SMRUDHI ASSOCIATES, MUMBAI V. ITO 23(3)(3), MUMBAI

ITA 6653/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1431 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 6653/MUM/2014 : (A.Y : 2010 - 11) M/S. SAMRUDHI ASSOCIATES, B - 5, MOTIVIHAR, N.S.B. ROAD, MULUND (WEST), MUMBAI - 80 PAN : AABFS3379R ( APPELLANT ) VS. ITO - 23(3)(3), MUMBAI (RESPONDENT) ASSESSEE BY : SHRI M. SUBRAMANIAN REVENUE BY : SHRI B.S. BIST DATE OF HEARING : 19/12/2016 DATE OF PRONOUNCEMENT : 23 /12/2016 O R D E R PER P.K. BANSAL , AM : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 33, MUMBAI DATED 16.7.2014. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO SUSTENANCE OF THE ACTION OF ASSESSING OFFICER BY CIT(A) IN DISALLOWING THE INTEREST AMOUNTING TO RS.14,00,206/ - . 2. THIS APPEAL IS TIME BARRED BY 6 DAYS. AFTER HEARING THE RIVAL SUBMISSIONS, WE CONDONE THE DELAY AS IN OUR OPINION IT IS A FIT CASE FOR CONDONATION OF DELAY. 2 M/S. SAMRUDHI ASSOCIATES ITA NO. 6653/MUM/2014 3 . THE FACTS RELATING TO THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT ASSESSEE HAD DEBITED A SUM OF RS.18,91,324/ - AS INTEREST ON UNSECURED LOANS TOWARDS WORK - IN - PROGRESS ACCOUNT. IT WAS FURTHER NOTED THAT PARTNERS CAPITAL ACCOUNT NAMED SHRI GANESH SI VA THAKUR AND K.S. THAKUR, HUF HAD BEEN DEBITED WITH HUGE WITHDRAWALS AMOUNTING TO RS.1,42,25,000/ - AND RS.1,20,00,000/ - BY THE FIRM RESULTING IN DEBIT BALANCE IN THEIR CAPITAL ACCOUNT AMOUNTING TO RS.2,14,64,488/ - AND RS.74,01,898/ - RESPECTIVELY. THE ASS ESSING OFFICER, THEREFORE, ASKED ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST DEBITED TO WORK - IN - PROGRESS ACCOUNT OF RS.18,91,324/ - SHOULD NOT BE DISALLOWED WHEN THE FIRM HAS NOT CHARGED ANY INTEREST ON THE EXCESS WITHDRAWALS OF ITS PARTNERS. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND, THEREFORE, HE DISALLOWED PROPORTIONATE INTEREST OF RS.14,00,206/ - . WHEN THE MATTER WENT BEFORE CIT(A), CIT(A) ALSO CONFIRMED THE ORDER OF ASSESSING OFFICER. 4 . WE HEARD THE RIVAL SUBMIS SIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF TAX AUTHORITIES BELOW. WE NOTED THAT THERE WAS NO PROVISION IN THE PARTNERSHIP DEED, AS SUBMITTED BY THE LD. AR, THAT THE PARTNERS HAVE TO PAY INTEREST IN CASE OF DRAWINGS MADE FROM THE PARTNE RSHIP FIRM. THE PROVISIONS OF SEC. 40 (B) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WHICH DEALS WITH THE DISALLOWANCE TO BE MADE IN CASE OF ANY FIRM IN RESPECT OF EXPENSES WHICH ARE OTHERWISE ALLOWABLE DOES NOT STATE ABOUT DISALLOWANCE OF ANY INTERE ST ON THE DEBIT BALANCES OF THE PARTNERS, RATHER THE PROVISIONS OF SEC. 40(B)(IV) OF THE ACT ALLOWS PAYMENT OF INTEREST TO THE PARTNERS WHICH IS AUTHORISED BY AND IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED 3 M/S. SAMRUDHI ASSOCIATES ITA NO. 6653/MUM/2014 PROVIDED THE AMOUNT DOES NOT EXCEED T HE AMOUNT CALCULATED @ 12% SIMPLE INTEREST PER ANNUM. SECTION 4 OF THE ACT DEFINES CHARGING OF INCOME FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES AT WHICH THE INCOME TAX SHALL BE CHARGED FOR THAT YEAR. FROM THIS, FOR LEVYING TAX IT IS NECESSARY THAT T HERE MUST BE INCOME IN THE HANDS OF THE ASSESSEE. SEC. 2(24) OF THE ACT DEFINES INCOME. IT NOWHERE TALKS OF SUCH INTEREST ON THE DEBIT BALANCES OF THE PARTNERS TO BE THE INCOME IN THE HANDS OF THE FIRM. EVEN SEC. 5 OF THE ACT , WHICH DEFINES THE SCOPE OF TOTAL INCOME , DOESNT LAY DOWN THAT WHERE THE PARTNERS ARE HAVING DEBIT BALANCE, THERE WILL BE INCOME ACCRUING TO THE PARTNERSHIP FIRM BY WAY OF DEEMING INTEREST. THE LD. DR EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF ASSESSING OFFICER, BUT COULD NO T BRING TO OUR KNOWLEDGE ANY RELEVANT PROVISIONS OF THE ACT UNDER WHICH SUCH INCOME CAN BE ADDED IN THE HANDS OF THE FIRM. IN VIEW OF THIS FACT, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION. 5. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 R D DECEMBER, 2016. SD/ - SD/ - (PAWAN SINGH) JUDICIAL MEMBER ( P.K. BANSAL ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 3 R D DECEMBER, 2016 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4 M/S. SAMRUDHI ASSOCIATES ITA NO. 6653/MUM/2014 4) THE CIT CONCERNED 5) THE D.R, E BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI