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TMI Blog2014 (3) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the assessments u/s. 143(3) r.w.s 153A of the Act by making various additions. The assessee preferred the appeals before the Ld. CIT(A) challenging the additions and the appeals were partly allowed. Aggrieved by the orders of the Ld. CIT(A), the revenue has preferred these appeals before us. 4. The first common issue contested in all the years relates to the disallowance of interest expenses claimed by the assessee. The facts relating thereto are stated in brief. The Assessing officer noticed that the partners of the firm Shri A.V. Manaf, Shri A.V. Sathar and Shri A.V. Nazar had purchased a hospital building and land appurtenant thereto named 'Venkiteswara Hospital' vide Document No. 3802/2005 date 25-05-2005. It was noticed that the assessee firm had availed a loan of Rs. 1.00 crore from the Catholic Syrian Bank for the purpose of re-paying the loan liability of Venkiteswara Hospital. The Assessing officer took the view that Venkiteswara Hospital has been purchased by the partners mentioned above in their personal capacity. Since the loan availed by the assessee-firm from Catholic Syrian Bank was used for re-paying the loan liability of the Venkiteswara Hospital, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken over all the assets and liabilities of Venkiteswara Hospital and accounted the same by passing journal entry and also by paying the amount of Rs. 35.00 lakhs (Rs. 30.00 lakhs + Rs. 5.00 lakhs) to the three partners in whose names the conveyance deed was executed. The Ld. Counsel invited out attention to Page No. 44 of the paper book, wherein a copy of journal entry passed by the assessee firm is placed. In order to repay the loan liability of Federal Bank Ltd, which was brought into the books of the assessee firm, a loan of Rs. 1.00 crore was availed from Catholic Syrian Bank and the proceeds of the said loan and also further funds of Rs.8.00 lakhs belonging to the assessee firm were utilised to repay the loan liability of Federal Bank. The Ld Counsel further submitted that partners and the partnership firm is one and the same person under the Partnership Act and hence the partnership assets can be held by the partners in their individual names. 7. The Ld. Counsel submitted that the Assessing officer did not accept the contentions of the assessee that the assets and liabilities of Venkiteswara Hospital have been brought into the books of the assessee-firm, for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d were Rs.5.00 lakhs, thus both aggregating to Rs.35.00 lakhs and the said amount was paid by way of cash to the concerned partners. Accordingly, it was submitted that there was no necessity for the assessee firm to credit the partners' account with the net value of assets, since the payment was effected to them directly. In this regard, the Ld A.R invited our attention to page no. 44 of the paper book, wherein the copy of journal entry passed by the assessee firm is placed. The ld A.R also contended that the assets of partnership firm can be held in the partners' name, since the partners and partnership firm are one and same person under the Partnership Act. The Ld A.R also submitted that the assessee firm has taken over the liability of Rs.1.05 crores due to M/s Federal Bank by M/s Venkiteswara Hospital and it was also brought into its books. In order to repay the said loan, the assessee firm availed a loan of Rs.1.00 crores from M/s Catholic Syrian bank and drew a further sum of Rs.8.00 lakhs from its bank account and thus repaid the loan of Rs.1.08 crores (the outstanding amount increased to Rs.1.08 crores from Rs.1.05 crores by the time the loan liability was settled) to M/s F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee require verification at the end of the assessing officer. Hence, this issue needs to be examined afresh in the light of submissions made by the assessee. Accordingly, we set aside the order of Ld CIT(A) on this issue in all the years and restore the same to the file of the assessing officer with the direction to examine this issue afresh in the light of discussions made supra by duly examining the books of account and other materials and take appropriate decision in accordance with the law. 14. The next common issue contested in all the years relates to the disallowance of depreciation claimed by the assessee on the assets purchased from M/s Venkiteswara Hospital. The assessee claimed depreciation on the building and equipments transferred from M/s Venkiteswara Hospital as detailed below:- ASST. YEAR DEPN. ON BUILDING DEPN. ON EQUIPMENT 2006-07 4,40,000 6,84,400 2007-08 3,96,000 5,89,800 2008-09 3,56,400 5,08,584 2009-10 33,20,760 4,64,800 The assessing officer disallowed the claim of depreciation on building and equipments transferred from M/s Venkiteswara Hospital on the ground that the assessee firm is not the beneficial owner of the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the assessee claimed depreciation on the equipments so brought in, as detailed below:- ASSESSMENT YEAR DEPN. CLAIMED 2006-07 13,04,486 2007-08 8,85,252 2008-09 4,41,396 2009-10 3,75,186 The AO asked the assessee to produce dissolution deed of the "Old welcare Hospital". The dissolution deed produced by the assessee firm did not contain the signatures of one of the partners named Sri Kadayil Hussain. Hence, the AO took the view that the said dissolution deed cannot be considered as a valid deed. The AO also took the view that there cannot be a distribution of assets of the Old welcare Hospital amongst the partners, in the absence of valid dissolution deed. The AO also recorded a statement from Sri Kadayil Hussain, wherein he categorically stated that he was never a partner in the Old welcare hospital and his signature was forged in the partnership deed. In this regard, it was noticed that Sri Kadayil Hussain had filed a writ petition before the Hon'ble High Court of Kerala and the Hon'ble High Court in W.P.(C) No.25063 of 2007(H), vides its order dated 20-09-2007 has disposed the writ petition in his favour. The relevant portion of the order of the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is shown in Schedule G of the Balance Sheet. This submission of the assessee is accepted by Ld CIT(A). However, it is not clear as to whether the Ld CIT(A) examined the books of accounts to verify the above said submission of the assessee. 19. Further, we notice that the department has given an undertaking to Hon'ble High Court of Kerala in connection with the writ petition filed by Shri Kadayil Hussain that they will ignore the partnership deed of Old welcare hospital. If the partnership deed was agreed to be ignored and on that basis the assessment of the "Old welcare hospital" has been done in the status of A.O.P, in our view, there is no point in considering the dissolution deed. Accordingly, in our view, the AO was not justified in commenting upon the deficiencies of the Dissolution Deed. In any case, the presence or absence of the dissolution deed of "Old welcare hospital" may not be a matter to be considered for allowing depreciation in the hands of the assessee u/s 32 of the Act, since the conditions prescribed u/s 32 of the Act are:- (a) the assets are owned wholly or partly by the assessee and (b) they are used for the purposes of business or profession. It app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement dated 28.5.2005. According to the assessee, it had incurred expenses in refurbishing the old hospital. The AO accepted the claim of repairs in assessment years 2006-07 and 2007-08. In assessment years 2008-09 and 2009-10, the repairs to building was taken at Rs.31,48,237/- and Rs.21,62,310/- and the AO disallowed the said claim on the following reasons:- (a) the assessee firm cannot be treated as the beneficial owner of the hospital building. (b) The assessee had incurred meager amounts as expenditure on repairs during the financial years 2005-06 and 2006-07 when compared to that incurred in the subsequent two years. Hence, the expenditure incurred in F.Ys 2007-08 and 2008-09 relevant to the assessment years 2008-09 and 2009-10 is capital expenditure and hence cannot be allowed as revenue expenditure. (c) The assessee has not produced bills/vouchers to support the claim. 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 maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. In view of the judgment of the Kerala High Court in the case of Veeraraghavan (supra), this Tribunal is of the considered opinion that the expenditure incurred by the taxpayer has to be treated as capital in nature. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. 9. Further, the purchase and renovation of the building expands the capital base/profit making apparatus of the assessee. The expenditure incurred by the assessee is for the purpose of expansion of profit making apparatus. Therefore, the expenditure has to fall within the capital field." Thus it can be seen that the Tribunal has already given a finding that the expenditure incurred on renovation of the building is a capital expenditure. In view of the same, we set aside the order of the Ld. CIT(A) on this issue and restore the addition made 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), since the first appellate authority has discussed about the same in his order. After considering the remand report, the Ld. CIT(A) remitted the matter relating to M/s. Urban Edge to the file of the Assessing officer for taking 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not account for both the collections and payments. But, since the registers seized during the course of search (APCM -2 to APCM-9) contained the details of collections, the AO took the view that the assessee had deliberately 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 ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fees so fixed and remit the total collection at the end of the day. Accordingly, the Ld Counsel submitted that the doctors have not rendered any professional services to the assessee firm. Further the assessee firm has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the direction to examine this issue afresh in the light of discussions made supra and take appropriate decision in accordance with the law. 35. The next issue contested by the revenue relates to the interest 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 inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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