M/S. SIDHARTH SHIVAM AND COMPANY,BARODA vs. THE INCOME TAX OFFICER, WARD-1(2)(5), BARODA

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ITA 2297/AHD/2016Status: DisposedITAT Ahmedabad11 July 2019AY 2010-113 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the reopening was justified as the Assessing Officer had not applied his mind to the rate of interest during the original assessment. The disallowance of interest exceeding 12% was also confirmed as per the partnership deed and the relevant section of the Act.

What were the facts?

The assessee's assessment was reopened to disallow interest paid to partners in excess of 12% per annum, as per Section 40(b)(iv) of the Income Tax Act. The assessee argued that the reopening was bad in law as it was based on a change of opinion without new evidence.

What were the issues?

Whether the reopening of assessment was validly done without new evidence and if the disallowance of interest paid to partners in excess of 12% was justified.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 40(b)(iv)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD

Per Pramod Kumar, Vice President:

1.

By way of this appeal, the assessee appellant has challenged the correctness of the order dated 6th May 2016 passed by the by the ld. CIT(A)-5, Vadodara in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2010-11.

2. In the first ground of appeal, the assessee appellant has raised the following grievance:-

“1. Re-opening is bad in law 1.01 On the facts and circumstances of your appellant's case and in law, the Id. CIT (Appeal) has erred in confirming action of Id AO of re-opening of assessment proceedings which was re-opened without bringing on record any new details / evidences and also without also justifying reasons recorded for re-opening. The re-opening is done merely on change of opinion as regular assessment was already carried out and the issue under consideration was also discussed upon.

1.02 Your appellant therefore prays Your Honor to hold so now and direct the Id. AO to treat the assessment bad in law.”

Sidharth Shivam and Company Vs. ITO Assessment year: 2010-11 Page 2 of 3

3.

Briefly stated, the relevant material facts are like this. This is a case of reopened assessment and the reassessment was done within four years. The assessment was reopened on the following ground:-

“An assessment u/s 143(3) of the Act was completed on 07.11.2012 determining the total income at Rs.3,70,260/-. During the year under under consideration the assessee has taken unsecured loan from the partners namely Siddharth J Patel, Jaikrishna N Patel, Jaikrishna N Patel (HUF), Shivam J Patel, Natvarbhai C Patel. The assessee had paid interest @ 15% p.a. to these partners on the unsecured loan taken. The assessee in the partnership deed has specifically mentioned that simple interest at the rate of 12% or any such lower/ higher rate as may be prescribed under see. 40(b)(iv) of the Income-tax Act, 1961 or any other applicable provision, as may be in force for the Income-tax assessment of the partnership firm for the relevant accounting period, shall be payable on the amount standing to the credit of the capital and or/current or loan account of the partners. As per sec. 40(b)(iv) of the Act the excess interest paid to the partners is to be added back to the total Income of the assessee, which has resulted into under assessment of Rs.2,22,105/-.

2.

Therefore, I have reason to believe that the income of Rs.2,22,105/- has escaped assessment for the asst. year 2010-11 within the meaning of section 147 of the Act and I am satisfied that the case is a fit one for issuance of notice u/s 148 of the Income-tax Act.”

4.

The assessee did object to the reopening but without any success. In appeal also, the reassessment was upheld. Not satisfied, the assessee is in second appeal before us.

5.

We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

6.

The basic plea of the assessee is that because at the original assessment stage, assessee had, vide letter dated 07.06.2012, furnished confirmations in respect of unsecured loans, and even after perusing these details, the Assessing Officer chose not to make disallowance @ 3%, the Assessing Officer cannot revisit this decision by reopening the assessment. Reliance was placed on Hon’ble jurisdictional High Court’s judgement in the case of Cliantha Research Ltd vs. DCIT [(2013) 35 taxmann.com 61 (Guj.)]. That plea, however, is incorrect for the reason that no such detailed enquiries took place in this case, and, in any event, the rate of interest did not come up for consideration at all. As held in the case of Gala Gymkhana Pvt Ltd vs. ACIT [(2012) 27 taxmann.com 294 (Guj)], mere furnishing of information to the Assessing Officer cannot lead to the conclusion that the Assessing Officer has applied his mind to it. That precisely is the situation before us. We, therefore, reject the plea of the assessee and decline to interfere in the matter.

7.

Ground no. 1 is dismissed.

8.

In ground no.2, the assessee appellant has raised the following grievance:-

Sidharth Shivam and Company Vs. ITO Assessment year: 2010-11 Page 3 of 3

“2. Disallowance to the tune of Rs.2,22,105/- under Section 40(b)(iv) of the Act On the facts and circumstances of the appellant’s case and in law, the ld. CIT(Appeals) has erred in confirming action of ld. AO of treating interest paid on loan/deposit to partners as interest paid to partners on their capital and thereby restricting interest paid at the rate of 12% as against at 15% not appreciating that interest is paid on deposit / loan and therefore the provisions of section 40(b) are not to be applied. The ld. CIT(A) also failed to appreciate that the payment of interest is according to the partnership deed executed.”

9.

Learned counsel for the assessee fairly accepted that so far interest payment in excess of 12% p.a. is concerned, its disallowance is in order. He nevertheless pointed out that this payment is authorized by supplementary deed and is duly shown as income in the hands of the recipient. That does not, however, vitiate the disallowance. We, therefore, confirm the disallowance and decline to interfere on merits as well.

10.

Ground no.2 is dismissed.

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