DCIT, GHAZIABAD vs. SHRI NAVEEN JAIN, GHAZIABAD

This appeal filed by the Revenue is directed against the order of the CIT(A), Ghaziabad dated 25/03/2013 passed in first appeal No. 1178/2011 for A.Y 2009-10.

The main effective grounds of the Revenue read as under:

When the case was called for hearing, neither the assessee nor his representative appeared, and there was no adjournment application on his behalf. However, on careful perusal of the appeal record, we find it appropriate to decide the appeal expartely and proceeded to dispose of the same after hearing the ld. counsel of the Revenue of the appellant/Revenue.

Apropos Ground No. 1 the ld. counsel of the Revenue supporting the action of the A.O contended that payment of interest to financial institutions, like GE Money, Chola Mandalam and India Bulls, other than banks call for deduction of TDS u/s 194A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short], hence disallowance of Rs. 4,82,174/- was made. He further submitted that the interest to the assessee can be allowed on the funds invested for earning interest on capital with the firm only and not on the earning of partners’ share, which is exempted income. The ld. counsel of the Revenue vehemently pointed out that the ld. CIT(A) granted relief without any basis. Hence, the impugned order may be set aside by restoring that of the A.O.

Having heard the rival submissions and perused the relevant material available on record, from the operative part of the ld. CIT(A)’s order, we observe that as per clause X of section 44AB of the Act, share of profit of a partner of a firm in total income of the firm excluded from his total income u/s 10(2A) of the Act. Thereafter, the ld. CIT(A) held that the assessee is not carrying on any separate

Next issue in Ground No. 1 is regarding deletion of disallowance of Rs. 51,310/- on account of differential rate of interest between interest rates used for payment of interest [15%] and interest rate used for receipt of interest [12%].

On careful consideration of conclusion drawn by the ld. CIT(A), we note that following the ratio of the decision of the jurisdictional High Court in the case of CIT Vs. Tara Devi Corporation Ltd reported at 205 ITR 421 it has been held that when the funds raised from borrowings have been used for investment in partnership firm, in which he is a partner and the same has been used genuinely for the business purposes, then actual payment of interest on the borrowings from financial institutions would be allowable and the A.O’s action to disallow differential interest of 3% is not sustainable. Consequently, the ld. CIT(A) directed the A.O to delete the disallowance. We are in full agreement with the conclusion of the CIT(A). Thus we uphold the same. Accordingly, Ground No. 1 is dismissed.

Apropos Ground No. 2, the ld. DR submitted that the assessee could not submitted ledger capita accounts in the three firms in which he was one of ht partners and hence the A.O was quite correct in treating the same as unexplained. The ld. counsel of the Revenue also contended that the entire cash withdrawal claimed to have been made from these firm and in the absence of proper and acceptable verification and confirmation from the firms, ledger and other partner’s approval the amount was rightly treated as have been not explained. The ld. counsel of the Revenue submitted that the impugned order may be set aside by restoring that of the A.O.

On careful consideration of above, from the relevant operative part of the order of the ld. CIT(A), we note that he independently made verification of cash book, cash flow chart, chart of reconciliation linking the impugned cash deposits to withdrawal made from the firm’s accounts or other bank accounts, ledger capital accounts of the assessee in respective three firms, assessment orders of three relevant firms, framed u/s 143(3) of the Act, then he held that cash deposits is properly accounted and the same is acceptable. The ld. CIT(A) after mentioning tabulated chart and considering the explanation offered by the assessee also held that the amount withdrawn from all three partnership firms has been fully explained in cash book. In view of the above, we are of the opinion that the order of the ld. CIT(A) is justified and has been passed on the basis of cogent and reasonable material which also gets strong support from documentary evidence.

In the result, the appeal of the Revenue stands dismissed.