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2019 (10) TMI 391

..... e Balance Sheet itself it is noted that the borrowed funds which is to the tune of ₹ 92 lakhs which fund was thus utilized in the proprietorship concern and, therefore, the CIT(A)'s contention that utilisation of loan can only be proven through a cash flow statement cannot be countenanced in the facts of the case as discussed. CIT(A) erred in not appreciating the claim of the assessee in the right perspective and, therefore, since the amount which the assessee has borrowed has been utilized and invested by the assessee in the two concerns, the interest is an allowable expenditure. Moreover, it has also been brought to our notice that in the subsequent two assessment years i.e. for AY 2013-14 and 2014-15 the interest paid on the very same loan borrowed by the assessee which is carried forwarded from earlier years was allowed as business expenditure in the hands of the assessee. Thus, it is seen that AO has accepted the allowability of the said interest expenditure in subsequent years and, therefore, a consistent stand needs to have been taken and taking into consideration the facts noted supra, we allow the claim of the assessee. - Decided in favour of assessee. - I.T.A. N .....

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..... istency, the disallowance of such identical expenditure on the same unsecured carried forward old loan is uncalled for and not sustainable in law. 6. That, the Ld. AO & CIT(A) also erred in having disallowed interest expenses as not related to business by holding that tax audit is required for the expenditure claimed m personal account in spite of the fact that as per I.T. Act, personal account was not liable for tax audit u/s.44AB and accounts of the proprietary concerns were statutorily audited u/s.44AB of the Act. 7. That, as the order of Ld. C.I.T.(A) on the above issues suffer from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 8. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds. 2. Though the assessee has preferred eight grounds of appeal, the main grounds are given in ground nos. 1 to 6 above. Ground nos. 7 and 8 are general in nature, so it stands dismissed. 3. The main grievance of the assessee is regarding the action of the Ld. CIT(A) in upholding the disallowance of interest expenditure to the tune of ₹ .....

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..... the concerned loan is utilized in his business. That means that the interest expenditure so claimed is a business expenditure. It can also not be denied that business expenditure must always be shown and debited in the accounts of the business. But in this case an amount of unsecured loan other than the loans shown in the accounts of the assessee's proprietorship business and interest thereon claimed to be a business expenditure are shown in another set of accounts. If any loan is taken for the purpose of business the assessee is duty bound to show it in the accounts of that business which is subject to audit u/s.44AB in order to enable the auditor to report properly on the said loans in Form 3CD. But in this case the assessee did not include the interest expenditure of ₹ 10,06,209/- and the related loan amount in the audited accounts of his proprietorship business . In view of the above reasons, the said amount was disallowed by the AO and added back to the total income of the assessee. 4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who did not go into the reasons given by the AO to deny the disallowance, however, had given a different reason to den .....

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..... ssessee explained that in case of an individual account, no tax audit is required u/s. 44AB of the Act and since both the proprietary concerns have been audited as per law, the audit report of the two proprietary concerns have been taken into consideration for drawing up the third (3) balance sheet of the assessee which was made in his personal capacity. However, the AO was not satisfied with the explanation rendered by the assessee and, therefore, disallowed the interest claim to have been expended by the assessee to the tune of ₹ 10,06,209/-. The Ld. CIT(A) has confirmed the action of the AO by alleging that the assessee has failed to produce any specific details by submitting cash flow trail of the loan amount being utilized by the two business concerns and confirmed the action of AO. Assailing the action of the Ld. CIT(A), the Ld. AR contended that proprietary concern is a type of enterprise i.e. owned and run by one person and there is no legal distinction between the owner and the business entity. Therefore, proprietary concern is not a separate legal entity. For the aforesaid proposition the Ld. AR drew our attention to the Hon ble Delhi High Court decision in the case .....

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..... tainable. 6. The Ld. AR also drew our attention to the decision of the Hon'ble Delhi Court in the case of Miraj Marketing Corporation vs Vishaka Engineering and Anr. reported in 115 (2004) DLT 471 wherein it is held that "11…… a proprietorship firm has no legal entity like a registered firm. Suit cannot be instituted in the name of unregistered proprietorship firm and the said suit is to be instituted in the name of proprietor. There is no statement made in the plaint by the plaintiff as to who is the proprietor of the firm. Sh. Amitabh Sharma was described in the Cause title of the plaint only as an authorised representative. The name of the proprietor of the said proprietorship firm is not given in the plaint. The plaint was not signed by the authorised representative. A sole proprietorship firm is not a legal entity which can sue or be sued in its own name. Such suit relating to or against the affairs or claims of a proprietorship concern has to be brought or made against the person who is the sole proprietor of the firm". 7. Thus it was contended by the Ld. AR that when there is no separate identity of the proprietary concern and the proprietor (i.e. .....

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