TMI Blog2013 (10) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... ss account. The details of the persons to whom the vehicles were sold are not available on record – Therefore, addition made @10% as profit over and above the book value, by A.O. is confirmed – Decided against the Assessee. Whether the payment of interest @18% to the relatives of the partners is fair or excessive – Held that:- This excessive rate of interest payment to be adjudged on the basis of the rate of interest prevailing in the market - When the banks are charging interest at 16% to 25% for providing loans to the citizens, this Tribunal is of the considered opinion that paying interest @18% to the relatives of the partners cannot be considered to be excessive or unreasonable. The matter may be different if the rate of interest charged by the taxpayer exceeds the bank interest – Rate of payment is reasonable – Decided in favor of Assessee. Concealment of income – Penalty under section 271(1)(c) of the Income Tax Act – Held that:- The details of the borrowed funds which were given to the sister concern of the taxpayer are available on record. What was found during the course of survey is the investment made by the sister concern in the capital asset - This does not amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e re-agitated. Moreover, the diverted funds to the sister concern was used for acquisition of capital asset by the sister concern. According to the ld.DR, the interest paid on the borrowed funds which were used for acquisition of capital asset by the sister concern, has to be treated as capital expenditure. Therefore, the Commissioner of Income-tax(A) has rightly confirmed the addition. 5. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the taxpayer has borrowed Rs.135 lakhs from its partners and diverted part of the borrowed funds to its sister concern. It is also not in dispute that the sister concern, M/s Oberon Edifies Estates (P) Ltd made substantial investment in properties at Ernakulam. Admittedly, the taxpayer has filed a revised return before the assessing officer and disallowed the payment of interest to the extent of Rs.7,01,233 in the revised return. When the taxpayer himself has admitted that the payment of interest to the extent of Rs.7,01,233 has to be disallowed, which is not in dispute, this Tribunal is of the considered opinion that the matter cannot be re-agitated. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by the Commissioner of Income-tax(A) also. The Administrative Commissioner has also exercised his revisional jurisdiction and found that the composite payment made to the retiring partners is not attributable to transfer of drug licence or acquiring of business right. The question arises for consideration is when the retiring partner was paid amounts towards his share of capital, can we say the partnership firm acquired any goodwill in connection with its business from the retiring partner. It is well settled principles of law that under the Income-tax Act, partnership firm is an independent and separate assessable unit. Under the common law, partnership firm may not be a legal entity, but under the Income-tax Act, partnership firm considered to be an assessable unit, therefore, it is always considered separately. In the case before us, though the partner retired, the partnership firm continued as such with new partners. The partnership firm being a separate and independent assessable unit, it continued its business through its new partners. Therefore, the assets and liabilities of the firm continued as such. The tangible and intangible asset including all its commercial righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehicles after depreciation is not in dispute. The taxpayer has not shown the profit or loss arising out of sale of the vehicles in the profit loss account. The details of the persons to whom the vehicles were sold are not available on record. In the absence of any further details either in the profit loss account or the details of the individual, who purchased the vehicles, the assessing officer has made addition @10% as profit over and above the book value. In the absence of any details, this Tribunal do not find any infirmity in the orders of the lower authority. Accordingly the same is confirmed. 13. The next ground of appeal is with regard to sales promotion expenses. The taxpayer claimed Rs. 4,72,485 towards sales promotion expenses. Since this expenditure was supported by self made vouchers, the assessing officer found that there may be a possibility of inflation of this expenditure. Accordingly, the assessing officer disallowed the claim to the extent of Rs.1 lakh. The Commissioner of Income-tax(A) confirmed the addition in the absence of any further material. 14. We have heard the ld.counsel for the taxpayer and the ld.DR. It is not in dispute that the taxpayer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully gone through the provisions of sect6ion 40A(2)(b) of the Act. Section 40A(2)(b) of the Act enables the assessing officer to disallow the expenditure which is considered to be excessive or unreasonable with regard to fair market value of the services provided. In this case before us, whether the payment of interest @18% to the relatives of the partners is fair or excessive has to be adjudged on the basis of the rate of interest prevailing in the market especially when the taxpayer has paid interest to its partners only @12%. As rightly submitted by the ld.counsel for the taxpayer loan from the partners and unsecured loan from the relatives of the partners are two different things. The partners have their own share in the partnership firm and they are entitled to share of the profit besides salary and other allowances as per the partnership deed. The unsecured creditors are entitled only for the interest. Therefore, the unsecured creditor whether he is relative of the partners or otherwise would demand interest at the market rate which is charged by the banks which is at 16% to 25%. When the banks are charging interest at 16% to 25% for providing loans to the citizens, this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because the taxpayer has filed a revised return it does not mean that there was concealment of income. According to the ld.counsel, the taxpayer has filed all the information in the return including the payment of interest on the borrowed funds. Therefore, there was a reasonable cause within the meaning of section 273B of the Act. 21. On the contrary, Smt. S Vijayaprabha, the ld.DR submitted that but for the survey the taxpayer could not have filed the revised return accepting the disallowance. According to the ld.DR since the sister concern of the taxpayer used the funds for purchasing capital asset, the interest on such borrowed funds has to be capitalized. Therefore, the taxpayer has concealed part of the income. 22. We have considered the rival submissions and also perused the material available on record. Penalty could be imposed in case the taxpayer has concealed any part of the income or furnished any inaccurate particulars in respect of such income. In the case before us, the taxpayer claimed interest on the borrowed funds which was given to the sister concern. The claim of the taxpayer is that the funds were given to sister concern for business purpose. Ultimately, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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