V WAMA INTERNATIONAL,MUMBAI vs. ITO WARD 25(1)(4), MUMBAI

ITA 2477/MUM/2019Status: DisposedITAT Mumbai12 July 2021AY 2013-143 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the debit balance in partners' capital accounts was due to accumulated losses and not drawings. Since no interest was paid on credit balances or charged on debit balances, and there was no diversion of funds for non-business purposes, the disallowance was deleted.

What were the facts?

The assessee firm obtained loans and paid interest on them. During assessment, the AO disallowed interest on the portion of loans withdrawn by partners, considering it as use of interest-bearing funds for drawings. The CIT(A) reduced the disallowance.

What were the issues?

Whether interest paid on loans utilized for partner's drawings, when the debit balance in capital accounts is due to firm's losses, is disallowable.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Before: JUSTICE SHRI P. P. BHATT & SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Ms. Mrugakhshi Joshi, Ld. AR

For Respondent: Dr. Shanteshwar Swami, Ld. DR

आयकरअपील सं./ (िनधा�रण वष� / Assessment Year: 2013-14) V. Wama International, ITO Ward 25(1)(4) बनाम/ 3rd floor, Civic Centre Bldg, C-10, 4th floor, BKC MMGS Marg, Dadar (E), Bandra East Vs. Mumbai-400 014. Mumbai-400051 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAAGFV-6789-F (अपीलाथ�/Appellant) (��थ� / Respondent) : Assessee by : Ms. Mrugakhshi Joshi, Ld. AR Revenue by : Dr. Shanteshwar Swami, Ld. DR सुनवाई की तारीख/ : 30/06/2021 Date of Hearing घोषणा की तारीख / : 12/07/2021 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2013-14 arises out of the order of learned Commissioner of Income-Tax (Appeals)-37, Mumbai [CIT(A)], dated 25/02/2019 in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 143(3) of the Act on 30/03/2016. The only grievance of the assessee is confirmation of interest disallowance for Rs.7 Lacs.

V. Wama International Assessment Year: 2013-14 2. We have carefully heard the rival submissions and perused relevant material on record including documents as placed in the paper book. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.

The material facts are that the assessee being resident firm having 4 partners was assessed for the year u/s 143(3) on 30/03/2016. During assessment proceedings, it transpired that the assessee obtained loan of Rs.750.24 Lacs which were duly confirmed. The assessee paid interest in the range of 13% and 15% on these loans. As per assessee’s submission, loan to the extent of Rs.105.59 Lacs was withdrawn by the partners during the year. Accordingly, forming an opinion that interest bearing loan was used by the partners for drawings, Ld. AO computed interest disallowance of Rs.15.83 Lacs.

During appellate proceedings, the assessee controverted the findings of Ld. AO by submitting that the debit balance in partners’ capital account was due to continuous losses in the firm aggregating to more than Rs.264.12 Lacs during AYs 2008-09 to 2013-14. It was also submitted that no interest was paid on credit capital balances and therefore, no interest was charged on debit balances.

The Ld. CIT(A) noted that debit balance of Rs.105.59 Lacs include current year’s losses of Rs.58.92 Lacs and therefore, the interest disallowance should have been computed only on the opening debit balance of Rs.46.66 Lacs. The said adjudication reduced the interest disallowance to Rs.7 Lacs. Still aggrieved, the assessee is in further appeal before us.

V. Wama International Assessment Year: 2013-14 6. From assessee’s computation of income as placed on record, it is evident that the assessee has accumulated losses of more than Rs.205.20 Lacs during AYs 2008-09 to 2012-13 which support the submissions that debit balance in partners’ capital account was due to continuous losses in the firm. It is also evident that the assessee has not paid interest on credit balances and similarly not charged interest on debit balances. Another pertinent fact is that there is no diversion of loan funds for non-business purpose is there since interest has been offered as well as accepted as ‘Business Income’ only. Therefore, concurring with submissions of Ld. AR, we delete impugned disallowance of Rs.7 Lacs.

The appeal stands allowed. Order pronounced on 12th July, 2021 Sd/- Sd/- (Justice P.P. Bhatt) (Manoj Kumar Aggarwal) President Accountant Member मुंबई Mumbai; िदनांक Dated : 12/07/2021 Sr.PS, Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6. आदेशानुसार/ BY ORDER,

Recent GST High Court judgments

Search GST case law →