ACIT, Alwar V. M/S LAKHANI SHOES CO. PVT. LTD., Alwar

ITA 928/JPR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62037 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 03-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: S C VASUDEVA
• Keywords: Notional interest; Tax effect
• Section: 69; 148

Judgement Text

1 ITA 928(6)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH : B JAIPUR. BEFORE SHRI R.K. GUPTA & SHRI SANJAY ARORA ITA NO. 928 TO 930/JP/2011 ASSTT. YEAR : 2002-03 TO 04-05. THE ACIT, CIRCLE-2, VS. M/S. LAKHANI SHOES CO. P VT. LTD., ALWAR. A-56-57, PHASE-I, INDUSTRIAL AREA, BHIWADI, DIST. ALWAR. (APPELLANT) (RESPONDENT) C.O. NOS. 38 TO 40/JP/2012 ( ARISING OUT OF ITA NOS. 928 TO 930/JP/2011 ) ASSTT. YEARS : 2002-03 TO 04-05. M/S. LAKHANI SHOES CO. PVT. LTD., VS. THE ACIT, CI RCLE-2, BHIWADI, DIST. ALWAR. ALWAR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : SHRI S.C. VASUDEVA DATE OF HEARING : 26.06.2012. DATE OF PRONOUNCEMENT : ORDER DATE OF ORDER :____/ /2012. PER BENCH : THESE ARE THREE APPEALS BY THE DEPARTMENT AND THRE E CROSS OBJECTIONS BY THE ASSESSEE RELATING TO ASSESSMENT YEARS 2002-03 TO 04 -05. 2 2. IN APPEAL FOR ASSESSMENT YEAR 2002-03, THE DEPAR TMENT IS OBJECTING IN DELETION OF ADDITION OF RS. 21,80,880/- ON ACCOUNT OF UNEXPLAIN ED INVESTMENT UNDER SECTION 69 OF THE IT ACT. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS FOR A2SSESSMENT YEAR 2005-06 IT WAS NOTICED THAT THE AS SESSEE HAS SOLD THREE IMMOVABLE PROPERTIES I.E. PLOT NO. 118/21A, 479/21C AND 116/2 1C AT FARIDABAD FOR A TOTAL SUM OF RS. 52,50,000/- AND DECLARED LONG TERM CAPITAL GAIN AT RS. 18,97,028/- (52,50,000 33,52,972) AFTER DEDUCTING THE COST OF INDEX RS. 11 ,72,092/-, AND COST OF IMPROVEMENT OF RS. 21,80,880/-. IT HAD OBSERVED DURING ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005-06 THAT THE CONSTRUCTION ON THESE PLOTS WERE N OT ACTUALLY COMPLETED IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2005-06 AS CLAIMED BY THE ASSESSEE AND DEBITED RS. 21,80,880/- AS SUCH EXPENSES BUT QUITE EARLIER, THI S FACT IS EVIDENT FROM AN APPLICATION DATED 27.12.2001 BY SHRI P.D. LAKHANI ON BEHALF OF M/S. LAKHANI SHOES COMPANY LTD. FURNISHED TO THE JOINT COMMISSIONER, MUNICIPAL CORP ORATION, FARIDABAD. THEREFORE, IT SHOWED THAT THE EXPENSES ON IMPROVEMENT OF THE PROP ERTIES WERE INCURRED DURING FINANCIAL YEAR 2001-02 RELEVANT TO ASSESSMENT YEAR 2002-03, AND COPY OF SALE DEED FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005-06 ALSO EVIDENT THAT THE CONSTRUCTION WAS COMPLETED EARLIER TO THE ASSESSMENT YEAR 2005-06. ON THIS BASIS AFTER RECORDING REASONS FOR REOPENING THE CASE, AND OBTAINING APPROVAL FROM WORTHY CIT, ALWAR VIDE LETTER NO. 340 6 DATED 23.03.2009, NOTICE UNDER SECTION 148 WAS ISSUED ON 24.03.2009 WHICH WAS DULY SERVED UPON THE ASSESSEE ON 26.03.2009. 3 3.1. THEREAFTER THE ASSESSING OFFICER HELD THAT THE COST OF IMPROVEMENT TO THREE PLOTS VIA PLOT NO. 479/21C AND PLOT NO. 116/21C WERE COMP LETED IN THE RELEVANT PREVIOUS YEAR. THE ASSESSING OFFICER HAS RELIED ON THE APPLICATION MADE FOR OBTAINING THE CERTIFICATE OF COMPLETION IN THE RELEVANT ASSESSMENT YEAR WITHOUT GOING INTO THE FACT THAT ASSESSEE HAD MADE ADVANCES TO THE CONTRACTOR FOR CONSTRUCTION OF THE BUILDINGS ON THE AFORESAID PLOTS WHICH WERE DULY REFLECTED IN ITS BOOKS OF ACCOUNT. THE BUILDING CONTRACTOR HAD BEEN ENGAGED FOR CONSTRUCTING THE BUILDING WITH MATERIAL . THE CONTRACTOR MR. K.C. GROVER FILED A STATEMENT OF ACCOUNT WHICH DULY CORROBORATED WITH THE STATEMENT OF ADVANCE ACCOUNT OF THE CONTRACTOR MAINTAINED IN THE BOOKS OF ACCOUNT O F THE COMPANY. THESE ACCOUNTS CLEARLY INDICATED THAT THERE WERE RUNNING ADVANCES PAID TO HIM TOWARDS CONSTRUCTION OF BUILDINGS. IT IS ALSO EVIDENT FROM THESE ACCOUNT ST ATEMENTS THAT THE BUILDING WERE COMPLETED IN THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR 2005-06 WHEN HIS ACCOUNT WAS COMPLETELY SQUARED OFF. YEAR-WISE COPIES OF AC COUNT STATEMENT OF SHRI K.C. GROVER FOR THE FINANCIAL YEAR ENDED 2001-02, 2002-203, 200 3-04 AND 2004-05 ARE ENCLOSED FOR YOUR READY REFERENCE. ALSO ENCLOSED IS A RECONCILI ATION OF THE TOTAL COST OF CONSTRUCTION ALONG WITH THE ADVANCES PAID TO THE CONTRACTOR. IT MAY BE ADDED THAT THE CERTIFICATE OF COMPLETION IS ALWAYS BASED ON THE MINIMUM CONSTRUCT ION WHICH IS REQUIRED TO BE CARRIED OUT FOR THE PURPOSES OF CERTIFICATION AND IT IS NOT ESSENTIAL TO COMPLETE THE ENTIRE BUILDING AT THE TIME OF ISSUANCE OF A COMPLETION CERTIFICATE . IN THIS PERSPECTIVE IF THE AMOUNT OF ADVANCE PAID TO SHRI K.C. GROVER FOR THE FINANCIAL YEAR 31 ST MARCH, 2002 ARE TAKEN INTO ACCOUNT, THE AMOUNT SPENT WOULD BE SUFFICIENT TO CO VER THE COST OF CONSTRUCTION FOR THE PURPOSES OF MAKING AN APPLICATION FOR OBTAINING OF THE COMPLETION CERTIFICATE. 4 4. AS IS REQUIRED BY THE PROVISIONS OF THE ACT QUOT ED HEREIN ABOVE, IT IS ESSENTIAL FOR THE DEPARTMENT TO PROVE THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE RELEVANT PREVIOUS YEAR BEFORE ANY ADDITION CAN BE MADE. THERE IS NOT EVEN A SINGLE INSTANCE QUOTED BY THE ASSESSING OFFICER THAT THE APPLICANT HAD ACTUALLY S PENT THE ALLEGED AMOUNT OF RS. 21,80,880/- IN THE YEAR ENDED 31.03.2002. HE HAS S IMPLY REPLIED ON THE APPLICATION FOR COMPLETION MADE AND THE CERTIFICATE ISSUED BY THE A UTHORITIES. THERE HAS TO BE A POSITIVE PROOF AS TO THE INCURRENCE OF EXPENDITURE BY THE DE PARTMENT SO AS TO COMPLY WITH THE REQUIREMENTS OF SECTION 69 OF THE ACT. HE HAS NOT UNDERSTOOD AND NOT TAKEN INTO ACCOUNT THE ADVANCES TO THE BUILDING CONTRACTOR. THE YEAR- WISE DETAILS OF WHICH ARE ENCLOSED AS AFORESAID IN THE PAPER BOOKS WHICH WOULD GO TO PROV E THAT THE INVESTMENTS TOWARDS THE CONSTRUCTION OF BUILDING HAD BEEN MADE OVER THE VAR IOUS YEARS AND ARE DULY REFLECTED IN THE BOOKS OF ACCOUNT. THE STATEMENT OF ACCOUNT OF BUILDING CONTRACTOR AS FILED BY THE ASSESSEE IS DULY COLLABORATED BY THE STATEMENT OF A CCOUNT FILED BY SHRI K.C. GROVER. THUS THERE WAS NO CONDITION PRECEDENT TO INVOKE THE PROV ISIONS OF SECTION 69 OF THE ACT. IN THIS CONNECTION YOUR KIND ATTENTION IS INVITED TO T HE DECISION OF THE ITAT MUMBAI J BENCH IN CASE OF RUPEE FINANCE AND MANAGEMENT (P) L TD. VS. ACIT (2009) 120 ITD 539 IN WHICH IT WAS HELD THAT SINCE THE ASSESSEE HAD RE CORDED ALL THE INVESTMENTS IN THE BOOKS OF ACCOUNT AND NO AMOUNT WAS PAID IN EXCESS OF WHAT WAS RECORDED IN THE BOOKS, NO ADDITION WAS SUSTAINABLE UNDER SECTION 69 OF THE AC T BECAUSE AS PER THE PROVISIONS OF THE SAID SECTION, ONLY IF THE VALUE OF INVESTMENT IS NO T RECORDED IN THE BOOKS. THEN IT WOULD BE DEEMED TO BE THE INCOME OF THE ASSESSEE. 4.1. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICE R AS WELL AS ORDER OF THE LD. CIT (A) FOR THE ASSESSMENT YEAR 2005-06 ON THE BASIS OF WHICH THE AO HAS REOPENED THE CASE 5 FOR THIS YEAR, THE ASSESSEE HAD GONE INTO APPEAL BE FORE THE ITAT JAIPUR WHO VIDE THEIR ORDER IN ITA NO. 916/JP/2010 DATED 13.04.2011 HAVE REJECTED THE CLAIM OF THE DEPARTMENT AND HAVE ALLOWED THE APPEAL ON THIS GROUND IN FAVOU R OF THE ASSESSEE. 4.2. THE ACIT, CIRCLE-2, BASED ON THE ORDER OF THE ITAT HAVE ALSO PASSED THE ORDER UNDER SECTION 143(3)/250/253 OF THE IT ACT, 1961 WH EREIN IT IS FOUND THAT THE RETURNED INCOME OF THE ASSESSEE HAS BEEN ACCEPTED AND NO DIS ALLOWANCE ON ACCOUNT OF ANY OTHER ISSUE EXCEPT VEHICLE EXPENSES AND TELEPHONE EXPENSE S HAVE BEEN MAINTAINED. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE LD. CIT (A) WAS SATISFIED THAT ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL WHILE DISPOSING THE APPEAL FOR ASSESSMENT YEAR 2005-06 AND ACCORDINGLY HE DELETED THE IMPUGNED ADDITION BY OBSERVING THE FOLLOWING OBSERVATIONS IN PARA 5.3 AT PAGES 5 & 5 :- 5.3. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS OF THE ASSESSEE AND CASES RELIED UPON, THE ASSESSEE HA D BOOKED THESE EXPENSES ASSESSMENT YEAR 2005-06. THE PAYMENT MADE FOR CONS TRUCTION TO SHRI K.C. GROVER HAD BEEN DISCLOSED BY THE ASSESSEE IN B ALANCE SHEET. THERE WAS A CONSTRUCTION ON THESE PLOTS WHICH REVEALS ON THE SALE DEED MADE WITH THE PURCHASER. THE HON'BLE ITAT IN CASE OF ASS ESSEE VIDE ITA NO. 916/JP/201`0 DATED 13.04.2011 HAD ACCEPTED THE ASSE SSEES CLAIM AND OBSERVED AS UNDER :- WE THEREFORE, FEEL THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN INCREASING THE CAPITAL GAIN BY NOT ADMITTING THE IN VESTMENT IN CONSTRUCTION. ACCORDINGLY WE HOLD THAT THE PROFIT ARISING FROM THE SALE OF PLOTS ALONG WITH BUILDING IS TO BE TAXED UN DER THE HEAD CAPITAL GAIN AND COMPUTATION AS SHOWN BY THE ASSESS EE IS REQUIRED TO BE ACCEPTED. THUS THE ADDITION MADE BY THE ASSESSING OFFICER I S DELETED. 6. THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 6 7. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). IT WAS FURTHER STATED THAT ISSUE IS S QUARELY COVERED BY THE ORDER OF TRIBUNAL. IT WAS FURTHER SUBMITTED THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF INVESTMENT MADE IN EARLIER YEAR. THE TRIBUNAL HAS HELD THAT THE CO NSTRUCTION WAS COMPLETED IN ASSESSMENT YEAR 2005-06 AND THEREFORE, THE ADDITION MADE IN TH E YEAR UNDER CONSIDERATION WAS NOT JUSTIFIED. WHILE TAKING THIS VIEW, THE TRIBUNAL HA S ALSO TAKEN INTO CONSIDERATION THE ASPECT OF INVESTMENT MADE IN EARLIER YEAR AT PAGE 6 OF THE ORDER OF THE TRIBUNAL IN ITA NO. 916/JP/2010 DATED 13.4.2011. THE FIGURE OF RS. 21,80,880/- HAS BEEN MENTIONED BY THE TRIBUNAL WHICH IS CHALLENGED BY THE DEPARTMENT NOW HERE BEFORE THE TRIBUNAL FOR THE YEAR UNDER CONSIDERATION. 8. AFTER CONSIDERING THE ORDERS OF THE ASSESSING OF FICER, LD. CIT (A) AND SUBMISSIONS, WE FIND THAT ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL. IN FACT, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 3 4,39,207/- WHICH INCLUDES THE COST OF IMPROVEMENT OF RS. 81,80,880/-. THIS ENTIRE ADDITI ON WAS DELETED BY THE TRIBUNAL BY GIVING ITS FINDING IN PARA 3.7 ONWARDS AT PAGES 11 TO 15 OF ITS ORDER SUPRA. IT IS FURTHER SEEN THAT THE FIGURE OF AMOUNT INVESTED AS IMPROVEM ENT COST HAS BEEN MENTIONED BY THE TRIBUNAL AT PAGE 13 OF ITS ORDER WHICH RELATES TO A SSESSMENT YEAR 2002-03 TO 05-06. THE TRIBUNAL HAS HELD THAT ALL THESE INVESTMENTS HAVE B EEN MADE THROUGH BOOKS OF ACCOUNT AND NO INVESTMENT HAS BEEN MADE OUT OF BOOKS OF ACC OUNT. THE ASSESSEE HAS ADOPTED COMPLETION METHOD AND, THEREFORE, WHATEVER THE CAPI TAL GAIN IS ARISING THAT IS ARISING IN ASSESSMENT YEAR 2005-06 WHEN THE BUILDING WAS SOLD. FROM THESE FACTS IT IS AMPLY PROVED THAT THE ISSUE IS SQUARELY COVERED BY THE OR DER OF THE TRIBUNAL. IT IS ALSO A MATTER OF FACT THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE BASIS OF ASSESSMENT 7 PROCEEDINGS FOR A.Y. 2005-06. HE MADE THE ADDITION DURING THE ASSESSMENT YEAR 2005-06 AND ALSO FOR THE YEAR UNDER CONSIDERATION AFTER REO PENING OF THE ASSESSMENT. AS STATED ABOVE, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION TH E INVESTMENT MADE IN PAST YEAR AND HELD THAT THE INVESTMENT HAS BEEN MADE FROM ITS BOO KS OF ACCOUNT AS ALL THE ENTRIES ARE INCORPORATED IN BOOKS OF ACCOUNT. NO AMOUNT HAS BEE N SPENT OVER AND ABOVE RECORDED IN THE BOOKS OF ACCOUNT. THEREFORE, THERE WAS NO REASO N IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE. THE LD. CIT (A) HAS ALSO DELETED THE ADD ITION FOR THE YEAR UNDER CONSIDERATION FOLLOWING THE ORDER OF TRIBUNAL AS ALL THE FACTS HA VE ALREADY BEEN DISCUSSED BY THE TRIBUNAL. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT (A) IN THIS ASPECT AS THE ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL WHILE D ISPOSING THE APPEAL FOR THE ASSESSMENT YEAR 2005-06. THERE IS NO OTHER GROUND IN THIS APPEAL BY THE DEPARTMENT. 9. IN APPEALS FOR ASSESSMENT YEARS 2003-04 AND 04-0 5, THE DEPARTMENT HAS CHALLENGED DELETING THE ADDITION OF RS. 8,12,187/- AND RS. 16,52,094/- ON ACCOUNT OF INTEREST ON CAPITAL FROM PARTNERSHIP FIRM AS MADE B Y THE ASSESSING OFFICER RESPECTIVELY FOR BOTH THE YEARS. 10. THE ASSESSMENTS FOR BOTH THESE YEARS WERE REOPE NED BY ISSUING NOTICE UNDER SECTION 148. FACTS IN RESPECT TO REOPENING OF THE ASSESSMENT HAVE BEEN DISCUSSED ABOVE WHILE DISPOSING THE APPEAL OF THE DEPARTMENT FOR AS SESSMENT YEAR 2002-03. REOPENING OF THE ASSESSMENTS WAS CONFIRMED BY LD. CIT (A). 11. IN RESPECT TO ADDITION ON MERIT, THE ASSESSING OFFICER FOUND THAT ASSESSEE COMPANY HAS NOT DISCLOSED INTEREST ON CAPITAL EMPLO YED WITH M/S. MASCOT FOOT CARE, FARIDABAD AS PER PARTNERSHIP DEED. THEREFORE, SHE M ADE AN ADDITION OF RS. 8,12,187/- AND RS. 16,52,094/-. 8 11.1. THE LD. A/R CONTENDED THAT THE ASSESSEE HAD R EQUESTED IN ASSESSMENT PROCEEDING FOR A.Y. 2005-06 THAT NO INTEREST WAS PAYABLE BY TH E FIRM. THE PAPERS OF PARTNERSHIP FIRM WERE WITH SHRI J.P. JAIN CONSULTANT OF THE FIRM WHO EXPIRED DURING THE YEAR. THE SUPPLEMENTARY PARTNERSHIP DEED DATED 31.03.2003 HAS BEEN TRACED OUT WHICH CLEARLY PROVIDES THAT PARTNERS HAVE MUTUALLY DECIDED NOT TO PROVIDE INTEREST ON CAPITAL FOR ACCOUNTING YEAR ENDED ON 31.03.2003 AND ONWARDS. T HE DEDUCTION IN CASE OF FIRM HAD NOT BEEN CLAIMED DURING THE YEAR. THE ASSESSEE FUR THER CONTENDED THAT THE ORDER OF ITAT NO. 916/JP/2010 DATED 13.04.2011 OF THE JAIPUR BENC H WHEREIN THE ITAT FOR THE ASSESSMENT YEAR 2005-06 HAVE ALREADY DECIDED THIS I SSUE IN OUR FAVOUR AND HAVE REJECTED THE DEPARTMENT VIEW. SINCE THE ISSUE FOR THIS YEAR IS ALSO SAME AND THE ASSESSING OFFICER HAS REOPENED THE CASE BASED ON ASSESSMENT YEAR 2005 -06 WHICH HAS NOW DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE, IN VIEW OF THE ABOV E CONTENTION AND ORDER OF THE ITAT, THE LD. CIT (A) WAS REQUESTED TO CANCEL THE ORDER P ASSED UNDER SECTION 148 AND DELETE THE ADDITION. COPY OF THE ORDER OF ITAT JAIPUR BENCH I S ENCLOSED FOR READY REFERENCE. 12. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) FOUND THAT ISSUE SQUARELY COVERED BY THE ORDER OF TRIBUNAL FOR ASSESSMENT YEA R 2005-06. ACCORDINGLY, THE LD. CIT (A) DELETED THE ADDITION BY RECORDING HIS FINDING I N PARA 5.3 AT PAGES 5 & 6 OF HIS ORDER AS UNDER :- 5.3. I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBMISSION OF THE ASSESSEE AND CASES RELIED UPON, THE SIMILAR ISSUE H AS BEEN DECIDED BY THE HON'BLE ITAT BENCH JAIPUR FOR ASSESSMENT YEAR 2005- 06 AND ACCEPTED THE CONTENTION OF THE ASSESSEE BY FOLLOWING THE OBS ERVATION MADE BY HON'BLE HIGH COURT BOMBAY IN CASE OF CIT VS. NAGRI MILLS COMPANY LTD. (1958) 33 ITR 681. THE GIST OF THE FINDINGS ARE TH AT WHERE THERE IS NO TAX EFFECT OF REVENUE, THE AUTHORITY WOULD NOT FRITTER AWAY ITS ENERGY IN 9 FIGHTING MATTERS OF THIS KIND. THE SUPPLEMENTARY P ARTNERSHIP DEED HAS NOT PROVIDED ANY INTEREST ON CAPITAL TO THE PARTNERS. ACCORDINGLY THE FIRM HAD NOT ALLOWED INTEREST ON CAPITAL. IF CAPITAL ALLOWED BY THE FIRM IS EXPENSES OF THE FIRM AND TO THAT EXTENT THE INCOME OF THE FI RM WOULD REDUCE. THE TAX EFFECT IS HARDLY THERE. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 13. THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. THE LD. D/R FURTHER STATED THAT INTEREST WAS TO BE CHARGED AS M ENTIONED IN THE PARTNERSHIP DEED. THEREFORE, WHETHER THERE IS IMPACT OF REVENUE OR NO T BUT AS PER PROVISIONS OF LAW THE ADDITION MADE BY ASSESSING OFFICER WAS CORRECT. FIR M IS A SEPARATE ENTITY, THEREFORE, WHETHER FIRM HAS CLAIMED DEDUCTION OR NOT IS NOT TH E ISSUE AS THE ASSESSING OFFICER HAS MADE ADDITION FOR THE REASON THAT COMPANY IS A PART NER IN THE FIRM AND AS PER PARTNERSHIP DEED, THE COMPANY HAS TO CHARGE THE INTEREST ON THE CAPITAL INVESTED IN THE FIRM. 14. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE STATED THAT IDENTICAL ISSUE WAS COVERED BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 WHEREIN THE TRIBUNAL HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. O RDER OF THE TRIBUNAL WAS READ ALSO. IT WAS FURTHER STATED THAT THERE IS A TAXABLE INCOME I N THE HANDS OF THE FIRM FOR BOTH THE YEARS AS WELL AS IN THE HANDS OF THE COMPANY AND, THEREFO RE, THERE WILL BE NO IMPACT OF THE REVENUE. ON THE SAME REASONING, THE TRIBUNAL FOLLO WING THE ORDER OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING ALL THE MATERIAL, WE FIND THAT THERE IS NO INFIRMITY IN THE ORDER OF THE CIT (A). ON SIMILAR FACTS, THE ADDITION WAS MADE FOR ASSESSM ENT YEAR 2005-06. THE ASSESSING OFFICER FOR A.Y. 2005-06 MADE ADDITION IN THE HANDS OF THE ASSESSEE COMPANY @ 12% OF 10 INTEREST ON CAPITAL INVESTED BY THE COMPANY IN THE FIRM M/S. MASCOT FOOT CARE. AN ADDITION OF RS. 16,52,094/- WAS MADE. MATTER REACH ED UPTO THE STAGE OF TRIBUNAL AND THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS AND FOLL OWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF NAGRI MILLS COMPANY LT D., 33 ITR 681, HELD THAT ADDITION MADE BY THE ASSESSING OFFICER BY CHARGING NOTIONAL INTEREST IS NOT JUSTIFIED. THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE PROVISIONS OF SECT ION 28(V). THE FINDING OF THE TRIBUNAL HAS BEEN RECORDED IN PARA 5.5 AT PAGES 16 TO 18 WHI CH ARE AS UNDER :- 5.5 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE VIDE LETTER DATED 13 TH SEPT. 2009 FILED BEFORE THE AO THAT THE ASSESSEE HA S FILED FOLLOWING DOCUMENTS WITH THE AO. 1. THE BALANCE SHEET AND PROFIT & LOSS A/C OF M/S. MAS COT FOOTCARE. 2. PARTNERS CAPITAL ACCOUNT FOR THE YEAR 2003-04 TO 2 004-05 OF M/S. MASCOT FOOTCARE 3. SUPPLEMENTARY PARTNERSHIP DEED DATED 1-4-2004. THE ASSESSEE HAS FILED THE COPY OF THE ASSESSMENT O RDER OF M/S. MASCOOT FOOTCARE FOR THE ASSESSMENT YEAR 2005-06. A T PAGE 8 OF THE ASSESSMENT ORDER OF M/S. MASCOOT FOOTCARE, THE AO H AS REPRODUCED FROM THE REPLY OF M/S. MASCOOT FOOTCARE THAT NO INTEREST HAS BEEN CREDITED ON THE CREDIT BALANCE OF THE PARTNERS. THE ISSUE BEFOR E THE AO FOR MAKING ASSESSMENT IN CASE OF M/S. MASCOOT FOOTCARE WAS IN RESPECT OF CHARGING OF INTEREST ON DEBIT BALANCE OF SOME PARTNERS. M/S. MA SCOOT FOOTCARE STATED THAT SINCE THE FIRM IS NOT PAYING INTEREST TO OTHER PARTNERS, THEREFORE, INTEREST IS NOT CHARGEABLE ON DEBIT BALANCE OF TWO PARTNERS. HENCE, IT IS CLEAR FROM THE ASSESSMENT ORDER OF M/S. MASCOOT FOO TCARE THAT THE ASSESSEE HAS NOT BEEN PAID INTEREST AND THE FIRM HA S NOT CLAIMED DEDUCTION ON SUCH INTEREST. IN SECTION 28, IT IS MENTIONED TH AT FOLLOWING INCOME AS GIVEN IN VARIOUS SUB-SECTIONS IS TO BE CHARGEABLE T O INCOME TAX UNDER THE 11 HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. S ECTION 28(V) IS REPRODUCED AS UNDER:- (V) ANY INTEREST, SALARY, BONUS, COMMISSION OR RE MUNERATION, BY WHATEVER NAME CALLED, DUE TO, OR RECEIVED BY, A PAR TNER OF A FIRM FROM SUCH FIRM : PROVIDED THAT WHERE ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED , OR ANY PART THEREOF HAS NOT BEEN ALLOWED TO BE DEDUCTE D UNDER CLAUSE ( B ) OF SECTION 40, THE INCOME UNDER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT NOT SO ALLOWED TO BE DEDUCTED ;] AS PER PROVISO OF SECTION 28(V), THE INTEREST AND REMUNERATION ETC. TO THE PARTNERS IS NOT TO BE TAXED IN THE HANDS OF THE PARTNERS IN CASE SUCH DEDUCTION IS NOT ALLOWED U/S 40(B) OF THE ACT. IT I S CLEAR FROM THE ASSESSMENT ORDER OF M/S. MASCOOT FOOTCARE THAT NO D EDUCTION OF INTEREST HAS BEEN ALLOWED TO THE FIRM U/S 40(B) OF THE ACT. MOREOVER, SECTION 40(B) SAYS THAT INTEREST AUTHORIZED BY THE PARTNERSHIP DE ED IS NOT TO BE ALLOWED IN CASE RATE OF INTEREST EXCEED RS. 12%. IT DOES NOT S AY THAT INTEREST TO THE EXTENT OF 12% SHOULD BE AUTOMATICALLY ALLOWED IN CA SE THE DEED AUTHORIZES IT. SECTION 40 IS IN RESPECT OF AMOUNT NOT DEDUCTIB LE. IN CASE THE FIRM HAS NOT PAID ANY INTEREST THOUGH PROVIDED IN THE PARTNE RSHIP DEED THEN THE SAME CANNOT BE ALLOWED TO BE DEDUCTED BECAUSE THE S AME IS NOT DEBITED IN THE BOOKS OF THE FIRM. WE HAVE NOTICED THAT M/S. MA SCOOT FOOTCARE HAS FILED THE RETURN DECLARING INCOME OF RS. 73,21,295/ - . THE RETURN OF INCOME OF THE ASSESSEE IS RS. 43,40,290/-. THE TAX RATE IN THE CASE OF THE FIRM AS WELL AS IN THE CASE OF THE COMPANY IS THE SAME. IF THE INTEREST IS TO BE ADDED IN THE HANDS OF THE ASSESSEE COMPANY THEN THE SAME IS TO BE ALLOWED U/S 40(B) OF THE ACT AND THE RESULTANT REVENUE EFF ECT WILL BE NIL. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. N AGRI MILLS CO. LTD (1958), 33, ITR 681. WE HAVE OFTEN WONDERED WHY THE INCOME TAX AUTHORI TIES, IN A 12 MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSL Y A PERMISSIBLE DEDUCTION UNDER THE INCOME TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RAT E OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT ; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, A ND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT Y EAR 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEA R 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO C ONSEQUENCE TO THE DEPARTMENT ; AND ONE SHOULD HAVE THOUGHT THAT THE D EPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF TH IS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVER Y NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TA X THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR T HE OTHER. 5.6 LOOKING TO THE ABOVE DISCUSSIONS, WE HOLD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 16,52,033/- . THUS THE GROUND NOS. 2 AND 3 RELATING TO THE ADDITION OF RS., 16,52,033/ - ARE DELETED. 16. FACTS FOR THE TWO YEARS UNDER CONSIDERATION ARE SIMILAR. IT IS FURTHER SEEN THAT THE FIRM M/S. MASCOT FOOT CARE SHOWN PROFIT OF RS. 68.8 2 LACS AND OF RS. 77.82 LACS FOR THESE TWO YEARS RESPECTIVELY. ASSESSEE COMPANYS INCOME IS ALSO TAXABLE ON THE INCOME DECLARED AT RS. 42.89 LACS AND RS. 50.19 LACS RESPE CTIVELY FOR BOTH THESE YEARS. THE FIRM HAS NOT CLAIMED ANY DEDUCTION ON ACCOUNT OF INTERES T PAYABLE TO THE COMPANY. THEREFORE, THERE WILL BE NO IMPACT ON REVENUE AS IN CASE OF FI RM AS WELL AS IN CASE OF COMPANY THE INCOME DECLARED ARE TAXABLE ON A MAXIMUM RATE OF TA X. IN VIEW OF THE REASONS GIVEN BY THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 WHICH HAS BEEN FOLLOWED BY LD. CIT (A) FOR 13 THESE TWO YEARS, WE CONFIRM THE ORDER OF LD. CIT (A ) FOR THESE TWO YEARS. APPEALS OF THE DEPARTMENT ARE DISMISSED. 17. CROSS OBJECTIONS OF THE ASSESSEE WERE NOT PRESS ED BY LD. A/R DURING THE COURSE OF HEARING OF THE APPEALS AS THE ISSUES WERE COVERE D IN FAVOUR OF THE ASSESSEE. ACCORDINGLY WE DISMISS THE CROSS OBJECTIONS FOR ALL THE THREE YEARS WHICH ARE AGAINST CONFIRMING REOPENING OF THE ASSESSMENT. 18. IN THE RESULT, APPEALS OF THE DEPARTMENT AS WEL L AS CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. 19. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON ( SANJAY ARORA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-2, ALWAR. M/S. LAKHANI SHOES CO. PVT. LTD., ALWAR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 928(6)/JP/2011) BY ORDER, AR ITAT JAIPUR.