M/S SHREE BHAGWATI UDHYOG , BHARATPUR V. INCOME TAX OFFICER, WARD-1, BHARATPUR

ITA 483/JPR/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7199 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: misc
• Appeal Filed On: 10-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RUNI PAL JCIT DHK
• Keywords: Proportionate interest
• Section: 40(b); 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA -@ ITA NO. 483/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2014-15 M/S SHREE BHAGWATI UDHYOG, B-50, OLD INDUSTRIAL AREA, BHARATPUR (RAJ)-321001. C UKE VS. I.T.O., WARD-1, BHARATPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAUFS 2028 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKS J LS @ ASSESSEE BY: SHRI ROHAN SOGANI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18/09/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 18/10/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15/01/2018 OF LD. CIT(A), ALWAR FOR THE A.Y. 2014-15. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN DISALLOWING RS. 12,90,910/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. THE ACTION OF LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY DELETING THE SAID ADDITION U/S 36(1)(III) OF RS. 12,90,910/-. ITA 483/JP/2018 M/S SHREE BHAGWATI UDHYOG VS ITO 2 2. THE ASSESSEE FIRM CRAVES ITS RIGHTS TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF MUSTARD OIL AND CAKES. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE A.O. NOTED THAT THE ASSESSEE HAS INCURRED AND PAID INTEREST ON LIMIT ACCOUNT, UNSECURED LOANS AND PARTNERS CAPITAL WHEREAS THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LOAN TO VARIOUS PARTIES TOTAL AMOUNTING TO RS. 1,07,57,580/-. THE A.O., ACCORDINGLY, DISALLOWED PROPORTIONATE INTEREST BY APPLYING INTEREST RATE AT 12% PER ANNUM AMOUNTING TO RS. 12,90,910/-. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE THE TRIBUNAL, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE A.O. HAS MADE THE DISALLOWANCE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) WHEREAS THE INTEREST TO PARTNERS ARE ALLOWED U/S 40(B) OF THE ACT, THEREFORE, TO THE EXTENT OF THE PARTNERS CAPITAL, NO DISALLOWANCE CAN BE MADE U/S 36(1)(III) OF THE ACT GIVING INTEREST FREE ADVANCES. THE LD AR HAS THUS SUBMITTED THAT THE ASSESSEES OWN FUND IS SUFFICIENT TO GIVE THESE ADVANCES, HENCE, NO DISALLOWANCE OF INTEREST IS WARRANTED. ITA 483/JP/2018 M/S SHREE BHAGWATI UDHYOG VS ITO 3 4. ON THE OTHER HAND, THE LD DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ONLY OBJECTION AND CONTENTION RAISED BY THE ASSESSEE AGAINST THE DISALLOWANCE IS THAT THE INTEREST TO PARTNERS IS ALLOWED U/S 40(B) OF THE ACT, THEREFORE, NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 36(1)(III) OF THE ACT. IT IS PERTINENT TO NOTE THAT THE ENTIRE FUND OF THE PARTNERSHIP FIRM IS INTEREST BEARING FUND AND THERE IS NO INTEREST FREE OWN FUND OF THE PARTNERSHIP FIRM. THE ASSESSEE HAS NOT DISPUTED THAT THE CAPITAL OF THE PARTNERS IN THE ASSESSEE FIRM IS INTEREST BEARING FUND AND THEREFORE, THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE ARE BY UTILIZING THE INTERTEST BEARING FUNDS OF THE PARTNERSHIP FIRM. ACCORDINGLY, WHEN THE INTEREST RATE AT 12% IS NOT IN DISPUTE THEN THE DISALLOWANCE MADE BY THE A.O. BY APPLYING THE SAID RATE OF INTEREST IS JUSTIFIED. SECTION 40(B) OF THE ACT IS NOT AN ENABLING SECTION FOR ALLOWING THE INTEREST BUT IT IS A RESTRICTIVE SECTION GIVING THE OUTER LIMIT OF PAYMENT OF INTEREST TO THE PARTNERS. THEREFORE, THE DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCE CANNOT BE CONSIDERED IN THE LIGHT OF SECTION 40(B) OF THE ACT BUT THE A.O. HAS RIGHTLY DISALLOWED THE SAID INTEREST BY CONSIDERING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. ITA 483/JP/2018 M/S SHREE BHAGWATI UDHYOG VS ITO 4 EVEN OTHERWISE THE AMOUNT WHICH WAS USED BY THE ASSESSEE FOR INTEREST FREE ADVANCES THEN THE CORRESPONDING INTEREST EXPENDITURE WOULD NOT BE CONSIDERED AS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. THUS, EVEN AS PER PROVISIONS OF SECTION 37(1) OF THE ACT, THE INTEREST EXPENDITURE TO THE EXTENT OF INTEREST BEARING FUND GIVEN WITHOUT ANY INTEREST IS NOT AN ALLOWABLE EXPENDITURE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH OCTOBER, 2019. SD/- FOT; IKY JKO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 18 TH OCTOBER, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S SHREE BHAGWATI UDHYOG, BHARATPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE I.T.O., WARD-1, BHARATPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) ITA 483/JP/2018 M/S SHREE BHAGWATI UDHYOG VS ITO 5 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 483/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR