TMI Blog2014 (3) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of the firm - the assessee has paid the net value assets of Rs.35.00 lakhs directly to the concerned partners - Thus it amounts to crediting the partners account with their respective share and immediately making payment of the same to them - the submissions made by the assessee require verification at the end of the assessing officer – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowance of depreciation – Held that:- The AO had disallowed the claim of depreciation on the reasoning that the assessee firm cannot be considered as the beneficial owner of the assets purchased from M/s Venkiteswara Hospital - while dealing with the issue relating to the disallowance of interest claim, the matter of verification of submissions made by the assessee is remitted to the assessing officer – thus, this matter is also required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowance of depreciation on assets purchased from old welcare hospital – Held that:- It is not necessary that the assets of a partnership firm should be distributed only upon the dissolution of the firm, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has furnished copy of letter furnished by Dr. Pradeep and also copy of return of income filed by him to show that Dr. Pradeep had disclosed the receipts from the hospital of the assessee - The documents were filed to show that the responsibility to declare the OP & IP collections noticed in the seized records lie upon the concerned doctors - these documents were not considered by the AO – the matter requires adjudication as to the applicability of section 40(a)(ia) of the Act – thus, the matter remitted back to the AO for fresh adjudication – Decided in favour of Revenue. - I.T.A. Nos. 181-183 & 310/Coch/2013 - - - Dated:- 7-3-2014 - Shri N. R. S. Ganesan, JM And B. R. Baskaran, AM,JJ. For the Petitioner : Shri K. K. John, Sr. DR For the Respondent : Shri C. B. M. Warrier, CA ORDER Per B. R. Baskaran, Accountant Member: All the appeals filed at the instance of the Revenue in the hands of the assessee are directed against the orders passed by the Ld CIT(A)-I Kochi and they relate to the assessment years 2006-07 to 2009-10. 2. Some of the issues urged in these appeals are identical in nature and hence these appeals were heard together and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said decision of Ld CIT(A). 5. The Ld. DR submitted that the assets of Venkiteswara Hospital was purchased in the name of three partners, namely, Shri A.V. Manaf, Shri A.V. Sathar and Shri A.V. Nazar, whereas the present assessee-firm has got six partners. Hence, the Assessing officer took the view that the assets have been purchased by three persons cited above in their personal capacity. Since the loan availed by the assessee-firm from Catholic Syrian Bank was used for paying the loan liability of Venkiteswara Hospital, the Assessing officer considered the same as diversion of interest bearing funds and accordingly, disallowed the interest claimed thereon. 6. On the contrary, the Ld. AR submitted that the Venkiteswara Hospital was agreed to be purchased for a sum of Rs. 1.35 cores subject to the repayment of liability of Rs. 1.05 crores of Federal Bank. Accordingly, the conveyance deed was executed for a sum of Rs. 30.00 lakhs on 25-05-2005. The assessee also incurred expenses of Rs. 5.00 lakhs towards transfer. Accordingly, the total cost of purchase of Venkiteswara Hospital worked out to Rs. 1.40 crores as detailed below: 1. Value as per document v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the partners. Hence the assessing officer did not find any credit towards the value of assets in the capital account of the partners. Since all the assets and liabilities of the Venkiteswara Hospital have been brought into the books of the assessee-firm, the liability of Federal Bank became the liability of the assessee firm, which had to be repaid out of the funds of the assessee-firm only. Accordingly, the assessee availed loan from Catholic Syrian Bank and repaid the same. Accordingly, the Ld A.R contended that there was no diversion of funds as presumed by the Assessing officer. 8. In the rejoinder, the Ld D.R submitted that the assessing officer did not examine the journal entries passed by the assessee and also the agreement referred to by the Ld A.R. 9. We have heard the rival contentions on this issue and perused the record. It is an admitted fact that the assets belonging to M/s Venkiteswara hospital was purchased in the name of three persons, who are also the partners of the assessee firm. The AO has taken the view that they have purchased the same in their personal capacity since:- (a) it was not purchased in the name of the assessee firm or (b) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known as Firm . Hence, the partners are entitled to hold the properties belonging to the partnership firm in their individual name, provided it is explicitly made clear that the partner is so holding the asset. In the instant case, the assets of M/s Venkiteswara Hospital were purchased in the name of three persons, who are also partners of the assessee firm. The intention to transfer the assets and liabilities purchased from M/s Venkiteswara Hospital to the assessee firm were made clear by the agreement dated 28.5.2005 entered between the three persons (in whose name the assets of M/s Venkiteswara Hospital was purchased) and all the partners of the assessee firm. The copy of said agreement is placed at pages 7 to 12 of the paper book filed by the assessee. 12. According to the assessee, it has also brought all the assets and liabilities in its books of account by passing a journal entry and making payment of net asset value. According to the assessee, the net asset value of Rs.30.00 lakhs plus expenses amount of Rs.5.00 lakhs was paid to the concerned partners instead of crediting their respective capital account. We agree with the contentions of Ld A.R that the value of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been brought into the books of the assessee firm. In this regard, the Ld CIT(A) also took note of the agreement dated 28.5.2005 entered between S/Sri A.V. Munaf, A.V. Sathar A.V. Nazar and the six partners of the firm. The Ld CIT(A) also took note of the fact that the hospital building and equipments have been utilized by the assessee firm. Accordingly, he allowed the claim of depreciation on building and equipments in all the years. The revenue is aggrieved by the said decision of Ld CIT(A). 15. We have heard rival contentions on this issue. We notice that the AO had disallowed the claim of depreciation on the reasoning that the assessee firm cannot be considered as the beneficial owner of the assets purchased from M/s Venkiteswara Hospital. However, the contention of the assessee is that it has brought all the assets and liabilities taken over from M/s Venkiteswara Hospital into its books by virtue of agreement entered on 28.5.2005 between the partners of the assessee firm and the three partners in whose name the purchase was registered. However, while dealing with the issue relating to the disallowance of interest claim, we have set aside the matter of verification of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he writ petition in his favour. The relevant portion of the order of the High Court has been extracted by the AO in the assessment order and we also extract the same:- 2. Today the learned standing counsel, appearing for the respondents submit on instructions that the Income tax Department has decided to ignore the partnership deed and not to proceed against the petitioner on that basis. In view of this, petitioner cannot insist that Income tax Department should take action against who have produced that deed, based on his complaint. If the petitioner is so advised, he will be at liberty to proceed against those who have allegedly fabricated the document. With that liberty, this writ petition is closed. The AO also noticed that the assessments of Old Welcare Hospital were completed in the status of A.O.P. Accordingly, the AO came to the conclusion that there was no such firm in existence as old Welcare Hospital and consequently the question of dissolution of partnership and distribution of assets amongst its partners will not arise. Further the AO also observed that the assets have not been brought into the books of the assessee firm. Accordingly he rejected the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or partly by the assessee and (b) they are used for the purposes of business or profession. It appears that the AO has presumed that there may not be distribution of assets of old welcare hospital without a proper dissolution deed. This presumption, in our view, is not correct. It is not necessary that the assets of a partnership firm should be distributed only upon the dissolution of the firm, i.e., even during the currency of the partnership firm, the partners may take over the assets with the concurrence of the all other partners. In the instant case, according to the assessee the two partners of the assessee firm have taken over the assets and have also introduced them in the books of the assessee firm. Further the fact that they have been used in the hospital is not disputed. When the partners bring the assets and introduce the same as the assets of the assessee firm, then the assessee firm shall become owner of those assets. Accordingly, we notice that the conditions prescribed u/s 32 of the Act have been satisfied and hence, we find no reason to disallow the claim of depreciation. However, according to the assessing officer, these assets have not been brought into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Before Ld CIT(A), the assessee submitted that the building purchased from M/s Venkiteswara Hospital was constructed in the year 1974-75 and due to financial difficulties it remained closed for about two years. Hence, at the time the assessee firm purchased the building, it was not properly maintained. It commenced operations in the year relevant to the assessment year 2006-07, though the floorings, toilets, pipe fittings, electrical fittings etc. were not in proper condition. It was also submitted that the existing building only was repaired in all the years and the same has not resulted in increase of the size of the building, i.e., no additional construction was put up. The Ld CIT(A) was convinced with the said explanations. The Ld CIT(A) also noticed that the Tribunal had allowed claim of repairs in the case of Laxmi Hospital (ITA No. 20 21/Coch/2008). Accordingly, by following the decision of the Tribunal, the Ld CIT(A) allowed the claim of the assessee. The revenue is aggrieved by the said decision. 22. At the time of hearing, it was brought to our notice that the Administrative Commissioner had initiated revision proceedings u/s 263 of the Act in respect of Repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Assessing officer in respect of the building repairs. The Ld A.R claimed that the Repair expenses claimed by the assessee include repairs incurred on other assets also. In respect of repairs on other assets, we are of the view the same requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) in respect of repairs on other assets and restore the same to the file of the Assessing officer with a direction to examine the same afresh and take an appropriate decision in accordance with law after giving reasonable opportunity to the assessee. 24. We shall take up the issues contested in the assessment year 2009-10. The first issue relates to the addition of unexplained sundry creditors balances. During the course of assessment proceedings, the Assessing officer asked the assessee to furnish the details relating to following sundry creditors:- (A) Welcare Hospital A.Y. 2009-10 Name of Sundry Creditors Amount (Rs.) 1. Dadwings 362547 2. KAV Shaikrawthar 254850 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng necessary action. In respect of other five creditors, the Ld. CIT(A) held that the difference between the assessee s accounts and the accounts of the creditors should assessed as the income of the assessee. The revenue is aggrieved by the decision of the Ld. CIT(A). 26. We have heard the rival contentions on this issue and perused the record. We notice that all these creditors are trade creditors, i.e., they are not cash credits. In the remand proceeding, the Assessing officer himself has accepted the correctness of five creditors balances out of the 11 creditors noted by him. The Ld. CIT(A) has remitted the matter relating to M/s. Urban Edge to the file of the Assessing officer for taking necessary action. It is seen that M/s Urban Edge has supplied furniture and fixtures to the assessee. According to the assessee, the payment was not made to them due to some dispute. Hence, the Ld CIT(A) also could not decide the issue and he has sent the matter to the file of the AO for taking necessary action. Though the Ld CIT(A) may not be empowered to set aside the matter, yet in the absence of any other details relating to this creditor, we are also of the view, the same requires fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iberately omitted to account for these collections. The AO also took the view that the assessee should have deducted tax at source u/s 194J of the Act on the payment made to the doctors. The AO did not accept the contentions of the assessee that no part of the said collection belongs to it. The amount on which TDS should have been deducted was worked out at Rs.86,01,173/- and the same was disallowed by the AO u/s 40(a)(ia) of the Act. 29. Before Ld CIT(A), the assessee took support of the sworn statements given by the employee and the managing partner, wherein both of them had stated that the collections were handed over to the concerned doctors. Accordingly, it was submitted that the assessee does not have any right over the said income. The assessee also submitted that the said collections belong to the concerned doctors. In support of the same, the assessee filed copy of return filed by one of the doctors named Dr. Pradeep and also a confirmation letter obtained from him. The assessee also submitted that it has not claimed the payments made to the doctors as expenditure and hence the question of disallowing the same u/s 40(a)(ia) does not arise. The Ld CIT(A) was convinced wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not claimed the payments made to the doctors as expenditure at all. Under these circumstances, according to the Ld A.R., the question of application of sec. 194J and sec. 40(a)(ia) of the Act does not apply at all. 32. We have heard rival contentions on this issue. The seized materials have revealed about the collections made from the OP IP patients under various doctors names. On the date of search, sworn statements were recorded from an employee named Smt. Anitha and also from the Managing Partner Sri A.V. Sathar. It is pertinent to note that both of them stated that the amount collected from OP IP patients are handed over to the concerned doctors at the end of the day. We notice that the assessing officer has disbelieved the statement of both the parties (referred above) only for the reason that the registers seized during the course of search contained date wise collections. Apart from this, the AO has not taken any step to disprove the statements given by the employee as well as the Managing partner u/s 132(4) of the Act. On the contrary, the assessee has furnished, before the Ld CIT(A), a letter obtained from one of the doctors named Dr. Pradeep and also a copy of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st charged u/s 234B of the Act. The AO had levied interest u/s 234B(1) of the Act. However, the Ld CIT(A) directed the assessing officer to levy interest u/s 234B(3) of the Act and in this regard, the Ld CIT(A) placed reliance on the decision of Hon ble jurisdictional Kerala High Court in the case of CIT Vs. B. Lakshmikanthan (ITA No.559 to 564/Coch/2009 dated 20.06.2011). 36. The contention of the revenue is that the ratio laid down by the jurisdictional High Court in the case of Lakshmikanthan (supra) shall not apply to the instant cases. According to the revenue the impugned assessments are the first assessments and the Explanation 2 to sec. 234B(1) shall apply in these cases. 37. We also heard the Ld A.R in this regard. We notice that the Ld CIT(A) has directed the AO to compute interest u/s 234B(3) of the Act without bringing the parity of facts between the instant cases and the case of Lakshmikanthan (supra). According to the revenue the facts prevailing in the instant cases are distinguishable. Hence, in our view, the issue of charging of interest u/s 234B may be examined afresh at the end of the AO by duly considering the decision rendered by the Hon ble jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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