. VS. VS. VS. VS. M MM M/S ASHOK KUMAR AMIT KUMAR & /S ASHOK KUMAR AMIT KUMAR & /S ASHOK KUMAR AMIT KUMAR & /S ASHOK KUMAR AMIT KUMAR & SHIPRA ESTATES (P) LTD., SHIPRA ESTATES (P) LTD., SHIPRA ESTATES (P) LTD., SHIPRA ESTATES (P) LTD., C CC C- -- -36, PATEL NAGAR 36, PATEL NAGAR 36, PATEL NAGAR 36, PATEL NAGAR- -- -II, II,II, II, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. PAN : PAN : PAN : PAN : AAJFA2511K. AAJFA2511K. AAJFA2511K. AAJFA2511K. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BHIM SINGH, SR.DR. RESPONDENT BY : NONE. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), GHAZIABAD DATED 30 TH APRIL, 2012 FOR THE AY 2007-08. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT S OF THE CASE, BY NOT APPRECIATING THE APPLICATION OF SECTIO N 28 OF THE I.T.ACT 1961 AS PER WHICH THE VALUE OF ANY BENE FIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT A RISING FROM THE BUSINESS OR EXERCISE OF A PROFESSION IS CH ARGEABLE UNDER THE HEAD PROFIT AND GAIN FROM BUSINESS OR PRO FESSION. IN THE PRESENT CASE THE FIRM HAS GIVEN INTEREST FRE E LOAN TO THE RESPECTIVE PARTNERS LEAVING THEIR CAPITAL BALAN CE IN NEGATIVE, THEREBY DIVERTING THE FUNDS OF THE FIRMS OR UTILIZING THE SAME IN THEIR HANDS. 2. THAT LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE BY FAILING TO APPRECIATE THAT THE PARTNERS HAV E OVER- DRAWN FUNDS FROM THE FIRM WHICH IS EQUIVALENT TO TH E DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE IT AC T, 1961 AS THESE PAYMENTS ARE ALSO PAID TO PARTNERS BY WAY OF ITA-3247/DEL/2012 2 ADVANCE OR LOANS BY THE FIRM ON BEHALF OR FOR THE I NDIVIDUAL BENEFIT OF THE PARTNERS OF THE FIRM OR THE INDIVIDU AL. AS SUCH, LIKE DEEMED, NOTIONAL INTEREST IS ALSO CHARGE ABLE IN THE GIVEN CASE. 3. THEREFORE, THE ORDER OF THE LD.CIT(A) BE CANCELL ED OR SET ASIDE AND THE ORDER OF THE AO MAY BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO MODIFY/AMEND OR AD D ANY ONE OR MORE GROUNDS OF APPEAL. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND THE ASSESSING OFFICER NOTICED THAT THE DEBIT BA LANCE IN THE PARTNERS ACCOUNT WAS MORE THAN THE CREDIT BALANCE. HE, THEREFORE, CHARGED THE INTEREST ON THE NET DEBIT BALANCE OF PA RTNERS AT THE RATE OF 12% AND ACCORDINGLY MADE THE ADDITION OF ` 20,61,845/-. ON APPEAL, LEARNED CIT(A) DELETED THE SAME WITH THE FOLLOWING FINDING:- 4.1 IT IS CLEAR FROM THE ASSESSMENT ORDER AND RECO RD THAT THE AO HAS CHARGED NOTIONAL INTEREST AND HAS ADDED THE SAME AS INCOME IN ASSESSEES HAND. I AM AFRAID; TH IS VIEW OF TAXING INCOME ON NOTIONAL BASIS CAN NOT BE SUSTA INED IN THE EYES OF LAW. IT WOULD HAVE BEEN DIFFERENT MATTER ALTOGETHER, HAD THE FIRM BEEN OBTAINING INTEREST BEARING LOAN AND PAYIN G INTEREST ON THE SAME CHARGEABLE TO PROFIT & LOSS A/ C. IN THE PRESENT CASE, THE APPELLANT HAS NOT TAKEN ANY LOAN AND CONSEQUENTLY, HAS NOT PAID ANY INTEREST EITHER. TH EREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCES, FULLY OR PARTLY, OUT OF INTEREST DEBITED TO P & L A/C EITHER! 4.2 EVEN IN RESPECT OF PARTNERSHIP ARRANGEMENT, THE RE IS NO CLAUSE IN THE PARTNERSHIP DEED WHICH REQUIRES TH E FIRM TO CHARGE INTEREST ON DEBIT BALANCES IN THE PARTNER S ACCOUNT, NOR THERE IS ANY PROVISION FOR PAYMENT OF ANY INTEREST TO THE PARTNERS ON THEIR CAPITAL. 4.3 THUS, THE ENTIRE BASIS OF ADDITION, AS MADE BY THE AO, IS MERELY HYPOTHETICAL AND NOTIONAL, WHICH CAN NOT BE UPHELD. ADDITION OF RS.20,61,845/- IS THEREFORE DE LETED. ITA-3247/DEL/2012 3 4. AFTER CONSIDERING THE ARGUMENTS OF LEARNED DR AN D PERUSING THE MATERIAL PLACED BEFORE US, WE DO NOT FIND ANY INFIR MITY IN THE ABOVE FINDING OF LEARNED CIT(A). THAT IN THE INCOME-TAX ACT, 1961, THERE IS NO PROVISION OF TAXING ANY INCOME ON NOTIONAL BASIS. ADMITTEDLY, NO INTEREST IS CHARGED ON THE DEBIT BALANCE OF THE PAR TNERS AND IN THE PARTNERSHIP DEED ALSO, THERE IS NO PROVISION FOR CH ARGING OF SUCH INTEREST. THEREFORE, CHARGING OF INTEREST BY THE A SSESSING OFFICER ON THE DEBIT BALANCE OF THE PARTNERS WAS ONLY TAXING O F NOTIONAL INCOME. LEARNED CIT(A) ALSO RECORDED THE FINDING THAT IN TH IS CASE, THERE IS NO CLAIM OF INTEREST PAYMENT BY THE ASSESSEE AND, THER EFORE, IT CAN ALSO NOT BE SAID THAT THERE WAS DIVERSION OF INTEREST BE ARING FUNDS. THIS FINDING RECORDED BY THE LEARNED CIT(A) HAS NOT BEEN CONTROVERTED BEFORE US. IN THE GROUNDS OF APPEAL, THE REVENUE H AS REFERRED TO SECTION 28 AND CLAIMED THAT THE BENEFIT OR PERQUISI TE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR PROFESSION IS CHARGEABLE AS BUSINESS INCOME. HOWEVER, IN OUR OPI NION, ON THE FACTS OF THE ASSESSEES CASE, THERE IS NO BENEFIT OR PERQ UISITE. IT IS SIMPLY A DEBIT BALANCE IN THE ACCOUNTS OF THE PARTNERS. SIM ILARLY, VIDE GROUND NO.2, THE REVENUE HAS CLAIMED THAT THE OVERDRAWN AM OUNT SHOULD BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). THAT THE QUESTION OF DEEMED DIVIDEND CAN ARISE IN THE CASE OF A COMPA NY AND NOT IN THE CASE OF THE PARTNERSHIP FIRM. THE ASSESSEE IS A PA RTNERSHIP FIRM. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE REVENUES APPEAL. THE SAME IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2013. SD/- SD/- ( (( (A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 27.08.2013 VK. ITA-3247/DEL/2012 4 COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1, GHAZIABAD. 1, GHAZIABAD. 1, GHAZIABAD. 1, GHAZIABAD. 2. RESPONDENT : M/S ASHOK KUMAR AMIT KUMAR & M/S ASHOK KUMAR AMIT KUMAR & M/S ASHOK KUMAR AMIT KUMAR & M/S ASHOK KUMAR AMIT KUMAR & SHIP SHIP SHIP SHIPRA ESTATES (P) LTD., C RA ESTATES (P) LTD., C RA ESTATES (P) LTD., C RA ESTATES (P) LTD., C- -- -36, PATEL NAGAR 36, PATEL NAGAR 36, PATEL NAGAR 36, PATEL NAGAR- -- -II, II,II, II, GHAZIABAD. GHAZIABAD. GHAZIABAD. GHAZIABAD. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR