VIZAG COMPANY'S STEEL,,ANAKAPALLE vs. THE CIT - 1 (I/O),, VISAKHAPATNAM

All the grounds of appeal are related to the order passed by the CIT u/s 263 of the Act. In this case, the assessee filed the return of income on 25.09.2009 declaring total income of Rs.3,30,050/-. The assessment was completed u/s 143(3) by an order dated 30.12.2011 on total income of Rs.5,65,820/-. The CIT has taken up the case for revision u/s 263 and found that the assessee has taken the loans from the bank and diverted the loan funds for purchase of lands and claimed the entire interest of Rs.1,20,47,196/- as business expenses. The Ld.CIT is of the view that, since the lands purchased are not used for its business, the interest attributable to the purchase of assets should be disallowed and the same should be capitalized. The Ld.CIT further, noticed that the capital account of one of the partner Shri M.Yaswanth was showing the negative balance of Rs.13,34,516/- and the interest there on should have been disallowed by the AO. The Ld.CIT issued show cause notice proposing to revise the assessment on the above lines and the assessee has furnished the reply stating that the property at Gobburu land was purchased during the year under consideration and the other assets mentioned in the notice were purchased in the earlier years which are existing in the earlier balance sheet for the financial year 2007-08 also. Hence argued that they are not 3 Vizag Company’s Steel, Visakhapatnam

Aggrieved by the order of the Ld.CIT, the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR of the assessee while reiterating the submissions made before the Ld.CIT submitted that the assets were purchased in the earlier years and the new asset of Gobburu land was purchased in the year under consideration with the interest free funds of the assessee. The Ld.AR submitted that the issue of purchase of assets and the sources were examined by the AO at the time of scrutiny

On the other hand, the Ld.DR strongly supported the order of the CIT.

We have heard both the parties and perused the material placed on record. With regard to disallowance of interest on partners’ capital account, the assessee has not furnished any explanation before the Ld.CIT and the Ld.CIT presumed that the assessee has no objection for the revision and the same is evident from the para No.12 of the CIT’s order. On perusal of the balance sheet filed by the assessee in the paper book, it is evident that the partners are having debit balances and there are no interest free funds available to the assessee for diversion funds for non business purposes. From the balance sheet of the assessee except profit and loss account, balance of Rs.3,30,049/-, there was no other interest free fund available to the assessee. Though Assesse’s AR argued that the AO has examined the issue at time of assessment, there was no indication having verified the transaction by the AO in the assessment order. The assessee has produced the questionnaire issued by the AO and there was no 5 Vizag Company’s Steel, Visakhapatnam

In the result, appeal of the assessee is dismissed. The above order was pronounced in the open court on 25th July, 2018. (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 25.07.2018 L.Rama, SPS

The Commissioner of Income Tax-1, Visakhapatnam 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER ////