2010 (7) TMI 1215 - AT - Income Tax

ITAT grants relief in AOP status dispute, disallowances, and interest charges

The ITAT allowed the assessee's appeals challenging the status as AOP, specific disallowances, and interest charges. The judgment emphasized compliance ... - Issues involved:The judgment involves the following Issues:1. Challenge to the assessee's status as AOP instead of a firm and disallowance of salary and interest paid to partners.2. Sustaining specific disallowances for different assessment years.3. Charging of interest u/s 234B & 234C.Issue 1: Challenge to assessee's status as AOP and disallowance of salary and interest:The assessee firm was constituted with a partnership deed containing a clause allowing partners to apply for liquor licenses in their individual names, which would be considered as the firm's business. The AO disputed the firm's genuineness due to licenses being in partners' names. The CIT(A) upheld this decision, but the ITAT held that the firm complied with the amended law from 1-4-1994, where registration only required a certified copy of the partnership deed. The ITAT also cited the U.P. Excise Law policy supporting the formation of a partnership firm for liquor business. Therefore, the firm was eligible for registration u/s 184/185 and entitled to deductions u/s 40(b) for salary and interest paid to partners.Issue 2: Specific disallowances for different assessment years:The AO made ad hoc disallowances without proper justification for various expenses like shop, misc., traveling, telephone expenses, license fee, rent, vehicle running, and repairs. The CIT(A) partly confirmed these disallowances, citing excessive expenditure and self-made vouchers. However, the ITAT found that if the assessee's books were properly maintained and produced, ad hoc disallowances without valid reasons were not justified. Therefore, the ITAT deleted the ad hoc disallowances upheld by the CIT(A) for all the assessment years in question.Issue 3: Charging of interest u/s 234B & 234C:The charging of interest u/s 234B & 234C was deemed consequential in nature and did not require further discussion.In conclusion, the ITAT allowed the assessee's appeals on the grounds of challenging the status as AOP, specific disallowances, and interest charges. The judgment emphasized compliance with the amended law for registration and the lack of justification for ad hoc disallowances, leading to a favorable decision for the assessee.