TMI Blog2023 (4) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed - Addition made by the AO on the withdrawals made by one of the partners of the firm noting that as per the partnership deed, 12% interest was to be charged on the withdrawals, but the assessee had not charged the same - AO simply notes that the assessee furnished reply, but it was not satisfactory. What exactly was the reply, finds no mention in his assessment order. The AO straight-away arrives at a finding and conclusion that the reply was not satisfactory, without even giving any reasons and basis for rejecting the same. The ld.CIT(A) has nothing to say in the matter except that the assessment order is justified, and proper show cause notice has been given to the assessee. Addition of interest paid on fund advanced - The assessee had explained that the advances related to business transactions with Ashok Sales Corporation, which were rejected by the AO outrightly by stating that no prudent businessman would give advance without interest. The AO has not even cared to consider the assessee s statement of facts that the advance was in relation to business transactions carried out by the assessee and was purely commercial advance. On the contrary, the AO has gone to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnoring the pleadings of the assessee before them, giving no reason for the same, and passing cryptic orders without any reasoning. The order of the ld.CIT(A) needs to be set aside for this reason alone and the assesses claims be allowed. Having said so, we shall now bring out the reasoning for the same from the orders of the authorities below. 6. As is evident from the grounds raised before me, the assessee has primarily challenged the disallowances of three types of interests viz. (i) Rs.9,195/- and Rs.21,295/- disallowed under section 40A(2)(b) of the Act, (ii) Rs.51,662/- being interest paid to partners disallowed, and (iii) Rs.7,84,957/- being the interest paid on fund advanced to one M/s.Ashok Sales Corporation. The assessment order deals with all three issues at para 6 7 for the first issue as under: 6. The assessee has charged interest @ less than 12%, on the advances given to Kaileshbhai M. Patel, on the other hand, the assessee has paid interest @ 12% or more on . unsecured loan. Accordingly, the assessee vide notice dated 06.10.2016, has been asked that In the case of ShaileshbhaiMaganbhai Patel, you have charged interest Rs.30,750/- less than 12%,o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee has claimed huge interest expenses including interest on partner's capital. Accordingly, the assessee vide this office notice dated 06.10.2016', has been asked that Partner-of the Firm Shri Brijesh P Chandan has made withdrawals from the Firm, however, no interest has been charged, you are therefore requested to show cause as to why interest @ 12%, which comes to Rs.51,662/- should not be treated as income of the assessee Firm. In response to the above the assessee could not offered any satisfactory reply, Accordingly, Rs.51,662/- is disallowed out of interest expenses claimed by the assessee and added to the total income of the assessee. Para-9 for the third issue as under: 9. The assessee has given advances to Ashok Sales Corporation a numbers of times and received back time to time and shown, closing balance of Rs.35,51,065/-, however, not charged any interest. Accordingly, the assessee vide this office notice dated 06.10.2016, has been asked that You have made financial transactions with Ashok Sales Corporation, however, you have not charged any interest, you are therefore, requested to show cause as to why proportionate interest exp. @12%, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in para 8 of assessment order. The partnership deed has been considered by the AO, hence the principle of expediency by the appellant is nothing but to defraud the revenue. Proper show cause notice has been served by the AO on appellant before making addition. The decision of the AO is found to be correct, therefore ground no. 2.1(d) is hereby dismissed. Para-4.5 for the third issue, as under: 4.5 Ground no. 2.1 (e) is regarding disallowance of Rs.7,84,957/-. The detail is in para 9 of assessment order. Huge funds have been advanced to Ashok Sales Corporation without charging any interest. Proper show cause notice has been served by the AO on appellant before making addition. The AO has taken consistent view to consider 12% interest as reasonable. The disallowance has been computed for the outstanding amount @ 12% per annum. The decision of the AO is found to be correct, therefore ground no. 2.1(e) is hereby dismissed. 8. After going through the orders of the AO and the ld.CIT(A), all the issues are now being dealt with by me. 9. On the issue of disallowance/ addition of interest under section 40A(2)(b) of the Act ; of Rs.9,195/- the same pertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had explained that the advances related to business transactions with Ashok Sales Corporation, which were rejected by the AO outrightly by stating that no prudent businessman would give advance without interest. The AO has not even cared to consider the assessee s statement of facts that the advance was in relation to business transactions carried out by the assessee and was purely commercial advance. On the contrary, the AO has gone to hold that no business transaction has been shown by the assessee, and it was only financial transaction. The ld.CIT(A) has again upheld order of the AO finding it to be totally justified. The assessee had given detailed explanation to the ld.CIT(A) in appellate proceedings, which are reproduced at page no.3 of his order at para 4, 5, 7 8 as under: 4.0 Disallowance of interest charged at lessor rate-Rs.9,195/- 4.1 The next ground of appeal relates to the disallowance at pro-rata basis in respect of interest expenses at Rs.9,195/-. It is discussed In para-6 of the order. The AO also found that the appellant had charged interest at a lesser rate in respect of advance given to Shri Shailesh M. Patel so that difference @ 6% of Rs.9,195/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant had not diverted interest bearing funds to interest free advance to this party. Hence the impugned disallowance of RS. 784,957/-should be deleted. 6.0 Disallowance of interest Exp. -Rs. 4,86,471/- 6.1 The next ground of appeal relates to the disallowance at pro-rata basis in respect of interest expenses at Rs.4,86,471/-. It is discussed in para-10 of the order. The AO has observed that though there were interest payments exceeding the limit, the appellant had accepted Forms 15G u/s 197A(1B) from the parties and not made TDS so that disallowance u/s 40(a)(ia) was made. 6.2 The appellant submits that the impugned disallowance is not justified because the AO has failed to appreciate that (i) the appellant had filed copy of ITRs of all those parties to prove that the interest income was offered to tax by them in their ITRs and as such in view of proviso to sec 201(1) r.w.s. 40(a)(ia), the disallowance was not justified. It may be noted that the second proviso to section 40(a)(ia) was inserted by Finance Act 2012 w.e.f. 1-4- 2013 to the effect that TDS would be deemed to have been made when the assesse is not treated as defaulter under first proviso to Sec 201(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
