Court instructs Assessing Officer to verify losses claims, funds, and decide issues after hearing.

The Court allowed the revenue's appeals for statistical purposes, instructing the Assessing Officer to verify the set off and carried forward losses claims, examine the nature of funds used by the partners, and decide on the issues in compliance with the law after affording the assessee a hearing opportunity.

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Issues Involved:
1. Deletion of addition made towards disallowance of loss due to late filing of return.
2. Deletion of addition made on account of interest attributable to the debit balance of the partners.
3. Failure to furnish a fund flow statement showing interest-free advances for partners' withdrawals.
4. Assessment of total funds available versus partners' debit balance.
5. Proportional disallowance of interest attributable to the debit balance of the partners.

Detailed Analysis:

1. Deletion of Addition Made Towards Disallowance of Loss:
The primary issue was whether the CIT(A) was correct in deleting the addition made towards the disallowance of loss when the assessee did not file the return of income under section 139(1) and filed the return under section 153A beyond the allowed time. The AO disallowed the loss of Rs. 2,70,07,786/- declared by the assessee, citing non-compliance with section 139(3) of the Act. The CIT(A) deleted this disallowance, stating that the return filed in response to notice under section 153A was considered valid by the AO, and the books of accounts were not rejected. The ITAT observed that while the loss for the current year cannot be carried forward due to late filing, the assessee is entitled to set off the current year's loss against other heads of income. The issue was remanded to the AO to verify the exact claim of set off and carried forward, if any, and decide in accordance with the law.

2. Deletion of Addition Made on Account of Interest Attributable to the Debit Balance of the Partners:
The AO disallowed the interest expenditure of Rs. 83,71,583/- claimed by the assessee, stating that the partners had withdrawn huge funds without being charged interest, suggesting that interest-bearing funds were misutilized. The CIT(A) deleted this disallowance, noting that the direct connection between the interest-bearing funds and the partners' withdrawals was not established. The ITAT restored the issue to the AO to examine whether the assessee had given interest-bearing loans to the partners and decide accordingly after providing an opportunity for hearing.

3. Failure to Furnish a Fund Flow Statement:
The AO noted that the assessee did not furnish any fund flow statement to show that the partners' withdrawals were made out of interest-free advances available. The ITAT did not provide a separate analysis for this issue but implied that the AO should verify the exact nature of funds used by the partners during the remand proceedings.

4. Assessment of Total Funds Available Versus Partners' Debit Balance:
The AO observed that the total funds available with the assessee were Rs. 197.19 crores against the partners' debit balance of Rs. 138.09 crores. The CIT(A) found that the assessee had received huge interest-free advances, and the direct connection between the interest-bearing loans and the partners' withdrawals was not established. The ITAT directed the AO to re-examine this aspect during the remand proceedings.

5. Proportional Disallowance of Interest:
The AO suggested that, without prejudice to the other grounds, the interest attributable to the partners' debit balance should be disallowed proportionally to the total fund (interest-free and interest-bearing) to the total debit balance of the partners. The ITAT did not explicitly address this suggestion but directed the AO to verify the exact nature of the funds and decide accordingly.

Conclusion:
Both appeals of the revenue were allowed for statistical purposes, with directions to the AO to verify the exact claims of set off and carried forward losses and the nature of funds used by the partners, and to decide the issues in accordance with the law after providing an opportunity for hearing to the assessee.

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