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Shri. S.P. Hombanna Versus Income-tax Officer, Ward 9 (2) , Bengaluru

2017 (11) TMI 199 - ITAT BANGALORE

Addition u/s.68 - Held that:- As the assessee was able to explain the deposit in the bank account, also as the authorities below failed to bring on record any evidence contrary to the fact that the cash was not available with the assessee, we are of the view that the explanation of the assessee was plausible and therefore the assessee was able to explain the source of cash deposit. - Claim of interest paid to partners as deduction - interest on outstanding amount of remuneration - Held that: .....

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rest on such contribution, in that eventuality the deduction u/s.36 against the remuneration received by the partners cannot be permitted. The deduction of interest paid can only be permitted if the assessee is receiving the interest income from the capital contribution made by him. In view thereof, we find that the ground raised by the assessee for allowing the deduction is without any merit. Accordingly, we dismiss this ground. - I.T.A No.708/Bang/2014 - Dated:- 2-11-2017 - SHRI. JASON P. BOAZ .....

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g addition of ₹ 32 lakhs u/s.68 of the Act ; and ii) That the lower authorities erred in disallowing the adjustment of interest paid of an amount of ₹ 9,87,295/-, towards remuneration received by the assessee during the assessment year under consideration from the firm, namely, M/s. Soundarya Constructions. 02. In regard to the first ground which pertains to the addition of ₹ 32 lakhs u/s.68 of the Act, the AO noted that the assessee has made the cash deposit to the tune of  .....

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disallowance of ₹ 32 lakhs and has made the addition. The finding of the CIT (A) are given in para 5.1 to 5.4. Being aggrieved the assessee is in appeal before this Tribunal. 03. Before us the Ld. AR has submitted that the assessee has explained the source of ₹ 32 lakhs, availability of cash and withdrawal of cash from the banks. On the basis of the above, it was submitted that the assessee has explained the source of the cash deposit and therefore the confirmation of addition by the .....

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ts made by the assessee. For the sake of clarity, the same is reproduced herein below : Date Amount 22.08.2008 Rs.10,00,000 11.09.2008 Rs.12,00,000 04.11.2008 ₹ 5,00,000 17.02.2009 ₹ 5,00,000 Total Rs.12,00,000 We shall now deal with the explanation given by the assessee in respect of all the above four transactions cumulatively giving rise to the addition of ₹ 32 lakhs. 5.1 Deposit of ₹ 10,00,000/- made on 22.08.2008 : In this regard the assessee has submitted that the a .....

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f ₹ 5,00,000/- on 18.08.2003 and ₹ 2,00,000/- on 20.08.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of ₹ 7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about ₹ 5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days f .....

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In that interregnum period, if the very same money is utilised for other purpose and thereafter, it is appropriated towards discharge of a loan, that cannot be held against the assessee. In that view of the matter, the finding recorded by the Tribunal is erroneous and requires to be set aside. Therefore, the said substantial question of law is also held against the revenue and in favour of the assessee. In our view the reasoning given by the Hon ble jurisdictional High Court in the above noted .....

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t when deposits are available there was no reason for assessee to withdraw cash from different bank accounts. The withdrawal of cash from Bank accounts, even of a sum of ₹ 1,76,750/- will not be a reason to assume that the amount of ₹ 10 lakhs of opening balance was not available with the assessee. In our view, it is for the assessee to run the business in the way he wants and not for the AO to decide how the assessee should conduct his affairs and do the business. The authorities be .....

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s there on 01.02.2009. When the opening balance was available with the assessee to the amount of ₹ 3,23,864/-. Then we had to resume to assume that the assessee was having with sufficient means to deposit an amount of ₹ 5lak in the bank account and therefore, therefore the assessee was able to explain this deposit of ₹ 5 lakhs also. Accordingly the addition made by the officers below to in an amount of ₹ 5 lakh is liable to be set aside and we hold so. 5.3 With regard to .....

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act that the cash was not available with the assessee . Accordingly the addition made by the officers below to in an amount of ₹ 12 lakh is liable to be set aside and we hold so. 5.4. With respect to deposit of ₹ 5 lakhs on 04.11.2008, it was stated by the assessee that the assessee had received a sum of ₹ 5 lakhs from the firm on 11.02.2008 from his capital, as the firm of the assessee, namely, Soundarya Constructions, was having cash availability. It was explained that the sa .....

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ccount of interest paid on borrowed capital, the Ld. AR has submitted that the assessee is a partner in Soundarya Constructions and has filed the return of income claiming the deduction of interest paid on loan amount of ₹ 11,45,607/-. It was also the case of the assessee that in the previous years the AOs have allowed the deduction of interest paid on loan amounts. However in the present assessment year, the AO has declined this amount. It was submitted that this is required to be allowed .....

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the firm therefore the assessee is entitled to deduction for the interest paid by the assessee. 07. On the other hand the Ld. DR relied upon the CIT (A) s order and submitted that this interest payment cannot be permitted to be deducted against the remuneration earned by the assessee. It was submitted that the assessee was a working partner of the firm and the income earned by the assessee has no correlation with the capital contribution made by the assessee. 08. We have heard the rival content .....

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. The total remuneration payable to all the partners put together shall be the aggregate of the amounts mentioned under A, B & C below : A On the first ₹ 75,000/- of the book profits of the firm or in the case of loss Rs.50,000/- or at the rate of 90% of the book profit whichever is more B Next ₹ 75,000/- of the book profits 60% C Balance of book profits 40% Book Profits : The term book profits means nett profits in the profit and loss account of the firm computed in the manner l .....

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ms of clause (5) of the partnership deed. Reading of clause 5 make it clear the the income of the partner, i.e., the assessee before us, was not dependent upon the capital brought in by the partner in the firm. If the partner is bringing in capital, the partner is entitled to interest at the rate of 18% p.a on the capital so brought in, thus bringing more capital will not automatically lead to increase in income. Thus there was no justification and correlation between the income earned by the pa .....

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