TMI Blog1981 (3) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, Gyanchand Dharamchand, Bhagchand and Harishchand had debit balances in the capital accounts totalling Rs. 1,97,314. He, therefore called upon the assessee as to why a part of the interest paid on the borrowings be not disallowed. After cause was shown, the ITO disallowed Rs. 23,678 being interest of 12 per cent on Rs. 1,97,314 by observing as under: "The assessee filed reply dt. 25th Sept., 1978 in which he explained that interest on the deposit balance of the partners was not being charged in accordance with the prevalent practice and also no interest was being paid to two other partners on their credit balance. It is to be noted that the assessee is paying Rs. 97,046 as interest expenses on loans and credits. Moreover this year th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m will not pay any rent of the shop to the partners; and that even otherwise there was no nexus between the drawings made by the partners and the borrowings made by the firm. The addition made by the ITO should be deleted. 4. These arguments of the assessee have been negatived by the CIT, who has upheld the above addition made by the ITO observing as under "There was admittedly no written documents to support the assessee's version that there was an agreement between the firm and the partners to the effect that the firm would not charge any interest on the advances made for construction of the aforesaid property. In the Remand Report, the ITO has furnished certain figures. According to these figures, the position of credit and debit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her purposes. The debits regarding investment in property were more than wiped out by the credits in their accounts on account of share of profit, etc. Therefore, it can be inferred that the debit balances in the accounts of the aforesaid 4 partners were on account of drawings made by them for other purposes. These drawings were certainly not for purposes of the assessee's business. It is also a fact that the assessee has been making huge borrowings every year and there is no doubt that these drawings were made in, fact, they could only be made out of the borrowings made by the assessee firm". 5. In the appeal before us, the ld. Counsel for the assessee, Mr. Ranka has urged that on the facts and in the circumstances of the case, more so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the four partners stood at Rs. 1,97,297 and the credit balances in the accounts of the two partners stood at Rs. 33,281. As such, the question of utilising any part of the fresh borrowings made in the year being diverted to the accounts of the partners did not arise. Further the ITO/CIT(A) failed to prove by any material or evidence on record, the nexus between the amounts borrowed by the assessee and the amounts debited and credited to the accounts of the partners. Mr. Ranka took us through the accounts of the partners of the assessee for the year under consideration and established that the entire withdrawals by all the partners in the year under consideration was less than the profits credited to their accounts in the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the nexus between the amounts borrowed by the assessee-firm in the year under consideration and the amounts debited or credited in the accounts of the partners for the year under consideration. The facts being as they are that the earlier investments have been made in the construction of the shop on the plot purchased by the partners and that those investments were debited in equal proportion every year to the accounts of each partner is also a significant fact to be noted when no part of interest on the borrowings made then has been disallowed by the ITO. It is also a fact that the accounts of the partners have not been credited with their shares of rent of the said shop. No interest has been also charged on the debits pertainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by the tax authorities. 9. During the year, the assessee incurred an expenditure by way of coffee, coca-cola expenses provided by the assessee to its employees and its customers totalling Rs. 4,840. Both the ITO and the CIT(A) have disallowed the said expenditure on the ground that the said expenditure was in the nature of entertainment expenses. 10. We have heard both the learned counsel for the assessee and the Deptl. Rep. The expenses in so far as they pertained to providing tea, coffee, coca cola, etc. to the staff are concerned, the same are to be allowed, as staff welfare expenditure. In so far as the said expenditure pertaining to the customers is concerned, the said expenditure is in the nature of customary courtesy prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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