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TMI Blog2022 (5) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of loss, when the assesse did not file the return of income u/s 139(1) and the return filed u/s 153A was beyond the time allowed. ii) Whether on the facts and circumstances of the case and in law the Id. CIT(A) is justified in deleting the addition made on account of interest attributable to the debit balance of the partner Rs. 85,52,144/- ? iii) Whether on the facts and circumstances of the case and in law the Id. CIT(A) failed to appreciate that the assessee has not furnished any fund flow statement which could show that the partners withdrawal were made out of the interest free advances available? iv) Whether on the facts and circumstances of the case and in law the Id. CIT(A) failed to appreciate that the total fund available with the assessee is Rs. 197.19 crores against the debit balance of the partners is at Rs. 138.09/- and it is not the case of the assessee that entire debit balance is out of interest free advances available. v) Without prejudice to the grounds at (i), (ii) & (iii) above, whether on the facts and circumstances of the case and in law the Id. CIT(A) ought to have disallowed the interest attributable to the debit balance of the partners in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that as the assessee did not file original return of income u/s.139(1) and also fail to file the return of income in response to notice u/s.153A within the due date specified the loss declared by the assessee was not allowable and therefore disallowed the same. From a reading of the observation of the assessing officer it appears that she arrived at the said conclusion on interpretation of provisions of section 139(3) of the IT Act. In this connection kind attention is drawn to section 139(3) and the same is extracted hereunder for kind perusal: If any person who 44[*** J has sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains" and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) 45[or sub-section (3)J of section 74, 46[or sub-section (3) of section 74AJ, he may furnish, within the time allowed under sub-section (1) 47[***J, a return of loss in the prescribed form48 and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Explanation. - For the removal of doubts, it is hereby declared that,(i) save as otherwise provided in this section, section,lS3B and section lS3e, all other provisions of this Act shall apply to the assessment made under this section; (ii ) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. As already submitted, the assessee claimed loss to the tune of Rs.2,70,07,786/- on the basis of profit and loss account filed along with the return of income. The assessing officer concluded the same should not be allowed and therefore she proceeded to disallow the same. Thus, the assessing officer took an improper stand. The provisions of the Act says that the computation as per the belated return of income results in loss the same should not be allowed to be carryforward. Nowhere in the act it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e current year's income and assessee not claimed any carried forward loss of current year. He further submitted that though the return was not filed in time, the CIT(A) after examining the issue in detail has deleted the disallowance made by the AO on this count. 12. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. It is observed that the assessee has not filed the return of income u/s 139(1) of the Act.. The return of income u/s 153A was filed on 07/08/2015, which was beyond the time granted by the AO vide notice dated 10/11/2014. As per section 139(3) of the Act, if the assessee did not file return of income within the due date, the loss for the current year's cannot be carried forward. On perusal of the paper book filed by the assessee, we find that the assessee set off of loss for current year from the other heads of income and there is a brought forward loss of Rs. 53,15,526/- from AY 2011-12, which has been carried forward. We also find from the copy of the acknowledgment of return that there is a current year's loss of Rs. 39,23,689/-. Since this is a searched case, as per the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prasad 68,96,45,518 70,74,39,519 Shri U. Srinivas 67,27,27,243 67,35,31,620 13.1 From the above, he observed that the partners had withdrawn huge funds from the firm but no interest was charged on these drawings. Thus, according to AO, the interest bearing funds were diverted/misutilised by the partners in the form of interest free drawings. In this connection, during the course of assessment proceedings the assessee was asked as to why the interest expenditure claimed should not be disallowed. In, response, the assessee submitted as under: "Shri P.Amruth Prasad and Uppu Srinivas are the main partners in M/s.Amsri Builders. The said firm is the flag bearer of the Amsri Group." Basically the partners acquired or entered several development agreements for the land bank through Mis. Amsri Builders. Further, the partners have contemplated Mis. Amsri Builders as their main firm. Thus, the partners made the firm as instrumental to get the funds received and temporarily parked in the Amsri Builders account on various occasions. Subsequently, the partners ploughed back the funds through their capital account to the required destinations as per the understanding. This becomes custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pages 7 to 9 in his order and after considering the same, he deleted the disallowance made towards interest by observing as under: "5.2 P I have considered the assessment order and submissions of the assessee. The AO made the disallowance as there are huge debit balances outstanding in partners capital accounts whereas the assessee is paying interest on the borrowals. The AO concluded that the assessee ought to have charged interest on capital account debit balances and disallowed the interest claimed. The assessee is not obligated to charge interest and debit balances and further, the interest can be disallowed only if the direct connection between the loan and the withdrawals by the assessee can be established. It is seen from the details filed that the assessee has received huge amounts free of interest which are also outstanding. The direct connection between the withdrawals by the partners and interest bearing loans has not been established by the AG. In view of the factual position as above disallowance of interest is not justified/warranted. Accordingly, the addition made on account of the above is deleted." 15. The ld. DR submitted that partners have withdrawn excess m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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