TaxTMI 
TaxTMI 
2018 (2) TMI 1275
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....e Act determining the total income of the assessee at Rs. 2,27,32,341/-. During the assessment proceeding, the AO on perusal of partner's capital accounts, found that as on 01.04.2009 there was debit balance of Rs. 115.25 lakhs in the case of Partner Shri Sameer Maheshwari. There was opening debit balance as on 01.04.2009 of Rs. 100.97 lakhs appearing in the "Advance Income tax" account, which was not transferred to the partner's capital account in their profit sharing ratio. Some self assessment tax was also paid during the year under consideration, which was added to advance income tax account and this enhanced the balance to Rs. 110.54 lakhs. It should have been ultimately transferred to partner's capital account in their profit sharing ratio, but this was not done. The AO observed that if this effect is given, the resultant figures of debit balance of partner Shri Sameer Maheshwari will go up to Rs. 256.87 lakhs. Similarly, the balance of another partner will be covered into debit balance of Rs. 11.91 lakhs instead of credit balance. The interest being fund received from banks and other parties were utilized in advancing interest free loans to partners for their per....
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....te business needs and submitted that assessee has not lent any interest free funds to any person or sister concern. The assessee further contended that a mere perusal of capital account alone can never lead to appropriate conclusion unless a comparative analysis of capital account verses the amounts borrowed is made. The A.O has not proved nexus between borrowings and withdrawals, hence, the addition made by the A.O is unjustified and unlawful. There is no violation of conditions laid down in section 36(1)(iii) of the Act. It was submitted that sufficient interest free funds were available with the assessee for withdrawals by partners and A.O was not justified in making addition. The assessee has admitted that withdrawals were made for personal purposes but it was out of the cash profits available and not out of any borrowed funds. Finally the assessee has relied on the following cases to support his various contentions. (i) CIT vs. Shakti Industries (2013) 35Taxman.com 16 (HC); (ii) JCIT vs. Beekey Engineering Corporation (2010) 38 DTR (Chhattisgarh) 289; (iii) CIT-III vs. R. L. Kalthia Engg. & Automobile Pvt. Ltd. (2013) 33 Taxman.com (iv) R. D....
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....dinal accounting assumption of going concern. All these fundamental accounting assumptions are distinctly mentioned at clause 5 of the notification and elaborately defined at clause 6 of the same notification. For the principle of the consistency followed, the appellant relied on the judgement reported in [2013] 38 Taxmann.com 241 (High Court of Gujarat) in CIT II Vs. Patidar Oil Cake industries. The appellant further in its submission contended that, no borrowings were made for the payment of taxes and consequently questions of any payment of interest on the same and consequently claiming it as an expense does not arise. In concluding the disallowance of interest u/s 36(1)(iii), the A.O has relied on the three cardinal principles governing the deduction under section 36(1)(iii). The A.O. herself at paragraph 4.1 of the order has observed that, "three conditions are required to be satisfied in order to enable the assesses to claim deduction in respect of interest on borrowed capital, namely: (1) that money (capital)must have been borrowed by the assesses. (2)That it must have been borrowed for the purpose of business or profession and (3) That the assessee must have paid interest o....
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....ebit for Share in Firm Income Tax 19.76 6.22 0.46 13.77 3.26 43.48 Closing Balance 0.86 10.42 42.13 72.81 116.07 116.07 Appellant also stated that since the appellant is consistently following cash system of accounting, the above figures of profit share are actual cash profits generated from the business (i.e. without considering depreciation allowance deduction available as per IT Act since the same does not entail any physical cash outflow). I do find considerable force in the submission of the appellant that when this cash profit inflows are compared with the withdrawals of the partner, it is discernible that after deduction of withdrawals and also the share of notional debit in firm's tax, a surplus of Rs. 181.84 lacs remains reflected as closing balance. Even in the previous year relevant to assessment year 2010-2011, the withdrawals were Rs. 194.03 Lacs against cash profit receipts of Rs. 246.07 lacs, leaving an abundant gap of Rs. 52.04 Lacs sufficient to absorb the firm's tax. share of Rs. 13.03 lacs in case of Capital account of Sameer Maheshwari. I am convinced with the explanation of the appellant that, th....
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....ed interest bearing funds for business in the current and prior years as under: It has been argued that in case of the borrowings at serial numbers 1 to 4, the lenders have directly paid the loan disbursement amount to the supplier / dealer of the raw materials or capital assets. Thus, in any case contention of diversion of the interest bearing borrowed funds to the partners / sister concern by the appellant does not sustain. The appellant, for this proposition, relied on the judgement reported in. [2013] 36 CCH 352 (ITAT Delhi) in Metro Institute of Medical Sciences Pvt. Ltd. Vs. Dy. CIT. It has been further argued that the business loan borrowed from the lender at serial number 2 was necessitated, to obtain release of the bulk imported raw material consignment from the port after full payment. Since any delay in release of the import documents would have entailed heavy demurrage and penal charges, and therefore, as a matter of business prudence the funds were borrowed, which again were paid to supplier directly by the lending bank. The principal and interest repayment against this loan was promptly made by extending the rent income directly to the lender bank's accou....
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....and circumstances of the case as also decisions cited above, disallowance of Rs. 41,54,811/- u/s 36 (i)(iii) of the Act is unjustified and hence, deleted." 6. We find that the DR relied on the order of AO. He could not point out any specific error in the order of CIT(A). The finding of CIT(A) that the assessee had sufficient non-interest bearing funds available with it for partners withdrawals, was not controverted by the DR by bringing any cogent and positive material on record. Further, the finding of CIT(A) that the payment of interest was commercially expeditent was examined by the AO in the current and prior years. Therefore, the contentions of AO for diversion of interest bearing borrowed funds to the partners of the sister concern of the assessee cannot be sustained, was also not controverted by the DR by brining any cogent and positive materials on record. Hence, we do not find any good and justifiable reason to interfere with the order of CIT(A), which is confirmed and the ground of appeal of the Revenue is dismissed. 7. In the result, appeal filed by Revenue is dismissed. Order pronounced in the open court on this 15/01/2018. ============= Document 1 Sl.No. ....