RAM GOPAL SARRAF, Jaipur V. DCIT, Jaipur

ITA 549/JPR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4915 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DR DHK
• Keywords: Business income

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 HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 549/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 SHRI RAM GOPAL SARRAF KHANDA BAI JI, MANAK CHOWK JAIPUR CUKE VS. THE DCIT CENTRAL CIRCLE- 2 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AHNPS 6705 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI P.C. PARWAL, CA JKTLO DH VKSJ LS@ REVENUE BY :SMT. POONAM RAI, DCIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 8/11/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 9 /11/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 25-03-2015 FOR THE ASSESSMENT YEAR 2009-10 RAISING THEREIN FOLLOWING GROUND:- (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) IS WRONG, UNJUST, AND HAS ERRE D IN LAW IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISAL LOWING DEDUCTION OF INTEREST PAID TO THE EXTENT OF RS. 12 ,50,213/- FROM INTEREST RECEIVED ON CAPITAL ACCOUNT IN PARTNE RSHIP FIRM ALLEGEDLY ON THE GROUND THAT INTEREST PAID ON LOAN CANNOT BE ADJUSTED FROM THIS INCOME. ITA NO. 549/JP/2015 SHRI RAM GOPAL SARAF VS. DCIT, CENTRAL CIRCLE- -2, JAIPUR . 2 2.1 THE ISSUE IN QUESTION AS EMERGES FROM THE LD. C IT(A)S ORDER IS AS UNDER:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT AN AMOUNT OF RS. 12,50,213/- HAS BEEN ADDED BY THE AO TO THE INCOME OF THE APPELLANT ON ACCOUNT OF INTEREST REC EIVED FROM PARTNERSHIP FIRM ON CAPITAL ACCOUNT BALANCE. AO HA S STATED THAT NO INCOME WAS FOUND TO HAVE BEEN DECLARED IN T HE COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM BU SINESS ON ACCOUNT OF INTEREST RECEIVED ON CAPITAL ACCOUNT BALANCE FROM THE FIRM. IT IS FURTHER STATED THAT AS PER THE PROVISIONS OF SECTION 40(B)(IV) OF THE I.T. ACT THE INTEREST RECE IVED BY A PARTNER FROM THE FIRM ON CAPITAL ACCOUNT BALANCE IS AN INCOME FROM BUSINESS. 4.4 THE APPELLANT HAS JUSTIFIED THE NON-DISCLOSURE OF RECEIPT OF INCOME ON THE GROUND THAT HE HAS RECEIVE D INTEREST ON ADVANCES GIVEN TO OTHER PERSONS AND FROM FIRMS A S INTEREST ON CAPITAL AMOUNTING TO RS. 1,41,58,454/- AND HAS P AID INTEREST OF RS. 1,42,99,180/- DURING THE PERIOD UND ER CONSIDERATION. THESE INTEREST RECEIPTS AND PAYMENTS HAVE BEEN DECLARED UNDER THE HEAD INCOME FROM OTHER SOUR CES. THE NET INTEREST PAID WAS NOT CLAIMED IN THE COMPUT ATION OF INCOME. THE TOTAL INTEREST RECEIVED BY THE APPELLA NT FIRM IS OF RS. 12,50,213/-. THE CAPITAL INVESTMENT IN THE F IRMS HAS BEEN MADE OUT OF FUNDS BORROWED ON INTEREST AND THE REFORE, THERE IS NO NET INCOME LEFT. 4.5 HAVING CONSIDERED THE MATERIAL PLACED ON RECORD INCLUDING THE COPY OF LEDGER ACCOUNT FILED B Y THE APPELLANT, I FIND THAT APPELLANT HAS FAILED TO MAKE DISCLOSURE OF INTEREST EARNED ON CAPITAL ACCOUNT BALANCES IN T HE FIRMS UNDER THE HEAD INCOME FROM BUSINESS. UNDER THE PROV ISIONS OF INCOME TAX ACT, ANY REMUNERATION EARNED BY THE P ARTNER INCLUDING INTEREST ON CAPITAL ACCOUNT BALANCE FROM THE FIRM HAS TO BE TREATED AS INCOME FROM BUSINESS. THE INTE REST ON MONEY BORROWED FOR THE SAME CAN BE CONSIDERED FOR ITA NO. 549/JP/2015 SHRI RAM GOPAL SARAF VS. DCIT, CENTRAL CIRCLE- -2, JAIPUR . 3 DEDUCTION, ONLY IF THE NEXUS OF FUNDS BORROWED AND FUNDS INVESTED IN THE FIRM CAN BE PROVED. HOWEVER, IN THI S CASE, THE APPELLANT HAS TRIED TO CAMOUFLAGE THIS INCOME FROM FIRMS WITH THE INTEREST RECEIVED ON LOANS AND ADVANCES AN D INTEREST PAID UNDER THE HEAD INCOME FROM OTHER SOURCES. THER EFORE, I DO NOT FIND ANY FORCE IN THE CONTENTIONS OF THE APP ELLANT AND ACCORDINGLY HOLD THAT AN INCOME OF RS. 12,50,213/- RECEIVED ON ACCOUNT OF INTEREST FROM FIRMS HAS NOT BEEN DEC LARED BY THE APPELLANT. 4.6 IN VIEW OF THE ABOVE FACTS, I CONFIRM AN ADDITI ON OF RS. 12,50,213/- MADE BY THE AO UNDER THIS HEAD. 2.2 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 12,50,213/- MADE BY THE AO FOR WHICH THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION AND THE RELEVANT PARA OF HIS SUBMISSION IS AS UNDER:- IT IS SUBMITTED THAT THERE IS NO DISPUTE THAT INT EREST FROM PARTNERSHIP FIRM IS TO BE ASSESSED AS INCOME FROM BUSINESS. HOW EVER, INTEREST PAID ON ANY BORROWING OBTAINED FOR MAKING INVESTMENT IN THE CAP ITAL WITH THE FIRM IS ALLOWABLE AS DEDUCTION AGAINST THE INTEREST RECEIVE D FROM THE FIRM. THIS HAS BEEN ACCEPTED BY CIT(A). ASSESSEE HAS ESTABLISHED T HE NEXUS OF BORROWED FUNDS WITH THE INVESTMENT IN THE CAPITAL OF THE FIR M. CIT(A) HAS NOT FOUND ANY DISCREPANCY IN THE CONTENTION OF THE ASSESSEE NOR H AS GIVEN ANY FINDING AGAINST THE EXPLANATION OF THE ASSESSEE. HE WITHOUT ANY BAS IS HAS HELD THAT ASSESSEE HAS TRIED TO CAMAFLOUGE HIS INCOME BY WAY OF INTERE ST FROM THE FIRM. HENCE, THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MAD E BY THE AO BY NOT DIRECTING HIM TO ALLOW THE DEDUCTION ON ACCOUNT OF INTEREST PAID FOR EARNING INTEREST INCOME ON THE CAPITAL INVESTED WITH THE FI RM. THUS THE ADDITION CONFIRMED BY THE CIT(A) BE DIRECTED TO BE DELETED. 2.3 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHOR ITIES. 2.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THIS CASE THE AO OBSERVED T HAT SCRUTINY DETAILS OF ITA NO. 549/JP/2015 SHRI RAM GOPAL SARAF VS. DCIT, CENTRAL CIRCLE- -2, JAIPUR . 4 INTEREST RECEIVED REVEALED THAT THE ASSESSEE HAD RE CEIVED RS. 12,50,213/- FROM FOLLOWING TWO FIRMS AS INTEREST ON CAPITAL OF THE ASSESSEE. (A) M/S. SHREE GANPATI CONSTRUCTION RS. 75,0 00/- (B) M/S. MANGLAM LAND BANK CO. RS. 11,75,213/ RS. 12,50,213/- AS PER PROVISION OF SECTION 40(B)(IV) OF THE ACT, T HE INTEREST RECEIVED FROM PARTNERSHIP FIRM ON CAPITAL IS A BUSINESS INCO ME. THE AO FURTHER OBSERVED IN THE INSTANT CASE THAT THE ASSESSEE HAD RECEIVED INTEREST FROM PARTNERSHIP FIRM ON CAPITAL INVESTED IN THEM BUT IT HAS NOT BEEN SHOWN IN COMPUTATION STATEMENT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE INTEREST PAID ON LOANS CANNOT BE ADJUSTED FROM BUSINESS INCOME AND INTEREST RECEIVED ON LOANS AND INVESTMEN TS CAN BE SET OFF AGAINST THE INTEREST PAID ON LOANS. . THE AO FINALL Y ADDED THE SUM OF RS. 12,50,213/- TO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO WITH THE ABOVE OBSERVATIONS IN HIS ORDER. IT IS NOTED THAT THE ASSESSEE HAD RECEIVED RS. 12,50,213/- AS INTERE ST FROM TWO FIRMS NAMELY M/S. SHREE GANPATI CONSTRUCTION I.E. RS. 75, 000/- AND M/S. MANGLAM LAND BANK CO. I.E. RS. 11,75,213/- ON CAPIT AL BALANCES. AS PER PROVISIONS OF SECTION 40(B)(IV) OF THE ACT, THE INT EREST RECEIVED FROM PARTNERSHIP FIRM IS TO BE TAXED AS BUSINESS INCOME. HOWEVER, THE ASSESSEE HAS SHOWN THE SAME AS INCOME FROM OTHER SOURCES. IN MY CONSIDERED ITA NO. 549/JP/2015 SHRI RAM GOPAL SARAF VS. DCIT, CENTRAL CIRCLE- -2, JAIPUR . 5 VIEW, THE INTEREST INCOME RECEIVED FROM PARTNERSHIP FIRM ON CAPITAL BALANCES IS TO BE TAXED UNDER THE PROFIT AND GAINS OF BUSINESS OR PROFESSION AND FOR CLAIMING THE DEDUCTION OF INTERE ST PAID BY THE ASSESSEE, IT HAS TO ESTABLISH THE NEXUS OF BORROWED FUNDS AN D THE FUNDS INVESTED AS CAPITAL IN THE FIRMS. THE LD. CIT(A)S OBSERVATION IN THIS REGARD IS TO BE UPHELD THAT THERE MUST BE NEXUS IN BORROWED FUND ON WHICH INTEREST PAID AND INTEREST EARNED IN CAPITAL WITH FIRMS. THE ASSE SSEE HAS SUBMITTED IN HIS WRITTEN REPLY BEFORE THE LD. CIT(A) THAT THERE IS A DIRECT NEXUS OF BORROWED FUNDS AND INTEREST EARNED ON CAPITAL BALAN CES WITH THE FIRM. THE ASSESSEE HAS SUBMITTED THAT IN THE PARTNERSHIP FIRM M/S. MANDLAM LAND BANK COMPANY, BORROWED FUNDS FROM SHRI RAM BABU AGA RWAL OF RS. 50.00 LACS ON 9-06-2007 AND RS. 40 LACS ON 9-08-200 7 WERE DIRECTLY INVESTED. FURTHER, BORROWED FUNDS OF RS. 30 LACS F ROM SHRI OM PRAKASH MIYAN BAJAJ WAS DIRECTLY INVESTED IN THE FIRM M/S. GANPATI CONSTRUCTION ON WHICH INTEREST WAS EARNED. THE LD. CIT(A) HAS NO T CONSIDERED THIS ASPECT OF SUBMISSIONS. THEREFORE, IN THE INTEREST O F JUSTICE AND EQUITY, I FOUND IT APPROPRIATE TO RESTORE THE ISSUE TO THE FI LE OF THE AO TO VERIFY WHETHER THE LOAN RECEIVED FROM SHRI RAM BABU AGARWA L OF RS. 50 LACS ON 9-6-2007 AND RS. 40 LACS ON 9-08-2007 WERE INVESTED IN THE PARTNERSHIP FIRM M/S. MANGLAM LAND BANK CO. AS CAPITAL AND LOAN AMOUNT OF ITA NO. 549/JP/2015 SHRI RAM GOPAL SARAF VS. DCIT, CENTRAL CIRCLE- -2, JAIPUR . 6 RS. 30 LACS RECEIVED FROM SHRI OM PRAKASH MIYAN BA JAJ WAS INVESTED IN M/S. GANPATI CONSTRUCTION AS CAPITAL. IF THE DIRECT NEXUS IS ESTABLISHED THEN ASSESSEE'S CLAIM FOR PAYMENT OF INTEREST ON TH E BORROWED FUNDS INVESTED IN THE CAPITAL ACCOUNT SHALL BE ALLOWED OT HERWISE NOT. FOR THIS PURPOSE, THE MATTER IS RESTORED TO THE FILE OF THE AO TO DECIDE IT ACCORDINGLY AS INDICATED ABOVE. THUS THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9/11/20 16 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 9 /11/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI RAM GOPAL SARAF, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE DCIT, CENTRAL CIRCLE- 2, JAIPU R 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 549/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR