Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES : SMC-I : NEW DELHI
Before: SHRI R.S. SYAL
ORDER This appeal filed by the Revenue is directed against the order passed by the CIT(A) on 14.1.2016 in relation to the assessment year 2012-13.
The only issue raised in this appeal is against the deletion of disallowance of Rs.34,52,749/- made by the AO on account of interest on loans given to the partners of the assessee-firm.
Briefly stated, the facts of the case are that the assessee gave interest free loans amounting to Rs.12.10 crore to its two partners, namely, Shri Manoj Kumar Ray and Shri Sanjeev Kumar Sharma. The AO observed that the assessee borrowed money from Corporation Bank and paid interest on term loan amounting to Rs.34,52,749/-. He, therefore, computed notional interest @ 6% per annum on the amount advanced by the assessee to its partners. By limiting it to the extent of the above interest paid by the assessee to the bank, he made an addition of Rs.34,52,749/-. The ld. CIT(A) deleted the addition by observing that no advance was given to the partners during the year and the outstanding balances were old. He further took note of CIT(A)’s order for AY 2011- 12 in which interest paid on term loan was disallowed, which addition was deleted in the first appeal. The Revenue is aggrieved against such deletion of addition.
I have heard the ld. DR and perused the relevant material on record.
There is no appearance from the side of the assessee despite notice. It is observed that the AO made disallowance of interest on the ground that a Rs.12.10 crore was given as interest free loans to the two partners, whereas the assessee paid interest to the bank. The ld. CIT(A) deleted the addition by observing that no advances were made to the partners during the instant year which amounts were brought forward balances. Apart from that, the ld.CIT(A) also took into consideration the order passed by him for the AY 2011-12 in which the addition was deleted which was, in fact, made on account of interest paid by the assessee to the customers as compensation for delay in the completion of project and the interest so paid was capitalized to the closing work-in-progress. I find that there is no relevance of the CIT(A)’s order passed for the AY 2011-12 insofar as the issue under consideration is concerned. Admittedly, the assessee advanced loans and advances to its partners. Since the assessee is a partnership firm, the relevant fact which ought to have been taken into consideration was if the assessee was paying interest to the partners on the capital accounts and the business expediency, if any, in advancing these two loans. There is no discussion in the assessment order or the impugned order about these two factors which are of immense importance as far as the issue under consideration is concerned. If the assessee was paying interest to the partners on the capital balance, then, there could have been no reason for not charging any interest on loans and advances given to the partners, if such loans were not for any business expediency. These relevant aspects need to be taken into consideration in deciding the making or otherwise of addition on account of interest free loans advanced to partners. As the impugned order is silent on this aspect of the matter, I set aside the order passed by the ld. first appellate authority and remit the matter to the file of AO for deciding it afresh in terms of above discussion, after allowing a reasonable opportunity of being heard to the assessee.
In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 27.09.2016.