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Income Tax Appellate Tribunal, VIRTUAL COURT
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals) – 53, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 15.05.2019 for the Assessment Year 2013-14.
Assessee has raised following grounds in its appeal: - (A.Y: 2013-14) M/s. Kamla Developers “1. On the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing the ex-parte order without affording reasonable opportunity of being heard.
2. On the facts and circumstances of the case and in law, Ld. CIT (A) erred in confirming the AO's action of making disallowance of Rs. 1,67,548/- out of the total disallowance of Rs. 2,80,167/- on account of interest u/s. 36(1)(iii) of the Act.
On the facts and in the circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the AO's action of making an addition of Rs. 20,88,500/- u/s. 41(1) of the Act.
4. The appellant craves leave to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal.”
3. At the time of hearing, Learned Counsel for the assessee submitted that Ground No. 1 is not pressed, accordingly, Ground No. 1 is dismissed as not pressed.
Ground No. 2 of grounds of appeal is in relation to confirming the disallowance of interest of ₹.1,67,548/- u/s. 36(1)(iii) of the Act.
5. Briefly stated the facts are that, during the course of the assessment proceedings the Assessing Officer found that the assessee has incurred interest expenditure of ₹.2,80,167/- and did not charge any interest on the debit balance of one of the partner’s account. Assessee was asked to explain as to why the proportionate interest should not be disallowed on the debit balance of the partners account. Assessee submitted that the interest incurred on unsecured loans comprises of interest of ₹.1,12,619/-
(A.Y: 2013-14) M/s. Kamla Developers pertains to car loan and ₹.1,67,548/- represents interest paid on unsecured loans. It was also submitted that the partnership deed does not provide for charging any interest on partners’ capital balances and therefore no part of interest can be disallowed. Not convinced with the submissions of the assessee the Assessing Officer calculated interest at the rate of 12% on the net debt balances of partners account and arrived at disallowance of interest to the extent of ₹.3,71,519/-. Since this interest is in excess of the interest expenditure incurred by the assessee he restricted the disallowance to ₹.2,80167/- u/s. 36(1)(iii) of the Act. On appeal Ld.CIT(A) sustained the disallowance only to the extent of ₹.1,67,548/- and granted relief to the extent of interest of ₹.1,12,619/- paid on car loan.
Ld. Counsel for the assessee reiterated the submissions made before lower authorities.
Ld. DR vehemently supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below. On a perusal of the orders of the Authorities below I find that there is no finding that the unsecured loans obtained by the assessee were not utilized for the purpose of business of the assessee. I also (A.Y: 2013-14) M/s. Kamla Developers observed that the Assessing Officer has not brought any material on record to suggest that the loans were utilized for payment to the partners. The Assessing Officer has not established any nexus between the loans obtained and the payments made to the partners. Furthermore, the partnership deed also did not provide for charging any interest on partners’ capital account. In the circumstances, there is no justification in computing the disallowance of interest on proportionate basis on partners’ capital account. Thus, I direct the Assessing Officer to delete the interest disallowance of ₹.1,67,548/- sustained by the Ld.CIT(A). This ground of appeal is allowed.
Ground No. 3 of grounds of appeal is in respect of confirming action of the Assessing Officer in making the addition of ₹.20,88,500/-, u/s. 41(1) of the Act.
The Assessing Officer while completing the assessment noticed that assessee has shown liability of ₹.20,88,500/- in the name of “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,”. Assessing Officer required the Assessing Officer to furnish the details of the transactions and the reasons why the said liability is long standing. The assessee submitted that it had entered into an agreement with “The Greater
(A.Y: 2013-14) M/s. Kamla Developers Bombay Veerashaiva Co. Op. Housing Society Ltd.,” for development of land for constructing flats. It is submitted that assessee entered into an agreement on 21.02.1992 and on 06.02.2001 and as part of development a sum of ₹.20,88,500/- was received as an advance against sale which was shown as an outstanding liability in the Books of Accounts of the assessee. The Assessing officer was of the view that upon completion of earlier agreed projects, assessee was denied any further development in the same area and the assessee filed case before the Hon'ble Bombay High Court that the agreements the assessee has entered into with the housing co-operative society on 21.02.1992 and on 06.02.2001 be binding on the housing society and also prayed for permanent injunction to restrain “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” from creating hindrances in development of the buildings. This according to the Assessing Officer “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” is no longer interested in continuing business with the assessee and the advance amount given by them is forfeited by the assessee. Accordingly, Assessing Officer brought to tax the liability outstanding towards “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” while completing the assessment of the assessee. On appeal Ld.CIT(A) sustained the addition made by the Assessing Officer.
(A.Y: 2013-14) M/s. Kamla Developers 11. Before me, Ld. Counsel for the assessee reiterated submissions made before lower authorities. Ld. Counsel for the assessee submitted that until the suit filed before Hon'ble Bombay High Court which is pending is disposed off and decision is rendered in the matter, it cannot be said that the dispute has been settled. Ld. Counsel for the assessee further submits that assessee has not written back the said liability in the Books of Accounts. Ld. Counsel for the assessee further submits that on perusal of Ledger account of “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” it is evident that there is an opening balance of ₹.20,60,000/- as on 01.04.1996 in this account on account of advance against sales. During the previous year relevant to the A.Y. 2004-05, the assessee received ₹.75,000/- from the society and during the previous year relevant to the A.Y 2006-07, the assessee expended monies on water pipes laying etc. on behalf of the society and thereby, repaid a sum of ₹.46,500/- to the society. The net balance as on 31.03.2006 in the books is ₹.20,88,500/- and the same balance is still appearing in the books of accounts. Ld. Counsel for the assessee further submits that it is highly unjustified to treat the liability as having ceased to exist as till date it is appearing in the books of assessee. Ld. Counsel for the assessee further submitted that, there is no evidence with the Assessing Officer as well as (A.Y: 2013-14) M/s. Kamla Developers with the Ld. CIT(A) to prove that “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” has written off this amount in its books of accounts.
Ld. Counsel for the assessee further referring to the provisions of sub-section 1 of section 41 of the Act submitted that for the deeming provision to apply, an allowance or deduction has to be made for any assessment year in respect of loss, expenditure or trading liability incurred by the assessee. It is submitted that in the case of the assessee no allowance or deduction has been claimed in any earlier assessment years and the liability of ₹.20,88,500/- has been shown under the head “Current Liability” under sub head under “Advances against sales” in the balance sheet of the assessee. Since there is no cessation of liability during the assessment year under consideration there is no question of making addition u/s. 41(1) of the Act deeming it as income of the assessee. Reliance was placed on the following decisions: - a. CCIT v. Kesaria Tea company [20 SITC 172] b. Tirunelveli Motor Buus Service Co. Pvt. Ltd., v. CIT [78 ITR 55] c. Steel & General Mills Co. Ltd., v. CIT [96 ITR 438]
Ld. DR vehemently supported the orders of the authorities below.
(A.Y: 2013-14) M/s. Kamla Developers 14. Heard rival submissions, perused orders of the authorities below and the decisions relied on. On a perusal of the Assessment Order, I find that the Assessing Officer was of the view that the advance amount given by the “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” has been forfeited by the assessee, even though there is a dispute between the assessee and “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,”. Except this nothing has been brought on record to suggest that the amount advanced to the assessee by “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” is ceased to exist. The dispute is still on going before the Hon'ble High Court. Interestingly the Ld.CIT(A) gave a finding that this amount has not been claimed as expenses in the earlier year and it is shown as advance against sales. It is also the finding of the Ld.CIT(A) that Assessing Officer has not brought on record any evidence or any verification made with “The Greater Bombay Veerashaiva Co. Op. Housing Society Ltd.,” as to whether they have in fact treated the amount as cessation of liability. It is also the finding of the Ld.CIT(A) that there is a dispute between the society and the assessee is continuing. Having given these findings, I find no reason to sustain the action of the Assessing Officer in making addition u/s. 41(1) of the Act treating it as cessation of liability. Further, none of these findings have been rebutted
(A.Y: 2013-14) M/s. Kamla Developers by the Assessing Officer or the Ld. DR before me. The case laws relied on by the Ld. Counsel for the assessee squarely applies to the facts of the assessee’s case. In the circumstances, I hold that there is no cessation of liability and the addition made by the Assessing Officer u/s. 41(1) is totally unwarranted. Thus, I direct the Assessing Officer to delete the addition made u/s. 41(1) of the Act. This ground of appeal is allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 07.06.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.