M/S. ABN ASSOCIATES,PUNE vs. INCOME-TAX OFFICER, WARD - 9(1), PUNE

आदेश / ORDER

PER R.S.SYAL, VP :

This appeal by the assessee arises out of the order passed by the CIT(A)-6, Pune on 02-11-2017 in relation to the assessment year 2012-13.

2 ITA No.401/PUN/2018 M/s. ABN Associates

engaged in the business of carrying out interior work on

contract basis. On verification of the Profit and loss account,

it was observed that a sum of Rs.27,58,091/- was debited

under the head “Interest on SCB loan”. On perusal of the

assessee’s Balance sheet, it was seen that there was no

outstanding liability in respect of such loan. On further

verification, it transpired that the assessee credited a sum of

Rs.18,58,420/- on 17-06-2011 and further sum of

Rs.26,34,632/- on 31-03-2012 to the account of partner, Mr.

Bhagirath Sain. On being called upon to explain the nature of

interest transaction, the assessee submitted that the SCB loan

was originally taken by Mr. Bhagirath Sain for the business

premises used by the assessee firm. It was further explained

that Mr. Bhagirath Sain availed fresh loan against the said

property in his name and adjusted the existing loan of SCB

from such fresh loan. Mr. Bhagirath Sain, who is the legal

owner of the premises in which business of the assessee firm is

run, passed over 50% of interest on such new loan to the

assessee-firm. It is this 50% of interest paid by Mr. Bhagirath

Sain, amounting to Rs.26,34,632/-, which was debited in the

3 ITA No.401/PUN/2018 M/s. ABN Associates

books of the assessee firm as “Interest” and became the

subject matter of disallowance. The AO denied such deduction

on the ground that the loan was availed by the partner of the

assessee firm and not the assessee firm. The ld. CIT(A)

confirmed the addition.

material on record, it is observed as an admitted position that

Mr. Bhagirath Sain earlier availed some loan for the purpose

of purchasing property in his name, which was partly used by

the assessee firm as its business place. The balance

outstanding in such loan at Rs.18,58,420/- was squared up by

Mr. Bhagirath Sain from the fresh loan obtained by him. Mr.

Bhagirath Sain paid interest on such fresh loan and transferred

50% of such interest liability to the assessee firm. It is not

understandable, neither could the ld. AR explain the reasons

behind transferring 50% of the loan to the assessee firm. The

ld. AR candidly admitted that 50% of interest allocated to the

assessee firm was not based on any reasonable calculation and has been done in an ad hoc manner. It is not denied that the

assessee firm was using the premises standing in the name of

4 ITA No.401/PUN/2018 M/s. ABN Associates

the partner for its business purpose without paying any rent.

The ld. AR submitted that similar position was prevailing for

the immediately succeeding assessment year, namely, 2013-14

and the AO while finalizing the assessment order for such year

on 18-03-2016, a copy placed on record, has devised a

formula for bifurcation of total interest between the assessee

firm and Mr. Bhagirath Sain and allowed interest accordingly.

Since the premises, in the name of Mr. Bhagirath Sain, against

which some loan was taken, was being used by the assessee

firm for its business purposes, it is obvious that same sort of

compensation is required to be given to the partner. In the

given facts and circumstances, I am of the considered opinion

that the ends of justice would meet adequately if the impugned

order, disallowing entire interest on loan, is set-aside and the

matter is restored to the file of AO. I order accordingly and

direct him to decide this issue afresh as per law after allowing

reasonable opportunity of hearing to the assessee. Needless to

say, the AO will take into consideration the view formed by

him in finalizing the assessment for the A.Y. 2013-14.

5 ITA No.401/PUN/2018 M/s. ABN Associates

purposes.

Order pronounced in the Open Court on 20th February, 2019.

Sd/- (R.S.SYAL) उपा�य� उपा�य�/ VICE PRESIDENT उपा�य� उपा�य�

पुणे Pune; �दनांक Dated : 20th February, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order is forwarded to : अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / 3. The CIT (Appeals)-6, Pune 4. The Pr. CIT-5, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; 6. गाड� फाईल / Guard file. // True copy // आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

6 ITA No.401/PUN/2018 M/s. ABN Associates

Date 1. Draft dictated on 19-02-2019 Sr.PS 2. Draft placed before 20-02-2019 Sr.PS author 3. Draft proposed & JM placed before the second member 4. Draft JM discussed/approved by Second Member. 5. Approved Draft comes Sr.PS to the Sr.PS/PS 6. Kept for pronouncement Sr.PS on 7. Date of uploading order Sr.PS 8. File sent to the Bench Sr.PS Clerk 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *