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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI R.S. SYAL
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.
The only issue raised in this appeal is against the confirmation of addition of Rs.26,34,632/- made by the Assessing Officer (AO) on account of disallowance of interest paid on loan.
2 ITA No.401/PUN/2018 M/s. ABN Associates
Briefly stated, the facts of the case are that the assessee is
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.
Having heard both the sides and perused the relevant
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
In the result, the appeal is allowed for statistical
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. *