TMI Blog2014 (7) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... e of earning lease rent from the lodge - the assessee failed to establish the link between the investments made in chit funds by the Managing Director and role of these investments in earning lease rent - the disallowances of interest on chit funds as well as interest to retired partners is confirmed – Decided against assessee. Validity of proceedings u/s 147 r.w.s. 150(1) of the Act – Held that:- Re-assessment proceedings u/s. 147 of the Act were initiated after expiry of six years from the end of relevant assessment year and the same is time barred in terms of s. 149(1) of the Act, since the issue of notice u/s. 148 r.w.s. 149(1) can be said to have been barred by limitation and also provisions of s. 150(1) cannot be pressed into service – thus, the order of the CIT(A) is upheld – Decided against Revenue. - ITA No. 1424/Hyd/2010 ITA No. 457/Hyd/2013 ITA No. 458/Hyd/2013 ITA No. 459/Hyd/2013 ITA No. 698/Hyd/2013 - - - Dated:- 22-5-2014 - Shri D. Manmohan And Shri Chandra Poojari,JJ. For the Petitioner : Sri A. V. Raghuram Sri T. Chaitanya Kumar For the Respondent : Sri Solgy Jose T. Kottaram ORDER Per Chandra Poojari, AM: ITA No. 1424/Hyd/2010, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the investments made in chit funds by the Managing Partner and the role of these investments in the earning of income from other sources by the assessee. He was not able to understand how and under which provisions of the Income Tax Act can such a claim of interest payment be allowed. Accordingly, he agreed with the Assessing Officer in disallowing the claim of interest payment of ₹ 2,29,532. 7. The CIT(A) observed with regard to the interest paid to retired partner's fund that the assessee stated that the amounts were not invested after the building came up. It was stated that the amounts were invested as capital contributions much before the building was erected and these amounts were utilised for the construction work. It was further contended that once the partners retired, the capital contributions were not returned but were kept in the firm as loans. Interest on these loans was paid and was an allowable deduction. In this regard, it is noteworthy that the 11 partners to whom interest is being paid, retired on 31.03.1996. There is no doubt that the original contributions made by the partners were utilized for the construction of the building. However, the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that money was borrowed wholly and exclusively for the purpose of earning lease rent from the lodge. Accordingly, in our opinion, the assessee failed to establish the link between the investments made in chit funds by the Managing Director and role of these investments in earning lease rent. Same is the position with payment of interest to retired partners. Accordingly, we are inclined to confirm the disallowances of interest on chit funds as well as interest to retired partners. In the result, ITA Nos. 1424/Hyd/2010 and ITA No. 459/Hyd/2013 are dismissed. 12. Now coming to ITA No. 698/Hyd/2013 (by the revenue) and ITA No. 457/Hyd/2013 (by assessee). The Revenue raised the following grounds of appeal: (i) The CIT(A) erred in invalidating the proceedings initiated u/s. 147 r.w.s. 150(1) of IT Act based on the decision of ITAT in similar issue for A.Y. 2000-01. (ii) The CIT(A) erred in not upholding the additions made in the assessment in view of his decision of invalidating the assessment order, though the provisions of section 150(1) applicable to the A.Y. 2001-02. 13. The facts of the case are that the assessee is a partnership concern came into existence vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case the time limit available for initiation of proceedings under section 147 of the Act is 31.3.2008. From the material available it can be seen that the AO initiated proceedings u/s 147 of the Act on 08.10.2008. Therefore, the action of the AO with regard to initiation of proceedings under section 147 of the Act after 31.3.2008 cannot be said to be valid. 15. The CIT(A) after considering the totality of the facts and circumstances of the case, held as under: (a) There is no scope for invoking provisions of s. 150(1) of the Act in the given facts and circumstances of the case for initiation of action u/s. 147 of the Act. (b) The assumption of jurisdiction for initiation of action u/s. 147 of the Act by invoking provisions of s. 150(1) of the Act is not proper as the same has no legal sanction. (c) As the proceedings u/s 147 of the Act were initiated after expiry of six years from the end of the assessment year i.e. after 31.3.2008 the same cannot be held valid. 16. The CIT(A) allowed the ground of the assessee on this count and he held that initiation of proceedings under section 147 of the Act in this case is invalid. Against this, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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