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TMI Blog2019 (2) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... AO vide letter dated 16.04.2015 that the amounts were transferred for the purpose of bank loans and no cessation of liability. The Pr.CIT was of the view that the contention of the assessee was not substantiated with proper evidence, hence, the Ld.Pr.CIT viewed that the creditors were transferred to the capital accounts of the partners and the liability of Firm to the extent ceased to exist and the provisions of section 41(1) are applicable. The AO did not verify the application of 41(1), hence observed that the assessment order passed by the AO u/s 143(3) r.w.s. 147 is erroneous and prejudicial to the interest of the revenue. (ii) From the confirmation letters obtained from the common creditors for the current year and the subsequent assessment years, the Ld.Pr.CIT noticed that all of them are from Kolkata and there was mismatch of signatures of the same persons and the genuineness of the creditors was not investigated by the AO. (iii) The Pr.CIT further observed that the assessee had incurred interest expenditure of Rs. 10.58 crores on borrowed capital and as per the balance sheet, except sundry creditors, reserves and surpluses other funds are interest bearing funds. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of liability and the trade creditors were transferred to the partners capital account only with an intention to increase the capital base for obtaining the better bank credit facilities and in the subsequent year the balances were retransferred to the respective creditors account thus submitted that there was no benefit obtained by the assessee . 4. In respect of proposed disallowance u/s 36(1)(iii) for construction of building at Vijayarai Village and Koppal, the assessee explained and furnished the details stating that no interest bearing funds were diverted and own funds were utilized for construction, thus, there is no case for disallowance of interest. 5. In respect of debit balance in the case of Madhulatha Entertainment, the assessee explained that there are sufficient interest free funds available to the assessee, hence the question of charging interest does not arise. The assessee further a explained that against the bank lending rate of 7.75%, the assessee has collected the interest at 6% p.a., hence, there is no case for disallowance of interest for diversion of funds. 6. With regard to depreciation on residential apartment at Vaibhav Fort, Eluru, the assessee e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to the AO vide letter 16.04.2015, wherein the it was explained that the trade creditors were transferred to partners capital account and the liability of trade creditors was taken over by partners and thus there is no case for remission or cessation of liability and no case for application of section 41(1) of the Act. The Ld.AR argued that from very reading of the show cause notice issued by Pr.CIT it is established that the issue was verified by the AO. The Ld.AR referring to page No.28 of the paper book, submitted that the AO has called for the full details of purchases, opening stock and other expenses. Referring to page no.28 the AR stated that in question No.2, the AO has called for the details of introduction of capital and its sources which the assessee explained to the AO furnishing the copies of the Partners capital account in page No.33 and 41 of paper book and explained the transfer of trade creditors balance of Rs. 3,15,08,585/- relating to Md.Mahasin Ali Khan to one of the partners Mr. Kanigolla Kumar capital account. Similarly in page No.34, a sum of Rs. 3,37,30,688/- relating to the trade creditor Habibulla Mallick, Bhagwanpur, Maybulla Mallick, Bhagwanpur and Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of building. The Ld.AR argued that since, the AO has already verified the issues relating to unsecured loans and interest there on, there is no error in the assessment order passed by the AO and there is no case for invoking the jurisdiction u/s 263 of the Act. 11. Trade Creditors: In respect of other common creditors, the Ld.AR invited our attention to the questionnaire issued by the AO calling for the confirmation from the creditors which was placed before the AO vide reply dated 09.04.2015. Details and confirmations were provided by the assessee and examined by the AO and accepted the genuineness of trade creditors. Thus, there is no case for suspecting the genuineness and revising the order u/s 263 of the Act. In respect of interest charged to Madhulatha Enterprises, the assessee explained that the interest free funds are available to the assessee from which the assessee has made the advances. The Ld. A.R further submitted that the assessee is at liberty to advance the loans without charging any interest from the interest free funds. However, against the interest charged by the bank at 7.75%, the assessee has charged interest at 6% on the date, which is reasonable. Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and perused the material placed on record. The first issue in this case is related to the trade creditors amounting to Rs. 6,52,39,273/- transferred to capital accounts of the partners of the firm. It is established by the Ld.AR that the AO has called for the details during the assessment proceedings and the assessee had explained the reasons for transfer to the partners capital account vide letter dated 16.04.2015. The contention of the assessee is, as at the end of the year to increase the capital base for better bank loan facilities, the amounts were transferred to capital accounts of the partners. Verification of the balance sheet shows that the capital account balances of the partners are showing balance i.e. 13.17 crores including the transfer of trade creditors amounting to Rs. 6.52 crores. If trade creditors are excluded the partners capital account shows only 6.25 crores as against the liabilities of Rs. 51.00 crores which shows poor state of financials for bank loan facilities. Therefore, the assessee has resorted for window addressing to inflate the capital base to get better facilities from the banks. The explanation offered by the assessee appears to be rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se alone but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt was barred and had become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act. The principle that expiry of period of limitation prescribed under the Limitation Act cannot extinguish the debt but it will only prevent the creditor from enforcing the debt is well-settled. Mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor would not enable the debtor to say that the liability had come to an end. Apart from that that would not by itself confer any benefit on the debtor as contemplated by the section. Therefore, the High Court was right in holding that the assessee's unilateral entry in the accounts transferring the amount to the capital reserve account would not bring the matter within the scope of section 41." 15.1. Similarly in the case of Satpal & S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases and sales were accepted and the payments were made through bank cheques, which the AO has verified all the facts during the course of assessment, we find no error in the assessment order which caused prejudice to the department. Therefore, we hold that there is no case for jurisdiction u/s 236 on this issue. Accordingly, we set aside the order of the Pr.CIT and allow the appeal of the assessee. 17. The next issue is disallowance of interest on borrowed capital for construction of building at Vijayarai Village and Koppal Karnataka. In the case of building at Vijarai Village, the Ld.Pr.CIT held that the interest needs to be disallowed since the assessee has used the borrowed funds during the construction period. In the case of Koppal also, the Pr.CIT viewed that the interest needs to be disallowed u/s 36(1)(iii) of the Act since the assessee has not claimed the depreciation. In the instant case, the assessment was completed u/s 143(3) and the AO has called for the details of unsecured loans and verified the balance sheet, Profit & Loss account, the details of bank loans and interest payments etc. and allowed the interest debited to Profit & Loss account after thorough scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s utilized the non-interest bearing funds efficiently and charged the interest reasonably and the issue was verified by the AO. Therefore, we find no error in the assessment order which caused prejudice to the interest of the revenue. Accordingly, we set aside the order of the Ld.Pr.CIT and allow the appeal of the assessee. 19. The next issue is related to the depreciation of land on residential apartment valued at 90.65 lakhs in M/s Vaibhav Fort, Eluru. During the course of assessment proceedings, the AO called for the details of the additions to fixed assets along with the original bills and also called for the details of the depreciation which was furnished by the assessee. As per the original sale bill, there is no allocation of cost to the land and super structure separately. The assessee got undivided share of land in apartment complex. The sale consideration consists of land cost as well as the cost of construction. Normally in apartments, the sale of apartment is fixed on the basis of plinth area. In this case also, the same procedure is followed, therefore, after verification of the sale deed, the AO allowed the depreciation on the apartment on composite cost without sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues, there is inadequate enquiry, there is no lack of enquiry on any of the issues taken up for revision. This Tribunal in the case of Bondalapati Prasad Babu vide I.T.A. No.400/Viz/2017 dated 17.08.2018 and G Venkata Ramana vide I.T.A No.32/2017 dated 10.08.2018, held that "5.2. It is found from the assessment order that the assessee had filed the details and made the submissions in respect of computation of capital gains and the assessment was completed after examination of the details furnished by the assessee. The issue with regard to the computation of capital gains, cost of acquisition of the property, cost of construction, sale consideration and applicability of 50C were duly verified by the AO before completion of the assessment. Since the issue has already been verified by the AO, the Ld.Pr.CIT is not permitted to revisit the same issue and substitute his opinion in the name of revision. Review of the same issue which was already considered and examined by the AO would amount to difference of opinion not a case for revision u/s 263. Further, having examined the issue by the AO and taken a conscious decision, accepting the cost of construction, after due verification, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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