M/s. Joti Pershad Jagan Nath, Delhi V. JCIT, New Delhi

ITA 914/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81742 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRITHVI RAJ MEENA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY : JUDICIAL MEMBER ITA NO. 914 /DEL/201 2 ASSTT. YR: 200 8 - 09 M/S JOTI PERSHAD JAGAN NATH VS. JCIT RANGE - 28, 6052, KHARI BAOLI, NAYA BANS, NEW DELHI. DELHI - 110006. PAN: AABFJ 1494 L ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : S HRI ANOOP SHARMA ADV. ASSESSEE BY : SHRI PRITHVI RAJ MEENA DR DATE OF HEARING : 25 - 09 - 2014 DATE OF ORDER : 29 - 09 - 2014. O R D E R PER S.V. MEHROTRA, A.M: - TH IS APPEAL, PREFERRED BY THE ASSESSEE , IS DIRECTED AGAINST THE ORDER DATED 26 - 12 - 2011 PASSED BY THE LD. CIT(A) - XX V, NEW DELHI, RELATING TO A.YR. 200 8 - 09 . 2. BRIEF FACTS OF THE CASE ARE THAT FOR THE ASSESSMENT YEAR 2008 - 09 THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF KHAL . IT HAD FILED ITS RETURN OF INCOME DECLARING NIL INCOME. THE PURCHASES WER E MADE FROM ONLY ONE PARTY I.E. M/S DEEPAK OIL MILLS A ND THEN IT WAS SOLD TO VARIOUS DAIRY OWNERS. THE AO POINTED OUT THAT ASSESSEE HAD CLAIMED THE STATUS OF REGISTERED FIRM . HOWEVER, TAKING NOTE OF THE FACT THAT THERE WERE TWO MINOR PARTNERS WHO BECAME MAJOR IN 1992 - 93 AND NO AGREEMENT WAS DRAWN AMONGST THE PARTNERS EVIDENCING EFFECT OF THE ABOVE CHANGES I.E. CONVERSION OF MINOR PARTNER INTO MAJOR, THE ASSESSMENT WAS COMPLETED IN THE STATUS OF AOP. THE AO NOTICED THAT IN THE BALANCE - SHEET 2 ITA NO. 914/D/12 OF THE KANODIA OIL MILLS A SUM OF RS. 50,00,000/ - HAD BEEN SHOWN AS A MOUNT RECEIVED FROM M/S DEEPAK OIL MILLS AS SECURITY AGAINST THE PERMISSION TO USE THE TRADEMARKS OF KANODIA BRAND BY M/S DEEPAK OIL MILLS . HE NOTED THAT THIS DEPOSIT ALONG WITH OTHER DEPOSITS TOTALING TO RS. 59,89,620/ - HAD BEEN SHOWN AS PAID TO M/S JO TI PERSHAD JAGAN NATH (PVT.) LTD. = RS. 22,08,397/ - ; AND KANAIYA LAL KANODIA & SONS (HUF) RS. 38,37,598/ - . HE, THEREFORE, OBSERVED THAT THE SUM OF RS. 59,89,620/ - WAS TRANSFERRED TO M/S JOTI PERSHAD JAGAN NATH (PVT.) LTD. AND KANAIYA LAL KANODIA & SONS (H UF) WITHOUT TAKING ANY BENEFIT FROM THE SAME. HE POINTED OUT THAT HAD THIS AMOUNT BEEN KEPT IN THE BANK ACCOUNT, THE ASSESSEE WOULD HAVE EARNED INTEREST, WHICH WOULD HAVE BEEN THE INCOME OF THE ASSESSEE. APPLYING THE BANK RATE OF 9%, HE DETERMINED THE INT EREST INCOME AT RS. 5,39,066/ - AND MADE THE ADDITION OF THE SAME AMOUNT. 2.1. BEFORE LD. CIT(A), THE ASSESSEE HAD SUBMITTED THAT ON IDENTICAL FACTS FOR A.Y. 2007 - 08, THE LD. CIT(A) HAD DELETED THE ADDITION. HOWEVER, LD. CIT(A) DID NOT ACCEPT THE ASSESSEE S CONTENTION AND POINTED OUT THAT THE FACTS WERE DIFFERENT IN EARLIER YEARS. HE CONFIRMED THE ADDITION MADE BY AO, INTER ALIA, OBSERVING THAT THE MONEY HAD BEEN OVER DRAWN BY TWO OF THE PARTNERS, NAMELY, M/S JOTI PERSHAD JAGAN NATH (PVT.) LTD. = RS. 22,08, 397/ - ; AND KANAIYA LAL KANODIA & SONS (HUF) RS. 38,37,598/ - . . 2.2. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE CIT(APPEALS) GROSSLY ERRED IN FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE AO ASSESSING THE INCOME OF THE APPELLATE AT RS. 5,39,065.00. 2. THAT THE LD. COMMISSIONER OF INCOME TAX GROSSLY ERRED ON FACTS AND IN LAW IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER NOT ACCEPTING THE LOSS OF RS. 46310.00 INCURRED BY THE APPELLANT ON THE SALE OF PROPERTY SITUATED AT 6052, NAYA BANS, DELHI - 6. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED ON FACTS AND IN LAW IN SUSTAINING THE ADDITION OF RS. 3 ITA NO. 914/D/12 5,39,065.00 BEING NOTIONAL INCOME OF RS. 539065.00 BEING 9% OF A SUM OF RS. 59 ,89,620.00 SHOWN BY THE APPELLANT AS RECEIVED AN ASSET FROM M/S DEEPAK OIL MILLS. 3. LD. COUNSEL REFERRED TO THE ORDER OF LD. CIT(A) FOR A.Y. 2007 - 08 (PAGE 93 ONWARDS OF PB) AND POINTED OUT THAT LD. CIT(A) IN PARA 6.3 OF HIS ORDER, INTER ALIA, OBSERVED THAT DEBIT BALANCES IN THE PARTNER S ACCOUNT WAS ON ACCOUNT OF LOSS INCURRED BY THE ASS ESSEE FIRM AND NOT BECAUSE OF OVER DRAWING OF MONEY FROM THE ASSESSEE FIRM. LD. COUNSEL FURTHER REFERRED TO PAGE S 19 & 47 OF THE PB TO DEMONSTRATE THAT SHARE OF THE LOSS HAD BEEN CREDITED TO PARTN E R S ACCOUNT FOR THE YEAR ENDING 31 - 3 - 2006 & 31 - 3 - 2007 RESPE CTIVELY AS UNDER: PARTNERS CAPITAL A/C OP. BALANCE ADDITION SHARE OF PROFIT/ LOSS THE YEAR WITHDRAWALS DURING THE YEAR CLOSING BALANCE JOTI PERSHAD JAGAN NATH PVT. LTD. ( 1675843.91 ) - ( 743670.86 ) 5000.00 ( 2424514.77 ) KANHYLAL KANODIA & SONS (HUF) ( 3234455.93 ) - ( 594936.70 ) 132500.00 ( 3961892.63 ) SH. LALIT KANODIA 109647.11 - ( 74367.09 ) - 35280.02 SH. ABHISHEK KANODIA 14460.69 - ( 74367.09 ) - 70093.60 ( 4656192.04 ) NIL ( 1487341.74 ) 137500.00 ( 6281033.70 ) PARTNERS CAPITAL A/C OP. BALANCE ADDITION SHARE OF PROFIT/ LOSS THE YEAR WITHDRAWALS DURING THE YEAR CLOSING BALANCE JOTI PERSHAD JAGAN NATH PVT. LTD. ( 2424514.77 ) - 4172.42 ( 2000.00 ) ( 2422342.35 ) KANHYLAL KANODIA & SONS (HUF) ( 3961892.63 ) - 3337.94 ( 3900.00 ) ( 3997554.69 ) SH. LALIT KANODIA 35280.02 - 417.24 ( 2000.00 ) 33697.26 SH. ABHISHEK KANODIA 70093.60 - 417.24 ( 2000.00 ) 68510.84 ( 6281033.78 ) NIL 8344.84 ( 45000.00 ) ( 63176688.94 ) 4 ITA NO. 914/D/12 3.1. LD. COUNSEL FURTHER REFERRED TO PAGE 21 OF THE PB WHEREIN BALANCE - SHEET AS ON 31 - 3 - 2006 IS CONTAINED, TO DEMONSTRATE THAT THE AMOUNT WAS TAKEN FROM M/S DEEPAK OIL MILLS AS UNSECURED LOAN, WHICH WAS INTEREST FREE DEPOSIT. 4. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED LAW THAT NO ADDIT ION CAN BE MADE ON ACCOUNT OF NOTIONAL INTEREST UNLESS THERE WAS PROVISION IN THE PARTNERSHIP DEED FOR CHARGING INTEREST ON THE DEBIT BALANCES OF THE PARTNERS. THERE IS NO FINDING BY REVENUE AUTHORITIES ON THIS COUNT. THEREFORE, WE RESTORE THIS MATTER TO T HE FILE OF AO FOR VERIFICATION WHETHER THERE IS ANY PROVISION IN THE PARTNERSHIP DEED FOR CHARGING INTEREST ON THE DEBIT BALANCES OF PARTNERS. IN CASE AO FINDS ANY SUCH PROVISION IN THE PARTNERSHIP DEED, THEN HE HAS TO FURTHER EXAMINE WHETHER THE DEBIT BA LANCES ARE CONSTITUTED FROM THE LOSSES TO THE FIRM OR ARE RELATABLE TO THE DEPOSIT KEPT BY DEEPAK OIL MILLS WITH THE ASSESSEE. THE THIRD ASPECT, WHICH NEEDS TO BE EXAMINED, IS WHET HER THE DEPOSIT KEPT BY DEEPAK OIL MILLS IS INTEREST BEARING OR NOT. IN CASE IT IS FOUND THAT THE DEPOSIT WAS NOT INTEREST BEARING THEN , IN ANY VIEW OF THE MATTER, NO ADDITION CAN BE MADE ON ACCOUNT OF NOTIONAL INTEREST. WE ORDER ACCORDINGLY. 5. IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSE ONLY. ORDER PR ONOUNCED IN OPEN COURT ON 29 - 09 - 2014. SD/ - SD/ - ( A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 - 09 - 2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR