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2020 (2) TMI 648 - AT - Income TaxAdditions as notional interest pertaining to one of the partners - Debit balance in the account of partner while the assessee is paying interest on bank loan - Assessee is a partnership firm and has three partners - HELD THAT:- The contention of the assessee's AR seems to hold much water in as much as the provision of section 5 of the Act does not provide any room for bringing to tax any income by way of notional income. On the matter of debit balance of one of the partners, find that the impugned debit balance is not a new finding by the AO, rather it has been carried forward from the past several years and there were no additions made on this count by the AO in those years. No doubt the principle of Res Judicata does not apply to lncome Tax proceedings but however, the principle of Consistency has to be adopted when there is no change in the material facts and circumstances of the assessee's case. On analyzing the entire gamut of the issue with respect to the material facts on record along with the legal aspects involved and my findings as in the foregoing, ultimately, find that bringing to tax an amount which is of notional in nature and which was never earned by the assessee cannot stand the test of jurisprudence in the tax regime. No justification in the action of the AO making addition - Decided in favour of assessee. Disallowance of management charges and supervision charges - there was no basis for charging such basis for charging such charges and were merely book entries - CIT-A deleted the addition - HELD THAT:- here is no infirmity in the order of ld CIT(A). We note that for eligibility of an allowance u/s 37(1) of the Act, there should be a nexus between the expenditure and the purpose of the business and the expenditure should have been wholly and exclusively laid out for that purpose. Once these facts are established, the revenue cannot justifiably claim to put itself in the arm chair of business man or in a position of the Board of Directors and assumed the role of ascertaining how much is reasonable expenditure having regard to the circumstances of the case. We note that the assessee has incurred management supervision charges for the purpose of business and if the expenditure is incurred bona fide in relation to business activity then it would be an allowable expenditure. That being so, we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed.
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