M/S. METROPOLE HOMES (FIRM),SALEM vs. ACIT, CIRCLE-2, SALEM

The appeal by the Assessee is arising out of the order of the Commissioner of Income Tax (Appeals), Salem-7 in dated 31.05.2019. The assessment was framed by the ACIT, Circle-2, Salem for the Assessment Year 2013 – 2014 u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), vide order dated 22.12.2015.

The first issue in this appeal of the Assessee is as regards to the order of the Commissioner of Income Tax (Appeals) restricting the action of the Assessing Officer in making the addition from Rs.27,00,000/- to Rs.7,00,000/- contributed by the partner as additional capital u/s.68 of the Act.

We have heard the rival contentions and gone through the facts and circumstances of the case.

The facts are that the Assessing Officer during the course of the assessment proceedings noted that in the capital account of Ms. R. Umamaheswari (partner), a sum of Rs.34,50,000/-is credited during the year. According to him, out of this, a sum of Rs.27,00.000/- was credited by way of cash and Rs.7,50,000/- by way of cheque. Therefore, the Assessing Officer requested the Assessee to explain the cash credits of Rs.27,00,000/-. The Assessee explained that a sum of Rs.20,00,000/- was received from the Bank account of Landmark Builders and Landmark Builders confirmed the same and hence the Commissioner of Income Tax (Appeals) deleted the same. For this the Revenue is not in appeal. The remaining addition of Rs.7,00,000/- before the Commissioner of :: 3 :: Income Tax (Appeals), the Assessee contended that the cash balance of Rs.5,00,000/- was available and that was withdrawn on 12.07.2012 amounting to Rs.5,00,000/- by cheque. But the Assessee tried to explain that the balance amount of Rs.2,00,000/- was out of the total withdrawal but the same seems to have been made either for the household withdrawal or for some expenditure and hence the same of Rs.2,00,000/- could not be explained. The Assessee, before us, reiterated the same arguments.

We have gone through the orders of the lower authorities and the submissions of both the sides and noted that out of Rs.7,00,000/-, Rs.5,00,000/- contributed by the Assessee in capital account is by cheque dated 12.07.2012 and this is capital withdrawn from Landmark Builders. We find that to the extent of Rs.5,00,000/- this amount stand explained.

The next issue in this appeal is as regards to the order of the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer by making a disallowance on the interest expenses of Rs.2,62,311/- credited to another non-resident partner without deduction u/s.194 of the Act and thereby the Assessing Officer disallowed this expense by invoking the provision of Section 40(a)(ia) of the Act.

We have heard the rival contentions and gone through the facts and circumstances of the case. We had noted that the Assessing Officer has tried to disallow the interest expenses of partner’s capital account by invoking the provision of Section 40(a)(ia) of the Act amounting to Rs.2,62,311/- paid to Ms.

We delete the disallowance and allow the appeal of the Assessee

In the result, the appeal of the Assessee is allowed partly.