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Rohit Nandlal Trust Prop: Modern Tubes Versus DCIT, Cir. 3, Ahmedabad

2017 (10) TMI 536 - ITAT AHMEDABAD

Disallowance of interest to beneficiaries - Held that:- There is some error in presenting the account, and therefore, the ld.AO instead of strictly going through the entries shown in the books, ought to have verified the contentions of the assessee with other details. In the grounds, the assessee has specifically pointed out as to how the benefit meant for the beneficiaries have been accumulated and not paid to them over a period of time. These undistributed benefits have been treated as capital .....

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e are of the view that the assessee has undistributed benefit of the beneficiaries which has been construed as capital balance, and as per the decision taken by the trust, interest has been provided on such capital balance of the beneficiaries. Therefore, the deduction ought to be allowed to them. - Decided in favour of assessee. - Disallowance of the commission payment - assessee failed to demonstrate nature of services rendered by these concerns - addition u/s 40A - Held that:- We find tha .....

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Urvashi Shodhan Revenue by : Shri O.P. Meena, Sr.DR ORDER Per Rajpal Yadav, Judicial Member Present two appeals are directed at the instance of the assessee against separate orders of even dated i.e.27.12.2013 passed by the ld.CIT(A) in Asstt.Years 2009-10 and 2010-11 respectively. 2. Since common issues are involved in both appeals, therefore, we heard them together and deem it proper to dispose of them by this common order. 3. Ground no.1, in both the years is general ground of appeal, hence, .....

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capital balance of the beneficiaries. That capital balance was treated as loan and as per resolution passed in the year 1992, beneficiary was given interest on that loan. The assessee has claimed deduction of interest on the alleged land from the beneficiaries. The ld.AO has rejected the contentions of the assessee on the ground that in the balance sheet, the assessee nowhere shown loan from the beneficiaries. Only loan shown in the balance is from Vora Finance. Therefore, he disallowed claim of .....

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d to Beneficiaries of ₹ 7,09,397/- For the disallowance of ₹ 07,09,397/- being interest paid to beneficiaries the learned Assessing Officer in para 3 of the Assessment order has observed as under. • Interest is allowable if it is paid on loan • Payment is contrary to Provision of section 40(ba) of the I. T. Act. • Amount payable to beneficiaries is not shown as loan , We respectfully clarify as under. It is well settled proposition of law that mere book entry is not co .....

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s borrowed fund from beneficiaries and therefore it is in favour of the assessee that it is allowable on loan. In fact beneficiaries can not contribute towards the capital / corpus. The settler directs in the deed to trustees to do certain activities for the benefit of beneficiaries. Beneficiaries own their own cannot do anything in their capacity as beneficiary towards activity of trust or capital of trust. So also for the inference that it is contrary to provision of Sec. 40 (ba) of the I.T. A .....

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assessment proceeding itself it has been clarified as under. (1) For the interest paid to beneficiaries we clarify as under. " It has been categorically provided in the deed of trust that for carrying out any business activities, if the need be the trustees are authorized to borrow money for the purpose of business. Trustees of the trust have borrowed money from beneficiaries. Amount payable to beneficiaries has been utilized for the purpose of business and interest has been paid on the fun .....

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owed as a deduction ; there should be borrowings, capital must have been borrowed for . business purpose and interest should have been paid / payable in respect thereof. Since all three ingredients are fulfilled, legitimate claims of interest payment to beneficiaries need to be allowed. Looking to the nature of business substantial fund is required for working capital. The amount which otherwise is payable to beneficiaries in form of cash/cheque have been utilized towards the purpose of business .....

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of the beneficiaries in the books of accounts of the trust. The beneficiaries were not obliged to keep these amounts with the trust and the fact that they were treated as loan on which interest was payable by the trust cannot go against the assessee. A Trust is a distinct legal entity and different from the beneficiaries and therefore it cannot be said that after the money became payable to the beneficiaries under the deed as per their determinate share, it could be treated by the trust as its o .....

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he organ by which a company functions, trustees are the organ by which trust functioning. In fact relationship between the trust and trustees are stronger. The Trustees are subjected to several obligation and duties and have rights and powers under the provisions of the Indian Trust Act. And as per the terms of the deed. BENEFICIARIES The person for whose benefit the trust is created. INITIAL CORPUS It is the sum settled on the trustees in trust by the Settlor. Trust is an obligation annexed to .....

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" Annexure- A " Thus it is the borrowed amount from beneficiaries which has been utilized for the purposes of business. As per the provisions of the trust deed, assuming for the sake of argument, that amount of profit generated is distributed to beneficiaries and beneficiaries in turn take their prof its away than for working capital requirement trustees will have to borrow fund from other outsider agencies such as banks, financial institutions, money lenders etc. etc. Interest in any .....

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In proprietary concern ROHIT NANDLAL TRUST Capital account shown an amount of ₹ 1,000/- only as Trust Fund whereas amount due to beneficiaries is the substantial amount as follow. Beneficiaries A/c Opening Balance 01.04.2008 Closing Balance 31.03. 2909 RohitN. Vora ₹ 25,25,985 ₹ 9,35,544 Hansaben B. Vora ₹ 25,25,960 ₹ 9,72,571 Milan R. Vora ₹ 10,84,168 ₹ 4, 15,581 Bipin N.Vora HUF ₹ 10,84,168 ₹ 3,75,394 Total ₹ 72,20,281 ₹ 26,99,0 .....

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condition necessary for making claim of interest payment for the business purpose as per the Provision of the I. T.Act. are duly complied with.• It is simply an error in presenting accounts. Even in the Annexure A to the Balance Sheet, capital account of Rohit Nandlal Trust is shown separately. Also Name of the beneficiaries, and their accounts are shown separately white ' presenting balance sheet the amount due to beneficiaries which in any case is liability has been clubbed with Annex .....

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at it has committed an error in the presenting its accounts. It was pointed out that in Annexure-A to the balance sheet, the capital account of Shri Rohit N. Vora Trust is shown separately. With the help of other details the assessee has demonstrated that beneficiaries have opening capital balance as on 1.4.2008 at ₹ 72,20,281/-. Closing balance as on 31.3.2009 was ₹ 26,99,090/-. Similarly, closing balance as on 31.3.2010 was ₹ 46,62,141/-. The opening balance of loan from the .....

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s capital of the beneficiaries in the trust, which has been used for the purpose of business. There are various other aspects also namely, the ld.DR pointed out that the assessee has been using PAN of a firm, whereas it should have a separate account number. All these aspects have confused the ld.AO. There may be certain short coming in maintaining the accounts or availing PAN but these are not so major which can persuade the AO to disallow the claim. Therefore, taking into consideration other d .....

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ectively out of the commission payment. 9. Brief facts of the case are that in the profit & loss account, the assessee has debited commission expenses to Vimal enterprises, Chetna V. Vora and V.T. Vora HUF amounting to ₹ 3,75,000/-, ₹ 1,50,000/- and ₹ 75,000/- respectively. In the Asstt.Year 2010-11, such commission payment was made to only Vimal Enterprises and Chetna B. Vora of ₹ 3,75,000/- and ₹ 1,50,764/-. The AO has disallowed the commission payment by obse .....

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No.3286/Ahd/2010 in the Asstt.Year 2007-08 and 1108/Ahd/2012 in the Asstt.Year 2008-09. The ld.DR was unable to controvert this contention of the ld.counsel for the assessee. 11. On due consideration of the record, we find that in the Asstt.Year 2007-08, the Tribunal has followed order of the ITAT in the Asstt.Year 2008-09. In the Asstt.Year 2008-09, the Tribunal has deleted the disallowance by observing as under: 4. We have heard both the sides. The name, address, PAN and the details of the com .....

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