ACIT 20(2), MUMBAI V. PAPAER BOX COMPANY OF INDIA, MUMBAI

ITA 747/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9044 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Assessee Lawyers: MANISH SANGHAVI
• Keywords: Business income; Notional interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 747/MUM/2010 (ASSESSMENT YEAR: 2006-07) DCIT - 20(2) M/S. PAPER BOX COMPANY OF INDIA 612, PIRAMAL CHAMBERS PAPER BOX HOUSE, MAHAKALI LALBAUG, MUMBAI 400012 VS. CAVES ROAD, ANDHERI (E) MUMBAI 400093 PAN - AAAFP 4586 C APPELLANT RESPONDENT APPELLANT BY: SHRI P.N. DEVDASAN RESPONDENT BY: SHRI MANISH SANGHAVI O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXI, MUMBAI DATED 09.11.2009 AGAINST RELIEF GRANTED BY T HE CIT(A) WITH REFERENCE TO ADDITION OF ` 15,80,392/- ON ACCOUNT OF NOTIONAL INTEREST ON TEMP ORARY ADVANCE GIVEN BY THE ASSESSEE TO ONE OF ITS PARTNER S. 2. BRIEFLY STATED THE ASSESSEE IS IN THE BUSINESS OF T RADING IN SHARES AND BUSINESS SERVICE CENTRE. IT HAS RECEIVED RENT TO TH E TUNE OF ` 2.10 CRORES AND OFFERED THE INCOME UNDER THE HEAD HOUSE PROPERTY AT ` 1.45 CRORES. ASSESSEE ALSO OFFERED BUSINESS INCOME OF ` 45,751/- AND OTHER INCOMES DURING THE YEAR. A.O. NOTICED THAT OUT OF INTEREST FREE DEPOSI TS RECEIVED FROM LESSEE THE ASSESSEE HAS ADVANCED AN AMOUNT OF ` 1.35 CRORES TO PARTNER MR. MOHAN BHATIA AS INTEREST FREE ADVANCE AND THE SAME HAS BE EN UTILISED BY HIM IN HIS BUSINESS AND NOT IN ASSESSEES BUSINESS. THEREFORE, AFTER ISSUING SHOW CAUSE NOTICE FOR THE AMOUNTS DRAWN IN HIS PARTNERS CAPIT AL ACCOUNT THE A.O. ARRIVED AT THE NOTIONAL INTEREST CALCULATED AT 8% T O ` 15,80,392/- AND BROUGHT TO TAX. ASSESSEE CONTESTED THE SAME AND SUB MITTED THAT NEITHER ANY INTEREST WAS CLAIMED NOR ANY INTEREST WAS CHARGED A NYTIME FROM PARTNERS ITA NO. 474/MUM/2010 M/S. PAPER BOX COMPANY OF INDIA 2 BEING A FAMILY CONCERN ON CASUAL TEMPORARY BORROWIN GS BY THE PARTNERS. IT IS ALSO FURTHER SUBMITTED THAT THE ASSESSEE HAS PAID I NTEREST OF ` 66,333/- ON CAR LOAN AND NO INTEREST HAS BEEN CHARGED TO THE P & L ACCOUNT, THEREFORE, DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) D OES NOT ARISE. IT IS ALSO FURTHER SUBMITTED THAT NOTIONAL INTEREST COULD NOT BE INCLUDABLE IN THE INCOME OF THE ASSESSEE FOLLOWING THE PRINCIPLES LAI D DOWN BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOVIND AGENCIES P. LTD. 295 ITR 290. THE LEARNED CIT(A) CONSIDERED THE SAME AND DEL ETED THE ADDITION SO MADE BY HOLDING AS UNDER: - 3.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE MENTIONED SUBMISSIONS AND ARGUMENTS OF THE AR. THE BASIC FACT S DISCUSSED IN THE ASSESSMENT ORDER ARE NOT DISPUTED BY THE AR. HOWEVE R, HE HAS STRONGLY ARGUED THAT NO INTEREST EXPENDITURE EXCEPT FOR INTE REST ON CAR LOAN OF ` 66,333/- IS DEBITED TO ITS P & L ACCOUNT. ACCORDING TO THE AR, THE ENTIRE INTEREST FREE LOAN GIVEN TO THE PARTNER IS OUT OF I NTEREST FREE DEPOSITS RECEIVED FROM THE TENANTS TO WHOM THE PREMISES WERE LET OUT DURING THE RELEVANT ASSESSMENT YEAR. THE TEMPORARY ADVANCE GIV EN BY THE APPELLANT TO ITS PARTNER WAS A FAMILY ARRANGEMENT A ND IT WAS NOT A BUSINESS LOAN GIVEN FOR THE PURPOSE OF EARNING ANY INTEREST. FROM THESE UNDISPUTED FACTS OF THE CASE, SINCE NO INTEREST EXP ENDITURE IS CLAIMED IN ITS P & L ACCOUNT, I FIND THAT THE AO IS NOT JUSTIF IED IN MAKING ADDITION ON NOTIONAL INTEREST AS DISCUSSED IN THE ASSESSMENT OR DER. THERE IS NOTHING ON RECORD TO ESTABLISH THAT THE APPELLANT HAS MADE ADVANCES TO ITS PARTNERS ON WHICH INTEREST IS CHARGED OR RECEIVED. THE SAME IS THEREFORE DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 3. THE LEARNED D.R. SUBMITTED THAT THE CIT(A) WAS NOT CORRECT IN DELETING THE AMOUNT AS ASSESSEE HAS ADVANCED FUNDS WITHOUT A NY INTEREST TO PARTNER AND WITHOUT EXAMINING THE PARTNERSHIP DEED, ACTION OF THE A.O. CANNOT BE REVERSED. 4. THE LEARNED COUNSEL IN REPLY SUBMITTED THAT THE MON EY WAS NOT ADVANCED TO ANY PARTNER AND REFERRED TO THE 3CD REP ORT PLACED IN THE PAPER BOOK TO SUBMIT THAT MOHAN BHATIYA (HUF) IS THE PART NER WHEREAS THE AMOUNT WAS ADVANCED TO SHRI MOHAN BHATIA, INDIVIDUA L AND THEREFORE THE QUESTION OF DISALLOWANCE OR BRINING ADDITION DOES N OT ARISE ON THE FACTS OF THE CASE. 5. WE HAVE CONSIDERED THE ISSUE AND RIVAL CONTENTIONS AND EXAMINED THE PAPER BOOK PLACED ON RECORD. SCHEDULE B OF THE 3C D REPORT DO INDICATE THAT ITA NO. 474/MUM/2010 M/S. PAPER BOX COMPANY OF INDIA 3 THE PARTNERS ARE SHRI GANESH MAHARAJ, NOTIONAL PART NER, SHRI MOHAN BHATIYA (HUF) AND SHRI KAMAL BHATIA. HOWEVER, THE A .O. HAS GIVEN A FINDING THAT THE AMOUNTS HAVE BEEN WITHDRAWN BY THE PARTNER . EVEN BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED IN WRITING THAT T HE AMOUNTS WERE DRAWN BY PARTNER AS INTEREST FREE ADVANCE IN THE STATEMEN T OF FACTS. THERE SEEMS TO BE NO VERIFICATION ON THIS ASPECT EITHER BY THE A.O . OR BY THE CIT(A). IN THE ABSENCE OF ANY FINDING WHETHER THE MONIES WERE ADVA NCED TO THE PARTNER HUF OR TO THE INDIVIDUAL IT IS NOT POSSIBLE TO CONS IDER ASSESSING OFFICER ACTION. EVENTHOUGH THE ASSESSEE HAS NOT CLAIMED ANY INTEREST THE UTILIZATION OF FUNDS AND CHARGING OF INTEREST ARE TWO ASPECTS W HICH ARE REQUIRED TO BE EXAMINED VIS--VIS THE TERMS OF PARTNERSHIP DEED (W HETHER PARTNERS ARE LIABLE TO PAY INTEREST IF FUNDS ARE DRAWN AND ALSO THE CIRCUMSTANCES IN WHICH THE INTEREST FREE DEPOSITS WERE AVAILABLE WITH THE ASSESSEE). AS RIGHTLY HELD BY VARIOUS HIGH COURTS NOTIONAL INTEREST CANNOT BE BROUGHT TO TAX UNLESS THE TERMS OF THE PARTNERSHIP DEED PERMITS CHARGING OF I NTEREST ON THE MONIES DRAWN BY THE PARTNERS. SINCE THERE IS CONFUSION ABO UT THE PERSON STATUS WHO TOOK THE MONEY FROM THE FIRM AND IN CASE THE MO NIES ARE DRAWN BY THE PARTNER WHETHER THE PARTNERSHIP DEED PERMITS LEVY O F INTEREST OR NOT ARE THE ASPECTS REQUIRE EXAMINATION BY THE A.O. IN VIEW OF THIS, WITHOUT GOING INTO THE MERITS OF THE ACTION OF THE A.O. AND THE CIT(A) , WE SET ASIDE THE ORDERS ON THE ISSUE AND RESTORE IT BACK TO THE A.O. TO EXA MINE THE PARTNERSHIP DEED AND THE STATUS OF THE PERSON WHO TOOK THE MONIES AS INTEREST FREE AND DECIDE ACCORDINGLY. THE ISSUE IN THIS REVENUE APPEAL IS RE STORED TO THE FILE OF THE A.O. 6. IN THE RESULT, APPEAL IS TREATED ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JANUARY 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 5 TH JANUARY 2011 ITA NO. 474/MUM/2010 M/S. PAPER BOX COMPANY OF INDIA 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI, MUMBAI 4. THE CIT XX, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.