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Assistant Commissioner of Income Tax, Circle-7, Jaipur Versus M/s. Art Asia and Vica-Versa

2015 (9) TMI 172 - ITAT JAIPUR

Disallowance of interest expenses on the basis of net debit cumulative balance of all the partners - Held that:- All the capital accounts of the partners are to be examined by the AO while disallowing the interest on debit balance. The assessee has calculated the disallowance of interest on the basis of credit and debit balances of all the partners at ₹ 4,91,054/-. Therefore, we uphold the order of ld. CIT (A). Thus Revenue’s appeal on this ground and assessee’s cross objection are dismiss .....

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order of ld. CIT (A) and in the interest of justice, addition to the tune of ₹ 1,00,000/- is confirmed against addition made by the AO at ₹ 3,00,000/-. Decided partly in favour of assessee.

- ITA No. 165/JP/2013, C. O. No. 17/JP/2013 - Dated:- 11-8-2015 - SHRI R.P. TOLANI AND SHRI T.R. MEENA, JJ. For The Revenue : Shri Kailash Mangal (JCIT) For The Assessee : Shri PC Parwal (C.A.) ORDER PER SHRI T.R. MEENA, A. M. The appeal is filed by the Revenue whereas the cross objec .....

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bjection are as under :- 1. The ld. CIT (A) has erred on facts and in law in confirming the disallowance to the extent of ₹ 4,91,054/- out of interest expenses. 2. The ld. CIT (A) has erred on facts and in law in upholding the rejection of books of accounts u/s 145(3). 2. The assessee filed return of income on 28.03.2011 declaring income of ₹ 2,43,39,170/-. The case was scrutinized under section 143(3) of the IT Act. The assessee firm was carrying on the business in the name and styl .....

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and method of valuation. The assessee had submitted the closing stock, list of Furniture Division and that of Raw Material and Semi Final goods of Textile Division. However, the assessee expressed its inability to submit the details of Textile Division s finished goods and consumable stores. It was also submitted before her that closing stocks had been physically verified by the partners and had been valued at cost or market value whichever is less and that as items run into numbers of varieties .....

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quantitative tally of each item. However, at the end of the year, the management takes physical stock and valued it. After considering the assessee s reply, the AO held that the closing stock was verified at the end of the year which did not compensate for the absence of a stock register. Purchases and sales were verifiable but the non maintenance of stock register in the business of the assessee indicates that the income of the assessee firm could not be deduced correctly. The closing stock als .....

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inted out by the AO in A.Y. 2008-09 where trading addition of ₹ 10,00,000/- was made which was confirmed by ld. CIT (A). It was further held that in A.Y. 2008-09 the GP rate disclosed by the assessee was @ 15.95% in furniture division and @ 28.61% in textile division. In the year under consideration the assessee has shown GP rate @ 19.83% in furniture division and @ 36.24% in textile division on enhanced turnover. The AO had not given any case for making addition of ₹ 3,00,000/-. The .....

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duly supported by the bills and vouchers. The AO has not found any purchase and sale, which is not verifiable from books of accounts. Maintenance of stock register is not possible in such kind of business, however, assessee has filed the details of closing stock of furniture division vide letter dated 22.11.2011 and closing stock of textile division vide letter dated 25.11.2011. AO has wrongly stated that closing stock of textile division is not furnished. Hence, simply because stock register is .....

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essee challenged the similar addition in A.Y. 2008-09 in ITA No. 404/JP/2012. The coordinate Bench had decided the identical issue vide order dated 31.10.2012 wherein the assessee also challenged the rejection of books of account under section 145(3) of the IT Act, as under :- 4. After going through the submission and the reason for decline in GP, we are of the view that the addition made and sustained is on hire side. Stock inventory is prepared on estimated basis as stock register is not maint .....

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be verified as no quantitative and qualitative stock was maintained by the assessee. The GP rate has increased compared to preceding year on enhanced turnover. However, the defects pointed out by the AO required to be confirmed certain addition, therefore, we reverse the order of ld. CIT (A) and in the interest of justice, addition to the tune of ₹ 1,00,000/- is confirmed against addition made by the AO at ₹ 3,00,000/-. Accordingly, ground no. (ii) in Revenue s appeal is partly allo .....

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Ladha had debit balance of ₹ 1,92,36,187/- and ₹ 23,30,199/- respectively. No interest has been charged on debit balances. The interest liability of the firm had also increased from ₹ 19,62,291/- to ₹ 49,91,013/- during the year compared to preceding year. This was due to the increase in borrowings from ₹ 3,31,18,392/- to ₹ 4,06,39,175/-. In addition to above, assessee also had debited ₹ 18,00,000/- towards interest @ 12% on fixed Capital to Partners in .....

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ers amounting to ₹ 29,09,278/-. The assessee replied vide letter dated 30.11.2011 and submitted that two partners of the firm i.e. Shri Sandeep Mundra and Shri Ravi Kant Ladha had debit balances on which no interest has been charged but other partners were having credit balances in their account and firm had earned profit. During the year, out of which also they had withdrawn amount. Hence no interest had been charged by the assessee. The ld. AO after considering the assessee s reply had n .....

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Sandeep Mundra and Shri Ravi Kant Ladha amounting to ₹ 29,09,278/-. 9. Being aggrieved by the order of AO, assessee carried the matter before ld. CIT (A) who had allowed the appeal partly by observing as under :- 2.3. I have duly considered the material available on records. The facts in the instant year are slightly different from earlier years. In A.Y. 2007-08 and 2008-09, there were net credit balances considering all the partners accounts together. However, in the instant year i.e. A. .....

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ers by debiting the capital account. The firm had not charged any interest on debit balance from the two partners. 11. At the outset, the ld. A/R of the assessee submitted that interest payable on the capital account of the partners is governed by the Partnership Deed. As per the Partnership Deed, the firm will pay interest to partner on fixed capital account only. No interest is payable or recoverable on the balance in current account. Therefore, assessee has neither paid the interest nor charg .....

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