ITO, Chandigarh V. M/s Jainsons Agencies, Chandigarh

ITA 334/CHANDI/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95530 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-09-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SIDHU
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 334/CHD/2015 ASSESSMENT YEAR: 2012-13 THE ITO, VS. M/S JAINSONS AGENCIES, WARD-2(3), CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY : SH. D.S. SIDHU RESPONDENT BY : SH. JASPAL SHARMA DATE OF HEARING : 10.09.2015 DATE OF PRONOUNCEMENT : 23.09.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-1, CHANDIGARH DATED 23.01.2015 RELATING TO ASSESSMENT YEAR 2012-13. 2. IN THIS APPEAL THE REVENUE HAS CHALLENGED THE AC TION OF THE CIT(A) IN DELETING THE ADDITION OF RS. 12,73,000/- MADE U/S 3 6(1)(III) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASSESSEE FIRM IS A DISTRIBUTOR OF READYMADE GARMENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM MADE ADVANCES OF RS. 1,31,45,971/- TO SMT. SHASHI JAIN, S/SH. ANI L JAIN AND ANUJ JAIN. ON THE 2 ABOVE ADVANCES, THE ASSESSEE DID NOT CHARGE INTERES T FROM THESE PERSONS. ON THE OTHER HAND, THE ASSESSEE HAS OBTAINED SECURED LOANS AND UNSECURED LOANS FROM OTHER PERSONS AND PAID INTEREST THEREON. THE ASSESS ING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PROVISIONS OF SECTION 36(1)(III) SHOULD NOT BE APPLIED FOR DISALLOWANCE OF INTEREST CLAIMED AMO UNTING TO RS. 12,73,000/- PAID TO BANK AND ON SECURED LOANS. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND DISALLOWED THE ENTI RE INTEREST OF RS. 12,73,000/- U/S 36(I)(III) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION O BSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE ISSUE. SH . ANIL JAIN AND SH. ANUJ JAIN ARE PARTNERS IN THE APPELLANT FIR M AND HAD OPENING CAPITAL BALANCE OF RS. 20.50 LACS AND RS. 3 3.67 LACS RESPECTIVELY. THE APPELLANT FIRM WAS NOT PAYING ANY INTEREST TO THESE TWO PARTNERS, SINCE THE SAME WAS NOT REQUI RED TO BE PAID AS PER PARTNERSHIP DEED. THESE PERSONS HAD WIT HDRAWN RS. 11.64 LACS AND RS. 31.13 LACS RESPECTIVELY DURI NG THE YEAR UNDER CONSIDERATION OUT OF THEIR CAPITAL BALAN CES. AS THE PARTNERS HAD MADE WITHDRAWALS OUT OF THEIR RESP ECTIVE CAPITALS, INTEREST WAS OBVIOUSLY NOT TO BE CHARGED. MOREOVER, EVEN IF THESE AMOUNTS ARE TREATED AS ADVA NCES, INTEREST WAS NOT CHARGEABLE ON THESE ADVANCES, SINC E INTEREST WAS NOT BEING PAID BY THE APPELLANT FIRM TO THE PAR TNERS ON THEIR CAPITAL BALANCES AS PER THE PARTNERSHIP DEED AND SO IT WAS NOT CHARGEABLE ON THE AMOUNTS ADVANCED ALSO. IT IS ALSO NOTEWORTHY THAT THE BALANCE IN THE CAPITAL ACCOUNT OF THESE TWO PARTNERS DURING THE ENTIRE YEAR IS ALWAYS A CRE DIT BALANCE AND SO NO INTEREST COULD HAVE OTHERWISE ALS O BEEN CHARGED. THEREFORE, THE ASSESSING OFFICER WAS NOT RIGHT IN D ISALLOWING PROPORTIONATE INTEREST ON THE AMOUNTS WITHDRAWN BY SH. AJAY JAIN AND SH. ANUJ JAIN. 3 3.3.1 REGARDING THE WITHDRAWAL MADE BY SMT. SHASH I JAIN, IT IS SEEN THAT THE OPENING CREDIT BALANCE BY WAY O F DEPOSIT IN HER ACCOUNT WITH THE FIRM WAS OF RS. 16.86 LACS. SMT. SHASHI JAIN WAS A DEPOSITOR WITH THE A PPELLANT FIRM, BUT WAS NOT BEING PAID ANY INTEREST. THERE WERE REGULAR WITHDRAWALS AND DEPOSITS IN / FROM HER ACCO UNT WITH THE FIRM, BUT AT NO POINT OF TIME DURING THE YEAR, THE BALANCE WAS NEGATIVE. SHE WAS DULY ENTITLED TO WITHDRAW HER MONEY ANY TIME, WHICH SHE HAS DONE, BUT SINCE AT NO POINT OF TIME THE BALANCE IN HER ACCOUNT WAS NEGATIVE AND SO INTE REST COULD NOT HAVE BEEN CHARGED FROM HER, IMPLYIN G THEREBY THAT PROPORTIONATE INTEREST COULD NOT HAVE ALSO BEE N DISALLOWED, 3.3.2 IN VIEW OF THE ABOVE, IT IS HELD THAT THE A SSESSING OFFICER HAS WRONGLY MADE DISALLOWANCE U/S 36(L)(III ) OF THE ACT AND SO THE SAME IS DELETED. GROUNDS OF APPEAL N OS. 4 AND 5 ARE ALLOWED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS AN AD MITTED FACT THAT SHRI ANIL JAIN AND SHRI ANUJ JAIN WERE PARTNERS IN THE ASSESS EE FIRM AND HAD OPENING CAPITAL BALANCE OF RS. 20.50 LAKHS AND 33.60 LAKHS RESPECTIVELY. NO INTEREST WAS BEING PAID TO THESE PARTNERS AS PER THE PARTNERSHIP DEED. THESE PARTNERS HAD WITHDRAWN RS. 11.64 LAKHS AND RS. 31.13 LAKHS RESPE CTIVELY OUT OF THEIR CAPITAL BALANCE. IT IS ALSO AN ADMITTED FACT THAT THE BALA NCE IN THE CAPITAL ACCOUNT OF THESE TWO PARTNERS DURING THE ENTIRE PERIOD WAS ALW AYS A CREDIT BALANCE AND THERE WAS NO QUESTION OF CHARGING INTEREST. WE ARE IN AGR EEMENT WITH THIS OBSERVATION OF THE CIT(A) THAT THE ASSESSING OFFICER WAS NOT JU STIFIED IN DISALLOWING PROPORTIONATE INTEREST ON THE AMOUNTS WITHDRAWN BY SHRI ANIL JAIN AND SHRI AJAY JAIN, THE PARTNERS OF THE ASSESSEE FIRM. SMT.SHASH I JAIN HAD OPENING CREDIT BALANCE BY WAY OF DEPOSIT IN HER ACCOUNT WITH THE F IRM TO THE TUNE OF RS. 16.86 LAKHS. NO INTEREST WAS BEING PAID TO SMT. SHASHI JA IN ON DEPOSITS MADE BY HER. IT 4 IS AN ADMITTED FACT THAT THERE WERE REGULAR WITHDRA WALS AND DEPOSITS IN HER ACCOUNT WITH THE FIRM. FURTHERMORE, AT NO POINT OF TIME THE BALANCE IN ACCOUNT WAS NEGATIVE AND SO INTEREST COULD NOT HAVE BEEN CH ARGED FROM HER. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY APPRECIATED T HE FACTS OF THE PRESENT CASE AND THE ORDER PASSED BY HIM DESERVES TO BE UPHELD. WE ACCORDINGLY UPHELD HIS ORDER AND DISMISS THE APPEAL OF THE REVENUE. 5. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.09.2015 SD/- SD- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 23 RD SEPTEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR