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M/s. Bombay Sales Corporation Versus The Jt. CIT, Range-3, The Asst. CIT, Circle-5 (2) , Ahmedabad

2017 (10) TMI 479 - ITAT AHMEDABAD

Disallowance of interest expenditure - Held that:- It is admitted position that the partner’s capital during the year in appeal are not interest-free funds at the disposal of the partnership-firm. The profit belongs to partner and gets added to the capital on which interest is payable by the firm. On these facts, we do not see any purpose of sending the issue back to the file of CIT(A). The assessee has not been able to justify before us as to what facts required to be re-examined by the Revenue .....

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he Assessee : Shri S.N. Divatia, AR For The Revenue : Shri S.N. Divatia, AR ORDER PER PRADIP KUMAR KEDIA - AM The captioned cross-appeals filed by the Assessee and the Revenue are directed against the order of the Commissioner of Income Tax(Appeals)-VI, Ahmedabad [CIT(A) in short] dated 05/09/2014 passed for the Assessment Year (AY) 2011-12. 2. The assessee in its appeal has objected to the disallowance of interest expenditure of ₹ 3,65,752/-. 3. The Revenue, on the other hand, in its appe .....

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ts in PUF foam-sheets, pillows, cushions, covered mattresses etc. The assessee filed return of income for AY 2011-12 declaring total income of ₹ 92,95,230/-. The return of assessee was subjected to scrutiny assessment. In the course of the assessment proceedings, the AO inter-alia found that the assessee had given interest-free loans and advances to two parties, namely, Mrs. Kalpanaben Amin (closing balance as on 31/03/2011 - ₹ 8,17,025/-) and Mrs. Shobanaben Amin (closing balance as .....

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interest incurred for non-business purposes. The assessee preferred appeal before the CIT(A) against the aforesaid expenditure without any success. 5. Aggrieved, the assessee preferred appeal before the Tribunal. 6. The Ld.AR submitted that similar advances were made in the earlier year and are also outstanding for payment. The source of payment was claimed to be out of running account of assessee s business. It was contended that the assessee has declared substantial book profits of ₹ 63 .....

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vailable at the disposal of the assessee to enable it to make interest-free advances, the case of the assessee squarely covered by the decision of Hon ble Calcutta High Court in the case of Woolcombers India Ltd. (134 ITR 219) [Cal.]. The Ld.AR submitted that the aforesaid decision of the Calcutta High Court has been approved by the Hon ble Apex Court in the case of East India Pharmaceutical Works vs. CIT (224 ITR 627)[SC]. The Ld.AR submitted that in the similar facts and circumstances of the c .....

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o the extent of interest-free advances requires to be disallowed as having been incurred for non-purposes in terms of section 36(1)(iii) of the Act. The Ld.DR thereafter referred to the ledger account of the parties to whom interestfree advances have been lent and submitted that the payment has been made to the parties out of the AMCO Bank Ltd. mortgage account which impliedly means that interest has been borne on this interest bearing mortgage account whereas advances has been given free of int .....

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next submitted that facts of each year varies and pleaded that in the absence of any positive material, there is no warrant to refer the matter back to the file of the CIT(A) in these circumstances. 8. We have carefully considered the rival submissions. The assessee in its appeal has agitated the disallowance of proportionate interest expenses on certain advances made two parties which are connected to the partners of the assessee-firm. It is noticed that the assessee has given advance to Smt.K .....

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s, no interest-free own funds are available at the disposal of the partnership-firm. Clearly assessee-firm on the one hand incurred the expenditure towards interest on the capital outstanding for the respective partners whereas interest-free advances have been made to the relatives of the partner. No business justification has been brought on record at any stage before the revenue authorities for doing so. No justification has been brought before us either. It is the repeated contention on behal .....

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n assessee has been paying interest while advancing interest-free loans. We also take notice of the reasonings given by the lower authorities for embarking on proportionate disallowance of interest to the extent of interest-free advances. The Revenue Authorities have rejected various contentions of the assessee on the ground that no fund flow statement has been furnished before them to appreciate assessee s perspective. We do not see any such statement or other evidences before us either, which .....

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y the assessee. We fail to understand the purport of the aforesaid decision in the facts of the present case. In the aforesaid decision, the advance tax was paid out of overdraft account and the interest on overdraft account was claimed as business expenditure. The Hon ble High Court held that the payment from overdraft account by itself will not tantamount for utilization of borrowed funds or advance tax purposes. Naturally, advance tax is paid for profits earned, a part of which is ear-marked .....

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ch of ITAT in assessee s own case in ITA No.2433/Ahd/2013 relevant to AY 2010-11 to seek to set aside the issue to the file of the CIT(A). We are not impressed by such plea of the assessee. It is admitted position that the partner s capital during the year in appeal are not interest-free funds at the disposal of the partnership-firm. The profit belongs to partner and gets added to the capital on which interest is payable by the firm. On these facts, we do not see any purpose of sending the issue .....

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l of the assessee in ITA No.2748/Ahd/2014 for AY 2011-12 is dismissed. 10. Now we shall turn to Revenue s appeal in ITA No.3224/Ahd/2014 against the order of the CIT(A) towards of disallowance made by resorting to s.40a(ia) of the Act. We find that the aforesaid issue has been decided by the CIT(A) as under:- 4. Ground No.2 is as under:- 2.1 The Ld. AO has grievously erred in law and or on facts in holding that the appellant was required to make TDS u/s.194H in respect of sales incentive of Rs. .....

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8,94,759/- but no TDS u/s 194H was deducted there from and hence the appellant was asked to submit its explanation for the same. The appellant filed its reply on 12.11.2013 stating that it was not required to make any TDS u/s.194H in view of the fact that the sales incentive is not brokerage or commissioner paid to the dealers as its agent. The appellant also pointed out that identical issue was raised by AO in the assessment for AY 2008-09 to 2010-11 but on appeal; CIT(A) deleted the impugned d .....

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