TaxTMI 
TaxTMI 
2017 (10) TMI 1216
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....itrary, fallacious and illegal on the following grounds and, therefore, merits to be quashed with directions for appropriate relief to the assessee:- 1) That CIT (A) failed to appreciate that if the Assessing Officer made no addition regarding items for which reasons are recorded for CASS scrutiny selection, it means he had no "reasons to believe that income has escaped assessment" and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income. 2) That CIT(A) erred in confirming an addition of Rs. 9,38,616/- to the income of the firm, being made by Assessing Officer after charging interest on debit balance of partners' capital account by invoking the provision of Sec. 40(b)(iv) of the Income-....
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....its return of income on 28.09.2012 declaring an income of Rs. 2,62,447/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had paid interest of Rs. 14,53,887/- on the unsecured loans and the capital account of the partners revealed that the following partners had shown debit balance as on 31.03.2012: S. No. Name of the partner Balance as on 31.03.2012 1. Shri Alok Kumar Shorewala 26,67,076 2. Shri Anil Kumar Shorewala 21,93,282 3. Shri Atul Kumar Shorewala 27,14,678 4. Kalawati Devi 1,82,586 5. Sangeeta Shorewala 64,182 Total 78,21,804 6. The AO further observed that the partners....
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.... i) the income must be the income of the firm ii) out of the said income, the payment must be made to a partner and if the payment is not out of the income of the firm, there is no question of disallowance. It was further submitted that there was positive balance of Rs. 8,10,310/- in the capital account of the partners which had not been considered by the AO. It was also submitted that the provisions contained u/s 40(b) of the Act nowhere provides to charge interest on debit balance of partners capital account as income of the firm, where no interest was actually charged and provided in books of the firm. The reliance was placed on the following case laws: * Swaraj Enterprises Vs ITO (2011) 132 ITD 488 (Visakhapatnam-ITAT) * &n....
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....d upon or prescribed u/s 40(b) of the Act on the credit balance of the capital, current loan account of partners and if, there is any debit balance in the account of any partner, interest at the same rate shall be payable by him. 13. From the above provisions, it is crystal clear that the partners were required to pay interest on the debit balance at the same rate which was applicable on their credit balance. In the present case, it is not in dispute that there was debit balance in the account of the partners, however, the said debit balance has been considered by the AO on the last date of the year. In my opinion, the interest is to be charged on day to day basis and not on the balance at the end of the year. In the present case, since th....
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.... to the ld. CIT(A) and submitted that the AO had not pointed out any instance of personal use. 17. The ld. CIT(A) after considering the submissions of the assessee observed that the depreciation on car is a statutory allowance which is not affected by the extent or type of usages. Therefore, there shall not be any disallowance out of car depreciation. Similarly, the expenses on travelling had been claimed to be only for business purposes and the AO had not pointed out any instance of personal use. Accordingly, disallowance made by the AO on account of car depreciation and travelling expenses was deleted. As regards to the disallowance out of telephone, car repair & maintenance and car petrol, the ld. CIT(A) observed that the assessee had n....