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TMI Blog2017 (6) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to the above and in the alternative, the learned [CIT(A)] has erred both on facts and in law in confirming the action of the AO in arbitrarily estimating the annual value of the property. 3(1) On the facts and circumstances of the case, the learned [CIT(A)] has erred both on facts and in law, in confirming the disallowance of an amount of Rs. 1,24,383/- on account of interest on partner's capital. (ii) That the above disallowance was made ignoring the fact that the interest on partner's capital is to be provided as per the term of partnership deed only. 4(i) On the facts and circumstances of the case, the learned [CIT(A)] has erred both on facts and in law, in confirming the addition of an amount of Rs. 27,300/- on account of cash expenses." 3. Ground No. 1 of the appeal is general in nature and therefore same is dismissed. 4. Ground No. 2 of the appeal is against the addition of Rs. 45000/- on account of income from house property from a vacant property at Ghaziabad. 5. The assessee is a partnership firm, filed its return of income showing income of Rs. 5634882/- on 20.09.2009. According to the list of addresses it was found that the assessee has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was provided. Due to some inadvertent error the AR of the appellant failed to include the address of the said property in the list of business premises submitted before the AO. The Id. AO ignoring the fact that the said property was specifically disclosed as a business asset concluded that the appellant has intentionally not disclosed the said property before him. He stated that the appellant disclosed the said property only after the AO asked the details of the said property on the basis of AIR information received by him. The Id. AO treated the said property as deemed to be let out during the year under consideration and estimated the annual value at Rs. 65,000/-. At the outset in this respect your attention is drawn to the provisions of section 22 of the Act. The same reads as under: The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property." The said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not stated anything in this respect except stating the fact that vide reply dated 10/02/2011 assessee submitted the details regarding all his premises and the details regarding the said property were missing from the same. The Id. AO has repeatedly stated this fact in the assessment order The second allegation of the AO is that the appellant has no where claimed the exemption under section 23(2) or 23(4). Also during the course of assessment proceedings the AO deputed an Inspector in order to carry out some inquiry in respect of expected rental value of the said property. And on the basis of the report of the inspector he calculated the Annual Value of the said property at Rs. 20,000/~ per month and added the same to the income of the assessee invoking the provisions of section 23 and 24 of the act. Your honor the provisions of section 23 are subject to the provisions of section 22. The text of the sections is reiterated for a ready reference. The same reads as under: 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- 22. 50The annual value of property consisting of any buildings^1 or lands appurtenant^1 thereto of which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient but it's the particulars were necessary to be filed, in the prescribed columns of return of income. The appellant filed a letter dated 25.3.2008 from a party to show that it had under taken some contract at Kaushambi, Ghaziabad and the said premises was being used by the labourers/workers as a transit house to facilitate the smooth execution of business activities. I am unable to agree with the story of the appellant. This work contract for supply, installation, testing and commissioning for aluminum glazing and A.C.P. which was awarded to the appellant vide letter dated 25.3.2008 was to be completed by 0107,2008. It is therefore, not understood as to why and how a property which was purchased on 23.12.2008 was used in connection with the work to be completed by 01.07.2008. Therefore, considering all the facts of case, I am unable to persuade by the contention of the AR that the property in question was used for business purposes. Accordingly, the Assessing Officer's action bringing to tax this property is upheld. I also do not find any justification to interfere with the expected rental value of the property taken by the Assessing Officer as the appellant has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 3 of the appeal of the assessee on account of disallowance of Rs. 124383/- on account to interest to partners. The ld has disallowed the interest amounting to Rs. 124383/- for the reason that assessee has paid interest to the partners of higher amount by calculating it on opening balance in the capital account of the partners. Therefore, the ld Assessing Officer worked out interest on daily basis and determine a sum of Rs. 124383/- paid in excess of the provisions of section 40(b) of the Act. The assessee contested before the ld C IT(A), who death with it as under and confirmed the disallowance:- "9. Ground nos. 4(i) and (ii) related to disallowance of Rs. 1,24,383/- made by the Assessing Officer on account of excess interest credited to the partners' capital accounts. 9.1 In the course of the assessment proceedings, the Assessing Officer noticed that the appellant paid interest to its partners on the opening balances as appearing in their capital accounts. According to the Assessing Officer as per the decision of the Hon'ble ITAT, Hyderabad in the case of Architectural Associates vs. ACIT reported in 92 ITD 479, interest to partners on their capital balances is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on the capital balances of the partners on daily basis at Rs. 27,461/- in the case of Sh. Vikas Sharma, Rs. 1,66,863/- in the case of Sh. Arun Sharma and Rs,96,238/- in the case of Sh. Chetan Sharma as against the interest credited to their respective accounts of Rs. 67,746/-, Rs. 2,01,718/- and Rs. 1,45,481/- and disallowed the excess interest aggregating to Rs. 1,24,383/- (40,285 + 34,855 + 49,293) and added the same to the income of the appellant. 10. In the course of the appellate proceedings, the AR of the appellant filed the following written submissions: (b) Disallowance of Rs. 1,24,383/- on account of interest paid to partner's on their capital and addition ofRs.18,870/- on account of interest to be charged from partner: "Your honor during the year under consideration the appellant firm had three partners. Mr.Arun Sharma, Mr. Chetan Sharma & Mr. Vikas Sharma. They executed a supplementary partnership deed on 01.04.2008 which was merged with the original partnership deed dated 18.07.2003, In the said deed its was specifically provided as under: 'Whereas the party of the First Part, Second Part and Third Part have also agreed to provide interest @1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO is bad on the facts of the case and in law and liable to be deterred. Your honor the Id. AO has relied on the judgment passed in the case of Architectural Associates vs. ACIT (ITAT Hyd.) 92 ITD 479. In the present case it was held that the payment of interest is subject to the conditions stated in the partnership deed. The interest has to be calculated on the basis of method/computation/formula stated in the partnership deed. The AO in this case had deducted the drawings made by the partners during the year from the opening capital balance and calculated the interest on the remaining amount. The matter was set aside to the file of the A 0. The Honorable ITA T stated as under: It is not the case of the assessee that as per the partnership deed the partners have agreed to share the profits from day to day or even from month to month basis. In fact there is no calculation provided to the Bench in this regard. The learned counsel merely adopted the final share of profit to explain the withdrawals as though the share of profit was withdrawn by the partners leaving the capital untouched. There is no working as to the date of withdrawals and the date on which the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied without the authority of law (See Art. 265 of the COl) and examine the assessments of the individual partners in that perspective. The facts of this case are not identical with the case of the assessee and thus the said judgment is not applicable 'in the present case. Rather it further strengthens the case of the appellant as the said judgment has clearly stated that since there is no mention is the partnership deed of paying interest on reducing balance basis the same is to be allowed as per the partnership deed. Since in the present case the interest has been paid as per the partnership deed the action of the AO in disallowing the interest paid is against the facts of the case and bad in law and liable to be deleted." 11. I have considered the facts of the case and written submissions of the appellant. I have perused the copies of capital accounts and drawing accounts of the partners. I have also perused the copy of partnership deed and copy of supplementary deed to the original partnership deed. There is no dispute that the payment of interest is authorized by the partnership deed. As per clause-9 of the partnership deed, accounts of the firm shall be closed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures it is apparent that profits are much higher then the drawings and therefore, the reasoning given by the coordinate bench clearly applies to the facts of the present case. Therefore, respectfully following the decision of the coordinate bench we direct the ld Assessing Officer to delete the disallowance of Rs. 124383/- confirmed by ld CIT(A) on account of excess interest paid to the partners on capital. In view of this, we allow ground No. 3 of the appeal of the assessee. 12. The ground No. 4 of the appeal of the assessee is against the disallowance of Rs. 27300/- u/s 40A(3). Assessing Officer rejected the assessee's argument that the vendor did not accept cheque payment, same was also confirmed by the ld CIT(A). 13. On appeal before us the ld A R and DR stated the same argument, which is before the lower authorities. 14. We have carefully considered the rival contentions and we do not see any reason to dislodge the findings of the lower authorities in disallowance of the above, which is clear cut violation of section 40A(3) paid on 24.10.2008 in cash. In the result ground No. 4 of the appeal of the assessee is dismissed. 15. In the result the appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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