TMI Blog2017 (6) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... t:- Where the drawings are deemed to have been made by the partners on day to day basis then respective profits should also have been credited on day to day basis. The ld DR could not point out any contrary decision. In the facts of the present case the opening balance of the partner capital account is ₹ 3457875/-. Profits earned during the year is ₹ 5804796/- and drawings of the partners is ₹ 2864259/- which makes the closing balance of ₹ 6398412/-. From the above 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, on relying on Deval Utensil Factory case [2005 (8) TMI 328 - ITAT PUNE-B ] we direct the ld Assessing Officer to delete the disallowance confirmed by ld CIT(A) on account of excess interest paid to the partners on capital.- Decided in favour of assessee Addition u/s 40A(3) - Held that:- No 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. - Decided against assessee - ITA No.1054/Del/2013 - - - Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house property. The assessee was asked to show the reason, to which the assessee has replied that the property was being used by the assessee firm for business and therefore, no income is chargeable to tax under the head income from house property. To verify the claim of the assessee ld Assessing Officer deputed Inspector who submitted his report on 17.12.2011 and stated that the expected rental value of the property is ₹ 25000/- per month. Based on this the income of the house property was computed taking the annual value of the property at ₹ 65000/- and after granting deduction u/s 24(i) of ₹ 19500/- and taxable income was determined at ₹ 45500/-. The above addition was contested before the ld CIT(A), wherein, the above addition was confirmed vide para No. 7 and 8 of his order as under:- 7. In the course of the appellate proceedings, the AR of the appellant has filed the following written submissions: (a) Addition of ₹ 45,500/- as income under the head house property: Your honor the Id. AO has made an addition of ₹ 45,500/- as income under the head house property on account of property at M-8Q1, Type V, 8th Floor at C/GH-3, Vaibhav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being used by any assessee for the purpose of its business or profession the same shall be excluded from the purview of the said section. In the present case the assessee has specifically stated that the said property has been used for its business and the Id. AO has no where disputed that the said property was not used by the appellant for its business purpose. Thus the action of the AO by calculating the Annual Value of the said property is bad in law and on the facts of the case. Without prejudice to above, the main allegations of the assessing officer regarding the above said addition are as under: i. That the assesses has nowhere mentioned in return, schedule for house property, computation of income or submissions made before him about the property at Indrapuram. II. That the assessee has not claimed any exemption under section 23(2) or 23(4) with respect to the said property. Your honor the first allegation of the AO that the assessee has nowhere mentioned about the property in Indrapuram is factually incorrect. During the course of assessment proceedings the assessee vide its letter dated 10/02/2011 furnished audited balance sheet and audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than such portions of such property as he may occupy5* 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 . It is reiterated that section 22 is the charging section for the income under the head house property and a plain reading of the same clearly depicts that the annual value will not be calculated in respect of those buildings or land appurtenant thereto which are being used for the purpose of the business and profession. In other words, business assets are outside the ambit of section 22 and hence there is no point of invoking section 23 and 24. Thus by stretch of imagination the appellant would have claimed any benefit under the said sections. Your honor in the present case the said property has been duly disclosed by the assessee in its books of accounts and the same is being used for the purpose of the business only. The books have already been placed on record during the course of assessment proceedings. Your honor merely on account of an inadvertent error in one reply, filed during the course of assessment proceedings, undue hardshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd any material to show it as excessive and unreasonable. Accordingly, the addition of ₹ 45,000/- on account of notional rental income is confirmed. This ground of appeal is dismissed. 6. The ld AR of the assessee submitted the same facts as stated before the lower authorities and ld DR relied upon the orders of the lower authorities. 7. We have carefully considered the rival contentions. According to the provision section 22 of the Income Tax Act the annual value of the property consisting of any building or land appurtenant to is chargeable to tax under the head income from house property provided assessee is the owner and such property is not occupied for the purpose of business profit of which is chargeable to income tax as business income. In the present case the assessee has claimed that this property is used for the purpose of the business. The lower authorities did not believe the claim of the assessee saying that the argument is merely an afterthought, though the property was shown by the assessee in the fixed asset schedule. Before the lower authorities the assessee submitted that it is being used as a transit house to facilitate the business of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital balances is to be computed on reducing balance / daily balance method. The Assessing Officer therefore, asked the appellant why interest to the partners paid in excess to their capital balances be not disallowed as the interest has been debited to the P L account on the basis of opening balances of the partners in their respective capital accounts. In response the appellant vide its reply dated 16.12.2011 has submitted:- During the year under reference, the assessee has paid interest on capital @12% on the opening capital balance to all the partners. The partnership deed provides that interest @ 12% per annum to be paid by the partnership firm and to be debited to its profit loss account every .ear on their respective capital account balance. The opening balance of ail the partners as on 14.2008 is ₹ 34,57,875.41, profit earned by the partners during the year is ₹ 58,04,796.12 and total drawing of all the partners is ₹ 28,64,259/- which is lower than the profit earned by them. The partners have withdrawn their profit earned during the year and due to that reason the interest is provided on the opening balance of their respective capital balance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the First Part, Second Part and Third Part have also agreed to provide interest @12% per annum to be paid by the partnership firm and to debited to its profit and loss account every year on their respective capital account balance. It was specifically agreed between the partners that an interest @12% on the opening capital account balance was to be provided by the firm to the partners. It was also specifically stated that the sum of remuneration and interest on capital shall not exceed the amount which is allowed as deduction under section 40(b) of the I T Act. During the year under consideration the appellant paid the following sum as interest to the partners @ 12% per annum on the opening capital balance: Mr Arun Sharma 2,01,718/- Mr. Chetan Sharma 1,45,4817- Mr. Vikas Sharma 67,746/- The said interest was paid specifically in consonance with the partnership deed executed between the partners. Further there was no violation of any provision of the I T Act, 1961. The Id. AO during the course of proceedings before him a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 remuneration, interest or profit is accrued to the partners so as to claim that the withdrawals are against the share of profit/remuneration/interest, alleged to have accrued to the partners. The conduct of the assessee of not crediting the partners' accounts with the aforementioned amounts on a daily/monthly basis also indicate that as per the partnership agreement the partners have no right to claim share of profit etc., on day to day basis. In such an event of the matter, it would be difficult to hold that the withdrawals are out of share of profits etc., that accrued to the partners. Even with regard to the remuneration the facts placed before us do not indicate as to whether the partnership deed authorizes the partners to receive remuneration at a percentage of book profit which requires to be worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 31st March each year when final accounts shall be drawn and p L account shall be divided amongst the partners. Therefore, the monthly withdrawal made by the partners are not against the share of profit as no profits have accrued to the partners during the year. However, as per the supplementary deed dated 1.4.2008 each partner is entitled to monthly remuneration of ₹ 12,000/-. Therefore, the remuneration accrued on month to month basis. I find that the Assessing Officer has calculated the interest on the credit balance standing in the name of each partner after deducting the withdrawals whenever they have made. In my view the banks also follow this system of calculation of interest, which followed by the Assessing Officer. Therefore, I see no justification to interfere with the method followed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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