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2016 (6) TMI 1079 - ITAT PUNE

2016 (6) TMI 1079 - ITAT PUNE - TMI - Disallowance the interest under section 36(1)(iii) - whether the funds have been withdrawn by some of the partners of the assessee firm which is not the business purposes of the assessee? - Held that:- In the instant case, borrowed funds have been presumably utilized for the withdrawal by some of the partners. However, in the same vein, the overall capital continues to remain positive and therefore allowability of interest in the case of the assessee is squa .....

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e. We find no infirmity in such direction given as a matter of fair play. Accordingly, we remit the issue back to the file of the Assessing Officer for de novo examination on the issue in accordance with law after giving proper opportunity of being heard to the assessee - Decided in favour of assessee for statistical purposes - Allowability of loss - Held that:- We find ourselves in agreement with the directions given by the CIT(A). Winding up of a unit of business is different from winding .....

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ere incurred in the course of trade and conditions as per section 36(1)(vii) r.w.s. 36(2) of the Act are satisfied - Decided in favour of assessee for statistical purposes - ITA No.797/PN/2014 - Dated:- 3-6-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Shrenik Gandhi For The Respondent : Shri D.N. Parakh ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal filed by the assessee is against the order of CIT(A)-IT/TP, Pune dated 30.01.2014 relating to a .....

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e funds had been withdrawn by the Partners of the Appellant, as per the provisions of the Partnership Deed and was required to be done so, for the purpose of carrying out the business. 2. The Hon'ble Commissioner (Appeals) ought to have considered the facts of the case and deleted the addition of ₹ 1,20,579 made by the Assessing Authority, as per the provisions of Section 69C of the Income-tax Act, 1961. 3. The Hon'ble Commissioner (Appeals) ought to have appreciated that the claim .....

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the relevant facts concerning the issue are that the Assessing Officer observed that on examination of records it is seen that the assessee has raised huge loans from ICICI Bank during the year and incurred interest expenditure thereon. The Assessing Officer also noted that there were simultaneous drawings by some of the partners aggregating to ₹ 1,31,17,310/- at the end of the year. The total loan outstanding from ICICI Bank at the end of the financial year stands at ₹ 1,86,48,966/ .....

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rtners which was worked out to ₹ 15,74,077/- out of total interest of ₹ 40,61,336/- paid on borrowed funds and charged to Profit & Loss Account. The CIT(A) confirmed the action of the Assessing Officer. 3.2 The Ld. Authorized Representative (AR) for the assessee Shri Shrenik Gandhi reiterated the facts placed before the Revenue authorities and contended that there is no warrant for disallowance of interest against debit balances of the partners. He submitted that outstanding bala .....

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incurred on borrowed funds have been utilized for non-business purposes. The Ld. AR relied upon the decision of the Hon ble Delhi High Court in the case of Regal Theatre vs. CIT, (1997) 225 ITR 205 (Del) for the proposition that once the conditions laid down under section 36(1)(iii) of the Act are satisfied, the deduction must be given. 3.3 Per contra, the Ld. Departmental Representative (DR) for the Revenue relied upon the orders of the authorities below and submitted that the debit balances i .....

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red the rival submissions and also perused the material placed on record. We notice from the Balance Sheet of one of the proprietary concern of assessee namely M.M. Corporation, Ahmednagar/Pune as on 31.03.2008 that the assessee during the year has obtained fresh borrowed funds from ICICI Bank. Similarly, we notice that there is a positive combined capital of partners stands at ₹ 224.07 lacs at the beginning of the financial year on 01.04.2007. The combined partners capital at the end of t .....

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al account whereas some of the other partners carried negative balances in their respective capital account. However, when seen holistically, the balances of partners capital as a class, the combined capital contribution of the partners to the business continues to remain positive. In the circumstances, presumption stands in favour of the assessee that borrowed funds have been utilized for the purposes of business. Mere over-withdrawal by some of the partners resulting in debit balances in their .....

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have been presumably utilized for the withdrawal by some of the partners. However, in the same vein, the overall capital continues to remain positive and therefore allowability of interest in the case of the assessee is squarely covered by the decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., (2009) 313 ITR 340 (Bom.). Thus, contentions advanced by the Ld. AR for the assessee merits acceptance. Hence, the Ground No.1 of the assessee s appeal is a .....

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oli Corporation. He simultaneously noted that assessee has paid/credited ₹ 6,69,180/- as commission to the above party as per the TDS certificate. He, accordingly, treated the differential amount of ₹ 1,20,579/- as unexplained expenditure under section 69C of the Act. The CIT(A) remitted the matter for proper verification by the Assessing Officer. The relevant findings of the order of the CIT(A) is as under :- 2.1.4 I have considered the facts. I find that the learned AO has stated o .....

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hed by the Appellant. 2.1.5 The other unlikely possibility is the difference has arisen because the Appellant has paid from its books but not claimed the same as deduction. In such case, no disallowance u/s 69C is called for, as it could be the case for Appellant not claiming deduction of the expenditure but the payment is made from accounted funds. However, if the Appellant has claimed deduction and not deducted tax on it, then the payment is liable to be disallowed u/s 40(a)(ia) and not u/s 69 .....

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e profit and loss account or not. If the Appellant has made payment from its accounted funds without making TDS and debited to profit and loss account then the payment will be disallowed u/s 40(a)(ia). The learned AO is directed to allow or disallow the payment in accordance with the directions contained in this paragraph. 4.2 We note that the CIT(A) has directed the Assessing Officer to reconcile the difference between the entries made in the books of account qua the TDS certificate while drawi .....

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ing business activities due to discontinuance of Bhatinda unit. However, the assessee has claimed loss of ₹ 5,66,223/- from this unit out of which, the assessee has claimed expenditure of ₹ 1,92,323/- paid to UP State Textile. The assessee clarified that the payment is made on account of the charges paid to UP Government. The Assessing Officer, having regard to the fact that the assessee s business is discontinued, held that payment is not made for the purpose of business and disallo .....

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