TaxTMI 
TaxTMI 
2026 (7) TMI 1706
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.... prevented by sufficient and reasonable cause from filing the appeal within the prescribed period of limitation. Accordingly, the delay of 108 days in filing the appeal is condoned, and the appeal is admitted for adjudication. 5. In the present appeal Assessee has raised the following grounds: 1. That the re-opening by the Jurisdictional AO ('the JAO') is illegal in as much as JAO is not empowered to issue notice under s. 148 of the IT Act, 1961 after the new regime of faceless assessment has been brought into force by the amendment made under s. 148 of the Act, 1961 which has so been held by the Jurisdictional High Court of Punjab and Haryana in the case of JASJIT SINGH V/S UNION OF INDIA AND OTHERS in CWP-21509-2023 (O & M) vide judgment dated 29.07.2024 and as such the assessment order passed in pursuance of an invalid notice is illegal, arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and framing the assessment under section 147 read with Section 144B of the Act without satisfying the statutory pre-conditions requ....
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....o M/s Salico Trading Company Pvt. Ltd., both partners of the assessee-firm, was not allowable as according to him the partners' capital accounts reflected debit balances at the beginning and at the close of the year. He further observed that the interest entries had been passed through journal vouchers on the last day of the accounting year without actual payment through the banking channel and, therefore, concluded that the expenditure represented diversion of income by way of fictitious entries. The Assessing Officer accordingly disallowed interest of Rs. 45,42,852/-. 6.2 The Assessing Officer further noticed that interest of Rs. 44,24,839/- had been credited to M/s Salico Trading Corporation, which was not a partner of the firm, and held that tax had not been deducted at source thereon. Invoking the provisions of section 40(a)(ia), he disallowed 30% of the said expenditure amounting to Rs. 13,27,451/-. Consequently, the total income of the assessee was assessed at Rs. 58,70,303/-. 7. Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) affirmed both the additions. While sustaining the disallowance of interest paid to the partner....
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....pearing at the end of the year had arisen only because of substantial withdrawals made towards the close of the financial year and could not retrospectively obliterate the credit balances existing during the year. The detailed day-wise interest calculations, running ledger accounts and reversal entries placed in the paper book clearly demonstrated that interest had been calculated transaction-wise, after considering the balance outstanding after each receipt and withdrawal together with the number of days for which such balance remained outstanding. 9.2 The Ld. AR further submitted that the authorities below had completely ignored the overwhelming documentary evidence produced before them. It was pointed out that the returns of income, computations, audited financial statements and ledger accounts of both partner companies had been placed on record and clearly reflected the interest income received from the assessee-firm. Form No.16A issued in favour of both the partner companies also evidenced deduction and deposit of tax at source on the interest credited by the assessee. Therefore, the allegation that the interest expenditure was fictitious or represented diversion of income ....
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....s, bank statements and other documents furnished during the reassessment proceedings. The authorities below had rightly concluded that the partners' capital accounts reflected debit balances and that the impugned interest entries were merely book entries passed on the last day of the accounting year without any actual movement of funds through banking channels. It was further submitted that the assessee had failed to satisfactorily establish the genuineness of the interest expenditure before the lower authorities. The Ld. DR further contended that in so far as the payment to M/s Salico Trading Corporation was concerned, the Assessing Officer had rightly invoked section 40(a)(ia) and the Ld. CIT(A), after due consideration of the material on record, had correctly sustained the disallowance. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be upheld and the appeal of the assessee be dismissed. 11. We have heard the rival submissions and have carefully perused the material available on record, including the assessment order, the impugned order of the Ld. CIT(A), the written submissions filed before us, and the paper book placed on record. 12. At the outset, th....
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....d, and its genuineness has not been doubted by the Revenue. 14.4 The entire edifice of the disallowance rests upon the premise that since the opening and closing balances reflected debit balances, no interest could have been payable during the year. In our considered opinion, such an approach is fundamentally misconceived. None of the provisions of the Income-tax Act and the partnership deed obliges an assessee to compute interest merely with reference to the opening and closing balances of the account. The manner of maintaining running accounts and the methodology for computing interest are essentially commercial decisions of the assessee. It is well settled that the Assessing Officer cannot substitute his own method of accounting or commercial expediency for that adopted by the assessee unless the method followed is shown to be contrary to law or demonstrably incorrect. 14.5 In the present case, the assessee has consistently maintained that interest was computed on the basis of the actual daily running credit balances available in the partners' accounts and was credited only for the period during which such credit balances existed. Significantly, this explanation itself....
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.... by referring to the opening and closing balances. 14.6 We find that the assessee has placed on record before us as well as before the lower authority as mentioned by the Assessing Officer in his order(supra) the complete running ledger accounts of both partner companies, the reversal entries passed on 01.04.2017, detailed day-wise computation of interest, copies of the partnership deed, bank transactions during the year, acknowledgements of returns of income, audited financial statements and ledger accounts of the recipient companies. The running ledger accounts clearly demonstrate that, after giving effect to the reversal entries passed on 01.04.2017, the partners' accounts carried substantial credit balances at various points during the previous year. The detailed interest computation records each transaction, the balance outstanding after every receipt and withdrawal, the number of days for which such balance remained outstanding and the corresponding amount of interest relatable thereto. Thus, the computation of interest has been based on actual running balances rather than on the opening or closing figures. 14.7 The Ld. DR, despite relying upon the assessment order,....
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....terest income received from the assessee, was duly filed before the learned Assessing Officer. These documents are available at pages 57 to 64 of the paper book. Likewise, in the case of M/s Salico Trading Company Pvt. Ltd., the return of income for Assessment Year 2018-19, along with the computation of income, audited Profit & Loss Account and ledger account evidencing the interest income earned from the assessee, was also furnished before the learned Assessing Officer and forms part of the paper book at pages 65 to 73. 14.11 It is also pertinent to note that the learned CIT(A) himself has referred to Form No.16A in the impugned appellate order, thereby acknowledging that tax had been duly deducted at source on the interest payments. Once the corresponding interest income has been accepted and assessed in the hands of the recipient companies, and the assessee has duly discharged its obligation of deducting and depositing tax at source, the allegation that the impugned interest expenditure represents a diversion of income or a sham transaction becomes wholly untenable. 14.12 It is difficult to comprehend how the very same amount, which the Revenue has accepted as taxable inco....
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....27,451/- under section 40(a)(ia), being 30% of the interest of Rs. 44,24,839/- credited to M/s Salico Trading Corporation. 15.1 The sole basis for invoking section 40(a)(ia) is the finding of the Assessing Officer that tax had not been deducted at source from the aforesaid interest payment. However, from the material placed before us, we find that the assessee has produced Form No.16A generated from the TRACES portal showing deduction of tax of Rs. 4,42,484/- under section 194A on the interest credited to M/s Salico Trading Corporation. The assessee has further produced the return of income, computation, audited financial statements, group-wise statement of interest income and ledger account of the recipient, all of which disclose recognition of the corresponding interest income. 15.2 Neither the Assessing Officer nor the Ld. CIT(A.) has disputed the genuineness of Form No.16A or recorded any finding that the tax reflected therein had not actually been deposited with the Central Government. The only additional reasoning assigned by the Ld. CIT(A) is that the interest amount had not been separately transferred through banking channels. Such reasoning, in our opinion, travels b....