TMI Blog2012 (12) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... any interest on capital to the partners. Accordingly the firm had not allowed interest on capital. If capital allowed by the firm is expenses of the firm and to that extent the income of the firm would reduce. The tax effect is hardly there. Therefore, the addition made by the AO is deleted - In the result, appeals of the department as well as cross objections of the assessee are dismissed. - ITA NO. 928 TO 930/JP/2011 & C.O. NOS. 38 TO 40/JP/2012 - - - Dated:- 6-7-2012 - SHRI R.K. GUPTA SHRI SANJAY ARORA, JJ. Appellant by : Shri D.K. Meena Respondent by : Shri S.C. Vasudeva ORDER PER BENCH : These are three appeals by the department and three cross objections by the assessee relating to assessment years 2002-03 to 04-05. 2. In appeal for assessment year 2002-03, the department is objecting in deletion of addition of Rs. 21,80,880/- on account of unexplained investment under section 69 of the IT Act. 3. Brief facts of the case are that during the course of assessment proceedings for A2ssessment Year 2005-06 it was noticed that the assessee has sold three immovable properties i.e. plot No. 118/21A, 479/21C and 116/21C at Faridabad for a to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of Shri K.C. Grover for the financial year ended 2001-02, 2002-203, 2003-04 and 2004-05 are enclosed for your ready reference. Also enclosed is a reconciliation of the total cost of construction along with the advances paid to the contractor. It may be added that the certificate of completion is always based on the minimum construction which is required to be carried out for the purposes of certification and it is not essential to complete the entire building at the time of issuance of a completion certificate. In this perspective if the amount of advance paid to Shri K.C. Grover for the Financial Year 31st March, 2002 are taken into account, the amount spent would be sufficient to cover the cost of construction for the purposes of making an application for obtaining of the completion certificate. 4. As is required by the provisions of the Act quoted herein above, it is essential for the department to prove that the assessee has made investments in the relevant previous year before any addition can be made. There is not even a single instance quoted by the Assessing Officer that the applicant had actually spent the alleged amount of Rs. 21,80,880/- in the year ended 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by observing the following observations in para 5.3 at pages 5 5 :- 5.3. I have gone through the assessment order as well as submissions of the assessee and cases relied upon, the assessee had booked these expenses Assessment Year 2005-06. The payment made for construction to Shri K.C. Grover had been disclosed by the assessee in balance sheet. There was a construction on these plots which reveals on the sale deed made with the purchaser. The Hon'ble ITAT in case of assessee vide ITA No. 916/JP/201`0 dated 13.04.2011 had accepted the assessee s claim and observed as under :- We therefore, feel that the Ld. CIT (A) was not justified in increasing the capital gain by not admitting the investment in construction. Accordingly we hold that the profit arising from the sale of plots along with building is to be taxed under the head Capital Gain and computation as shown by the assessee is required to be accepted . Thus the addition made by the Assessing Officer is deleted. 6. The Ld. D/R has placed reliance on the order of the Assessing Officer. 7. On the other hand, the Ld. Counsel of the assessee placed reliance on the order of Ld. CIT (A). It was further stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration following the order of Tribunal as all the facts have already been discussed by the Tribunal. Accordingly, we confirm the order of Ld. CIT (A) in this aspect as the issue has already been considered by the Tribunal while disposing the appeal for the assessment year 2005-06. There is no other ground in this appeal by the department. 9. In appeals for assessment years 2003-04 and 04-05, the department has challenged deleting the addition of Rs. 8,12,187/- and Rs. 16,52,094/- on account of interest on capital from partnership firm as made by the Assessing Officer respectively for both the years. 10. The assessments for both these years were reopened by issuing notice under section 148. Facts in respect to reopening of the assessment have been discussed above while disposing the appeal of the department for assessment year 2002-03. Reopening of the assessments was confirmed by Ld. CIT (A). 11. In respect to addition on merit, the Assessing Officer found that assessee company has not disclosed interest on capital employed with M/s. Mascot Foot Care, Faridabad as per partnership deed. Therefore, she made an addition of Rs. 8,12,187/- and Rs. 16,52,094/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Assessing Officer. The Ld. D/R further stated that interest was to be charged as mentioned in the partnership deed. Therefore, whether there is impact of revenue or not but as per provisions of law the addition made by Assessing Officer was correct. Firm is a separate entity, therefore, whether firm has claimed deduction or not is not the issue as the Assessing Officer has made addition for the reason that company is a partner in the firm and as per partnership deed, the company has to charge the interest on the capital invested in the firm. 14. On the other hand, the Ld. Counsel of the assessee stated that identical issue was covered by the order of the Tribunal for assessment year 2005-06 wherein the Tribunal has allowed the issue in favour of the assessee. Order of the Tribunal was read also. It was further stated that there is a taxable income in the hands of the firm for both the years as well as in the hands of the company and, therefore, there will be no impact of the revenue. On the same reasoning, the Tribunal following the order of the Hon'ble Bombay High Court (supra) has allowed the issue in favour of the assessee. 15. We have heard rival submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ;] As per proviso of Section 28(v), the interest and remuneration etc. to the partners is not to be taxed in the hands of the partners in case such deduction is not allowed u/s 40(b) of the Act. It is clear from the assessment order of M/s. Mascoot Footcare that no deduction of interest has been allowed to the firm u/s 40(b) of the Act. Moreover, Section 40(b) says that interest authorized by the partnership deed is not to be allowed in case rate of interest exceed Rs. 12%. It does not say that interest to the extent of 12% should be automatically allowed in case the deed authorizes it. Section 40 is in respect of amount not deductible. In case the firm has not paid any interest though provided in the partnership deed then the same cannot be allowed to be deducted because the same is not debited in the books of the firm. We have noticed that M/s. Mascoot Foo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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