M/S. AVON ENTERPRISE,BHARUCH vs. THE INCOME TAX OFFICER, WARD-1, BHARUCH

S6 3rYo3rddy3fetro, 'zurto, t IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT sin.U If,;> 41f4cq-4aereituit.4, Hal, dUTGF4t7ACT BEFORE SHRI CM.GARG, JUDICIAL MEMBER AND SHRI O.P MEENA_ACCOUNTANT MEMBER 31T, 31.T./I.T.A No.2168/AHD/2014 fufroratf/ Assessment Year 2001-02 M/sAvon Enterprise, Vs. The Income Tax Officer , 43,44, Panam Plaza, Ward-1 , Bharuch: Station Road, Bharuch: PAN: AAEFAOI 96R 3rdareff Appellant Trff/Respondent @uffdah3H /Assessee by TT3T4-131h?t /Revenue by S/Shri Devangkumar N.Suthar, Adv. & DCDalal_ Adv: None. 3Tar-ano/ Date of hearing: 3quiquraflarfo /Pronouncement date 20.02.2018 J 1.02.2018 HY8 [Q RDER PER O_PMEENA_AcCQUIANI MEMBER:

This appeal by the assessee against the order of CITIA)-1, Baroda, dated 14.02.2014 for the assessment year 2001-02. 2 The assessee has taken the grounds of appeal against the disallowance of interest of Rs.5,51,340/- However; these grounds of appeal were revised by way of filing additional grounds of appeal by stating that the CIT(A) has heard in Iaw on facts in confirming the disallowance of interest paid to partners of Rs.5,51,340/- whereas the assessee was maintaining current account with PD Shroff: The transactions with the P D.Shroff are purely commercial transactions and no interest was charged on the amount: The Assessing Officer has also directed calculation on notional interest and addition in total income. The assessee has also relied on the decision of ITAT, Ahmedabad in the case of M/sAshraya Enterprises vs ITANos.2766 & 2767 Ahd/2006. 3. Since the original grounds as well as additional grounds of appeal are revolves around the facts to the confirmation of disallowances of interest of Rs.5,51,340 / - paid to partners as against non-charging of interest on loans and advances paid to M/sPDShroff: Therefore, the above grounds are being considered together for the sake of convenience brevity: 4 Brief facts of the case are that the assessee is engaged in the business of construction work: The Assessing Officer noticed from the balance sheet of the assessee that the assessee has given loan and advances to M/sPDShroff and no interest was charged on this account Whereas, interest is being paid to partners 18%/ totaling to Rs.5,51,340 / - It was explained that the interest was not charged because of their business relationship with P.D.Shroff: However, the Assessing Officer was of the view that the assessee firm has paid interest to partners and funds have been diverted to M/sP D.Shroff with whom the assessee firm has admittedly a close relationship: The Assessing Officer , further obtained a working of notional interest on to PD Shroff 12%/ according to which the notional interest the loans given was worked out at Rs.6,35,804 /- as per table given in para 3 of the assessment order. However , since the interest claim was made for Rs.5,51,340/ Hence, the Assessing Officer made disallowance of said account as the said interest was not incurred for the of business, but for diverting funds through advances purpose M/sPD.Shroff(supra): 5 The assessee filed appeal before CIT(A) However, the CIT(A) vide his order No.CAB /IV-101/03-04 dated 08.09.2005, has confirmed the disallowances by observing that the assessee has failed to file copy of partnership deed: Therefore, in of the same interest paid to the partners 18% at Rs.5,51,340 /- is absence not justified: More SO, when no interest was being charged on the loans/advances ranging from Rs.5,55,644/-to 46,35,644/- given to M/sP D.Shroff during the year: before ITAT: The ITAT with CITIA) the assessee filed an appeal 6. Aggrieved set-aside the issue to the order in ITA No.2316/Ahd/2005 dated 19.09.2008 vide the issue after taking into a direction to re-adjudicate file of the CIT(A) with produced before Tribunal: In compliance thereof, consideration the partnership deeds It was claimed before the order dated 14.02.2014. the CITIA) has passed impugned borrowed money from that the assessee has not CIT(A) by the AR of the assessee on their capital standing in accounts in and interest to partners was credited anyone Act: However, the CIT(A) has of sec.4O(b) of the accordance with the provisions is not found to be tenable: the submission of the AR of the appellant observed that has not been utilised by the admitted facts is that the partners capital account The advance to PD Shroff without firm for its business and the same has been appellant interest to the partners on the interest: If the appellant firm is paying charging any and such capital of the be utilized for its business which was required to capital without charging any been advanced to PD.Shroff and Company partners have partners were diverted to that such capital of the then it can be said interest, opinion the Therefore; the CIT(A) was of the P.D Shroff for non business purposes: Rs5,51,340/- by way of making addition of Assessing Officer has correctly made paid to partners: disallowance of interest before Us: The Id.AR for the the assessee has filed its appeal 7 Being aggrieved, CIT(A): The Id.AR also placed re-treated the submissions @s made before the assessee vS. ITO, Ward-1 (supra) in of Ashraya Enterprises reliance on decision in the case reduced from the eligible profit u/s.801B of paid to P.DShroff which eligible interest the Act was allowed: the material available on record: We have considered the facts and perused 8 M/s.P.D.Shroff which were ranging from from the copy of loan account with It is seen of Rs.46,35,644/ 7, The 5,55,644 /- to the closing balance opening balance of Rs._ 18% amount of Rs.6,35,840/- Officer has worked out notional interest Assessing Ms.P.D.Shroff whereas the on the loan given to that would have been charged 18%. It is also discernable partners at Rs.5,51,340/- assessee has paid interest to firm had admittedly close 3 that the assessee from the assessment order para relationship with M/sP.D.Shroff to whom partners capital have been diverted which be utilized for its business purposes, without charging any interest; was required to The perusal of copy of loan and advance with PD Shroff (PB-7) also shows that the advance tax for the financial year 1999-2000 on behalf of assessee has paid M/sP.D.Shroff: 9 In view of the above facts and circumstances, we find that the CIT(A) was right in observing that the partners capital account has not been Utilized by the assessee firm for its business and the same has been used for advance to PD.Shroff without interest: If the assessee was paying interest to the partners on their charging any capital which was required to be Utilized for its business purposes and such capital of the partners have been advanced to PD.Shroff and Company without charging any it be held that such capital of the partners was diverted to interest. Then, can for non-business purposes: In view of these facts, we are in P.D.Shroff account agreement with the findings of the Id.CIT(A) that the Assessing Officer has correctly of Rs.5,51,340 /- by way of making disallowance of interest: made addition all the grounds of appeal with the additional grounds of appeal Accordingly, therefore dismissed. The decision in the case of M/sAshraya Enterprises (supra) was given in the context of reduction of interest to partners for computing eligible profit u/s.8O1B of the Act, hence, not applicable: 10. In the result, appeal of the assessee is dismissed: The order pronounced in the open Court on 21 - 01 - 20) 3 Sdl - Sdl (CM; GARG) (O.P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 3a/ Surat, f4aliq5 Dated: 2 | 0 2 -20 |8 Copy of order forwarded to- Assessee/AO/Pr: CIT / CIT (A)/ITAT (DR)/Guard file of ITAT: By order Assistant Registrar, Surat