Husain Internatinal, Bhadohi V. Addll.CIT, Varanasi

ITA 333/ALLD/2010

• Counselvise Citation: 33320714 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: R K N JAISWAL
• Keywords: Capital asset
• Section: 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.333/ALLD/2010 ASSESSMENT YEAR: 2007-08 M/S. HUSAIN INTERNATIONAL, VS. DY. COMMISSIONER OF INCOME TAX, POWER HOUSE ROAD, RANGE-1, VARANASI. BHADOHI (U.P.) (PAN: AABFH 3794 H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. N. JAISWAL, ADVOCATE RESPONDENT BY : SHRI JAGDISH, CIT D.R. DATE OF HEARING : 30.10.2012 DATE OF PRONOUNCEMENT : 02.11.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 02.11.2010 PASSED BY THE LD. CIT(A), VARANASI FOR THE ASSESSME NT YEAR 2007-08. 2. GROUND NOS.1 TO 3 ARE IN RESPECT OF DISALLOWANCE OF INTEREST PAID TO PARTNERS. 3. THE BRIEF FACTS OF THESE GROUNDS ARE THAT THE AS SESSEE IS A MANUFACTURER AND EXPORTER OF CARPETS. THE ASSESSEE IS A PARTNERSHIP FIRM HAVING 5 PARTNERS. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT T HE INERT ON CAPITAL HAS BEEN ITA NO.333/A/2010 A.Y. 2007-08 2 PROVIDED ON THE OPENING BALANCE OF THE PARTNERS CA PITAL ACCOUNT, AS PER THE RATE AGREED UPON. HOWEVER, THERE ARE SUBSTANTIAL WITHDR AWALS DURING THE YEAR AS WELL AS ADDITION IN PARTNERS CAPITAL ACCOUNT. A DETAILED PARTNERS CAPITAL ACCOUNT WAS CALLED FOR. THE ASSESSEE WAS ASKED THAT WHY NOT TH E INTEREST BE ALLOWED TO PARTNERS AT THE RATE MENTIONED IN PARTNERSHIP DEED/AGREED UP ON ON THE MONTHLY REDUCING BALANCE METHOD, RATHER THAN ON OPENING BALANCE. TH ERE ARE SUBSTANTIAL WITHDRAWAL DURING THE YEAR. THEREFORE, INTEREST CAN ONLY BE P ROVIDED ON ACTUAL CAPITAL EMPLOYED AND NOT ON THE OPENING FIGURE. THE A.O. A SKED THE ASSESSEE TO FURNISH THE CALCULATION OF INTEREST ALLOWABLE ON MONTHLY RE DUCING BALANCE. ON THE BASIS OF ASSESSEES CALCULATION, THE A.O. MADE ADDITION OF R S.87,922/- BY DISALLOWING INTEREST TO PARTNERS. HE DETAILS OF WHICH RE AS UN DER :- S.N O. NAME OF THE PERSON INTT. PROVIDED INTT. ALLOWABLE DISALLOWED 1 MRS. NILOFER HUSSAIN 2,29,470/- 2,08,009 21,461 2 MR. AUSUF HUSSAIN 2,82,797 2,70,137 12,660 3 MR. TAUSIF JA HUSSAIN 1,38,722 90,026 48,696 4 MR. ARHAM HUSSAIN 2,74,629 2,69,524 5,105 TOTAL 87,922/- 4. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. 5. THE LEARNED AUTHORIZED REPRESENTATIVE REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE REVENUE AUTHORITIES. THE PROF IT OF THE FIRM IS NEVER THE CASE OF ONE DAY, IT ACCRUED DAY BY DAY, THE SHARE CAPITA L OF THE PARTNERS INCREASE BY SAID ITA NO.333/A/2010 A.Y. 2007-08 3 PORTION OF PROFIT APART FROM HEAVY ADDITIONS AS A R ESULT OF ENCASHMENT OF RDR. IT WAS SUBMITTED THAT THERE WAS NO REASON THEN TO DISA PPROVE THE INTEREST TO PARTNERS OVER OPENING CAPITAL LIKE PRECEDING YEAR. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF CIT(A). 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORDS PERUSED. THE SCHEME OF CHARGING OF TAX IN CASE OF PARTNERSHIP FIRM HAS BEEN CHANGED W.E.F. 01.04.1993. IN THE NEW SCHEME OF AS SESSMENT OF PARTNERSHIP FIRM, THE PROCEDURE AND FORMALITIES OF SEEKING ASSESSMENT IN THE STATUS OF FIRM HAVE BEEN MADE SIMPLER. THAT THE PARTNERSHIP FIRM IS TO DO I S TO ATTACH A CERTIFIED COPY OF AGREEMENT OF PARTNERSHIP FIRM ALONG WITH RETURN OF INCOME WHICH IS TO BE FILED WITHIN THE TIME PERMITTED UNDER SECTION 139 OF THE ACT. A PARTNERSHIP CONCERN ASSESSED AS A FIRM UNDER SECTION 184 IS GIVEN SOME TAX ADVANTAGE. THE INTEREST PAID TO PARTNERS IS COMPUTED AT THE RATE NOT EXCEED ING PRESCRIBED PERCENTAGE, A SIMPLE INTEREST PER ANNUM AND REMUNERATION PAID TO WORKING PARTNER WOULD BE ALLOWABLE UNDER SECTION 40(B) OF THE ACT. THE INTE REST OR REMUNERATION TO PARTNERS WILL NOT BE AN ALLOWABLE DEDUCTION IN VIEW OF SPECI FIC PROVISION OF SECTION 40(B)(A) OF THE ACT. SECTION 40(B) PROVIDES THAT COMMON PAY MENT OF INTEREST OF ANY PARTNER WHICH IS AUTHORIZED BY, AND IS IN ACCORDANCE WITH, THOUGH TERMS OF THE PARTNERSHIP ITA NO.333/A/2010 A.Y. 2007-08 4 DEED AND RELATED TO ANY PERIOD FOLLOWING THE DATE, SUCH PARTNERSHIP IN SO FAR AS AMOUNT EXCEEDS THE AMOUNT CALCULATION ADDITION AT T HE PRESCRIBED RATE SIMPLE INTEREST PER ANNUM. THUS, THE IMPORTANT CONDITION OF ALLOWING INTEREST TO PARTNER IS THAT THE PAYMENT OF INTEREST SHOULD BE AUTHORIZED I N ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. IT IS IMPORTANT TO NOTE HERE THAT COPY OF PARTNERSHIP DEED IS NOT AVAILABLE ON RECORD NOR HAS BEEN FURNISHED BY T HE ASSESSEE AT THE TIME OF HEARING BEFORE US. IN ABSENCE OF THIS MATERIAL EVI DENCE WHATEVER FACT NOTED BY THE ASSESSING OFFICER HAS TO BE ACCEPTED AS CORRECT. T HE A.O. NOTED THAT AS PER THE PARTNERSHIP DEED THE INTEREST IS TO BE CALCULATED O N MONTHLY REDUCING BALANCE METHOD. EVEN OTHERWISE ALSO, IF THERE IS AN OPENIN G BALANCE AND DURING THE YEAR TWO CREDIT AND DEBIT ENTRIES, THE NORMAL PROCEDURE OF CALCULATION OF INTEREST IS REDUCING BALANCE METHOD. BY THIS NORMAL METHOD OF CALCULATION OF INTEREST, WE NOTICE THAT THE ASSESSING OFFICER HAS RIGHTLY CALCU LATED THE ALLOWABILITY OF INTEREST FOLLOWING MONTHLY REDUCING BALANCE METHOD AS DURING THE YEAR PARTNERS HAVE TAKEN OUT THE CAPITAL FROM THE CAPITAL ACCOUNT. IF WE ACCEPT THE ASSESSEES CONTENTION THAT THE INTEREST ALLOWABLE TO PARTNERS CAPITAL ACCOUNT IS TO BE CALCULATED ONLY ON THE BASIS OF OPENING BALANCE OF THE CAPITAL ACCOUNT, THEN FRESH CAPITAL INTRODUCED BY THE PARTNERS DURING THE YEAR WILL NOT BE ELIGIBLE FOR INTEREST. SUCH AN ABSURD FINDING CANNOT BE GIVEN. IN THE LIGHT OF TH E FACT, WE FIND THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER IN CALCULATING THE INTEREST PAYABLE TO PARTNERS BY FOLLOWING MONTHLY REDUCING B ALANCE METHOD OF INTEREST ITA NO.333/A/2010 A.Y. 2007-08 5 CALCULATION. THEREFORE, WE ARE NOT INTERFERING IN THE CALCULATION PART OF THE INTEREST PAID TO PARTNERS. ORDER OF THE CIT(A) IS CONFIRMED ON THIS ISSUE. 8. GROUND NOS.4 & 5 ARE IN RESPECT DISALLOWANCE OF RS.27,395/- MADE BY THE A.O. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. N OTICED THAT THE ASSESSEE HAS GIVEN RS.4,56,580/- AS ADVANCE TO SHRI IFTKAR AHMED . THE SAID ADVANCE WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A .O. NOTICED THAT THE ASSESSEE ON ONE HAND GIVEN INTEREST FREE ADVANCE AND ON THE OTH ER HAND PAID THE INTEREST ON BORROWING FUND. THE A.O., THEREFORE, CALCULATED TH E DISALLOWANCE AMOUNT OF INTEREST APPLYING 6% RATE OF INTEREST OF WHICH CALC ULATION COMES TO RS.27,395/-. ORDER OF THE A.O. HAS BEEN CONFIRMED BY THE CIT(A). 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND RECORDS PERUSED. ON PERUSAL OF BALANCE SHEET AS ON 31.03.2 007 OF WHICH COPY IS PLACED AT PAGE NO.47 OF THE PAPER BOOK, WE NOTICE THAT THE PA RTNERS WERE HAVING CAPITAL OF ABOUT RS.5,17,84,000/-. IN THE LIGHT OF VARIOUS DE CISIONS INCLUDING THE DECISION OF I.T.A.T. MUMBAI BENCH IN THE CASE OF H.P. SHAH & CO ., ORDER DATED 15.01.2009, WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE HAVIN G SUFFICIENT INTEREST-FREE FUND IN THE FORM OF CAPITAL, NO DISALLOWANCE IS WARRANTED O N INTEREST-FREE ADVANCE GIVEN. FOLLOWING THE RATIO LAID DOWN IN THE ABOVE ORDER OF I.T.A.T., MUMBAI BENCH, WE DELETE THE ADDITION OF RS.27,395/-. ITA NO.333/A/2010 A.Y. 2007-08 6 10. GROUND NOS.6 & 7 ARE IN RESPECT OF ADDITION OF RS.14,190/-. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED LOSS ON FIXED ASSETS RS.14,119/-. THE A.O. DISALLO WED THE SAME ON THE GROUND THAT THE SAID LOSS IS CAPITAL IN NATURE. ORDER OF THE A SSESSING OFFICER HAS BEEN CONFIRMED BY THE CIT(A). 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND RECORDS PERUSED. THE LEARNED AUTHORIZED REPRESENTATIVE SUB MITTED THAT THE LOSS IS PERTAINING TO U.K. BRANCH AND THAT THE LOSS IS ALLO WABLE AS PER D.T.A.A. AFTER CONSIDERING THE FACTS OF THE CASE, WE NOTICE THAT I T IS ADMITTED FACT THAT THE LOSS WAS ON ACCOUNT OF FIXED ASSETS. IN ABSENCE OF OTHER MA TERIAL EVIDENCE, THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE CANNOT BE ACC EPTED BECAUSE EITHER UNDER D.T.A.A. OR UNDER INCOME TAX ACT THE ASSESSEE IS EN TITLED FOR DEDUCTION ONLY IN RESPECT OF REVENUE LOSS OR REVENUE EXPENSES OR LOSS OF CAPITAL IN NATURE. SINCE THE FINDING OF REVENUE AUTHORITY THAT THE LOSS WAS ON A CCOUNT OF CAPITAL ASSET, THEREFORE, SUCH LOSS IS NOT ALLOWABLE AGAINST REVEN UE INCOME. FURTHERMORE, THE SUBMISSION OF THE LEARNED AUTHORIZED REPRESENTATIVE THAT SUCH LOSS IS ALLOWABLE UNDER D.T.A.A. BUT NO SUCH GROUND HAS BEEN TAKEN EI THER BEFORE THE A.O. OR BEFORE THE CIT(A). THEREFORE, SUCH CONTENTION WHICH REQUI RES FACTUAL VERIFICATION CANNOT BE ALLOWED TO RAISE AT THIS STAGE. IN THE LIGHT OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONFIRM THE ORDER OF THE CIT(A). ITA NO.333/A/2010 A.Y. 2007-08 7 12. GROUND NOS.8 & 9 ARE IN RESPECT OF DISALLOWANCE OF CERTAIN EXPENSES. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED RS.4,40, 053/- AS SUNDRY EXPENSES. THE SAID EXPENDITURE WAS NOT FULLY SUPPORTED BY VOUCHER S. THE PAYMENTS WERE MADE IN CASH. THE A.O. DISALLOWED 10% OF WHICH CALCULATION COMES TO RS.44,005/-. SIMILARLY, THE A.O. NOTICED THAT THE ASSESSEE HAS C LAIMED RS.10,04,813/- UNDER THE HEAD REPAIRS AND RENEWAL AND RS.11,81,000/- UNDER T HE HEAD PRINTING AND STATIONERY. THE A.O. NOTICED THAT THE EXPENDITURE CLAIMED WAS PAID IN CASH AND ON SELF-MADE VOUCHERS. THE A.O. DISALLOWED 5% OF WHIC H CALCULATION COMES TO RS.50,240/- AND RS.59,050/- RESPECTIVELY. THE CIT( A) HAS CONFIRMED THE ORDER OF THE A.O. 13. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND RECORDS PERUSED. THE ASSESSEE FILED RETURN OF INCOME DECLA RING TOTAL INCOME OF RS.1,55,32,224/-. THE ADMITTED FACTS OF THE CASE A RE THAT THE SUNDRY EXPENSES, REPAIRS & RENEWAL AND PRINTING & STATIONERY EXPENSE S WERE NOT FULLY VERIFIABLE. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO DID NOT DISPUTE IN PRINCIPLE IN RESPECT OF DISALLOWANCE OF EXPANSES. WE, THEREFORE, AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, FIND THAT SOME DISALLOWANCE FOR WANT OF VERIFICATION AND FOR NON- BUSINESS PURPOSE REQUIRES DISALLOWANCE. NOW THE QU ESTION REMAINS TO BE EXAMINED IS ESTIMATION OF AMOUNT OF DISALLOWANCE. THE A.O. DISALLOWED 10% OUT OF SUNDRY EXPENSES AND 8% OUT OF REPAIRS & RENEWAL AND PRINTI NG & STATIONERY. THE ASSESSEE ITA NO.333/A/2010 A.Y. 2007-08 8 HAS FAILED TO POINT OUT ANY MATERIAL OR OTHER BASIS OR SOME COMPARATIVE POSITION BASED ON WHICH DIFFERENT ESTIMATION OF DISALLOWANCE OF AMOUNT OF EXPENSES CAN BE MADE AT THIS STAGE. IN THE ABSENCE OF RELEVANT MAT ERIAL, WE CONFIRM THE ORDER OF THE CIT(A). 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY