UNITED INDIA EXPORTERS,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

Assessee in this appeal assails an order dated 11.11.2016 of

ld. Commissioner of Income Tax (Appeals)-10, Chennai. Grounds

raised by the assessee are on a disallowance of interest of

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Rs.7,25,910/, addition for undervaluation of stock Rs.17,99,213/- and

disallowance of Rs.3,45,000/- u/s.40(a)(ia) of the Act.

audio rights had filed a return of income for the impugned assessment

year disclosing income of Rs.75,90,460/-. During the course of

assessment proceedings, it was noticed by the ld. Assessing Officer

that partners of the assessee firm had withdrawn money in excess of

their capital contribution. As per the ld. Assessing Officer assessee

had taken loans from outside parties and paid interest of

Rs.7,25,910/- thereon. Since the partners had not paid interest on

their withdrawals, ld. Assessing Officer was of the opinion that interest

of Rs.7,25,910/- paid by the assessee to its loan creditors could not

be allowed.

audio and video rights of various films. As per the ld. Assessing

Officer valuation of the digital rights were not correctly valued.

Further, as per the ld. Assessing Officer closing stock of theatrical and

digital rights were undervalued by Rs.17,99,213/-.

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various payments without deducting TDS warranting disallowance

u/s.40(a)(ia) of the Act.

Assessment was thereafter completed by making 5.

disallowance of interest Rs.7,25,910/-, addition for undervaluation of

stock Rs.17,99,213/- and disallowance of Rs.3,45,000/- u/s.40(a)(ia)

of the Act.

Commissioner of Income Tax (Appeals). Contention of the assessee

viz-a-viz interest disallowance was that partners account had only

credit balance in the aggregate. As per the assessee there was no

nexus between loans availed by it and drawings made by the

partners.

Viz-a-viz, addition for undervaluation of closing stock, 7.

argument of the assessee was that valuation of theatrical rights had

be done as per Rule 9A and 9B of the Income Tax Rules, 1962. As per

the assessee for non theatrical rights it had adopted a valuation based

on the aging of such rights.

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arguments of the assessee was that the recipients had paid taxes on

such amount and therefore disallowance could not be made

considering the amendment to Sec. 40(a)(ia) of the Act through

Finance Act No.2012.

Ld. Commissioner of Income Tax (Appeals) after considering 9.

the submissions held that disallowance of interest on account of

overdrawing made by the partners was rightly done by the ld.

Assessing Officer. As per the ld. Commissioner of Income Tax

(Appeals) partners of the assessee firm had over drawn money from

the firm without paying any interest, whereas assessee had paid

interest on loans taken by it. In so far as issue regarding

undervaluation of closing stock was concerned, ld. Commissioner of

Income Tax (Appeals) directed the ld. Assessing Officer to examine the

contentions of the assessee and recompute the value of the closing

stock. Viz-a-viz disallowance u/s.40(a)(ia) of the Act, ld. Commissioner

of Income Tax (Appeals) held that assessee could not produce any

evidence to substantiate its contention that recipients had paid taxes

on such amounts.

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assailing the order of the ld. Commissioner of Income Tax (Appeals)

submitted that detailed submissions made by the assessee on each of

the issues, before the lower authorities were not properly considered.

As per the ld. Authorised Representative, there was no nexus between

the amounts drawn by the assessee partners and interest bearing

loans taken by the assessee. In so far as disallowance u/s. 40(a)(ia)

of the Act was concerned, submission of the ld. Authorised

Representative was that assessee was never given a chance to

substantiate its contention that payee had paid taxes on such

amounts.

Per contra, ld. Departmental Representative strongly 11.

supported the orders of the authorities below.

We have considered the rival contentions and perused the 12.

orders of the authorities below. In so far as disallowance of interest is

concerned, there is nothing on record which would show what was the

amount borrowed by the assessee during the relevant previous year

on which interest was paid by it. Ld. Assessing Officer had not

examined the nexus between such borrowed amounts and drawings

made by the partners of the assessee. No doubt, drawings made by

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partners in excess of his capital contribution can result in pro-rata

disallowance of interest on loans borrowed by the assessee.

However, in our opinion the facts relating to this issue has not properly

examined by the lower authorities.

Viz-a-viz under valuation of the theatrical and digital rights 13.

of films, ld. Commissioner of Income Tax (Appeals) had set aside the

order of the ld. Assessing Officer with the following comments:-

‘’5.3.2. It is clear from the AR's submission that the AO has not considered the stock valuation in all the items. The appellant's submission that the AO has not appreciated the facts correctly is prima facie acceptable. However, in spite of several opportunities given, the appellant could not submit quantitative analysis and stock valuation. As mentioned above under para 2.1., the appellant did not appear on both the occasions of final hearing posted by the CIT(A). Under the circumstance, the AO is directed to examine the appellant's submission as mentioned above and to re-compute the closing stock valuation as per the provisions of Section 145 and Section 145A of the Income Tax Act, 1961. In view of the above remarks, the appellant's ground on this issue is partly allowed’’.

In our opinion, ld. Commissioner of Income Tax (Appeals) having set

aside the issue to the file of the ld. Assessing Officer for considering

the submissions of the assessee, grievance raised by the assessee on

this is ill convinced.

can definitely take refuge to second provision to Sec.40(a)(ia) of the

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Act, if it can show that recipients had paid taxes on the amounts received by them from the assessee without deduction of tax.

In the result, the appeal of the assessee is partly allowed 16.

for statistical purpose.

Stay petition having become infructuous is dismissed. 17.

Order pronounced on Monday, the 27th day of November, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 27th November, 2017 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF