SRI SANJAY KUMAR BINANI,KOLKATA vs. LD. ACIT/ CIRCLE-36, KOLKATA, KOLKATA

Shri R.C. Rathi, F.C.A., appeared on behalf of the assessee and Shri Rajendra Prasad, ld. Addl. JCIT, D.R. represented on behalf of the Revenue.

Brief facts of the case are that the assessee had filed his return of income declaring total income of Rs.13,28,513/-. The assessment was completed under section 143(3) at Rs.17,37,962/-, inter alia, making the disallowance of Rs.1,92,000/- claimed by the assessee towards interest ./2016 Assessment year: 2010-2011 Page 2 of 5 paid on borrowings from partnership firm under section 36(1)(iii). The disallowance was confirmed by the ld. CIT(Appeals). Being aggrieved, the assessee is in appeal before the Tribunal assailing the said disallowance of Rs.1,92,000/- under section 36(1)(iii).

Brief facts apropos this issue are that the Assessing Officer noticed in the course of assessment proceedings that the assessee in his computation of income had deducted the amount of Rs.1,92,000/- from the net profit of his proprietorship concern M/s. Binani Agri Inputs as interest payment to M/s. Binani Enterprises, a partnership firm, in which the assessee was a partner. The Assessing Officer examined the balance- sheet of M/s. Binani Agri Inputs (proprietorship concern) and M/s. Crop Care (another proprietorship concern of the assessee) and noted that the entire expenses incidental to business had been debited in the Profit & Loss Account including interest of Rs.16,83,790/-. He concluded after examining the personal balance-sheet of the assessee including that of the partnership concern that the assessee had not utilized the amounts withdrawn from partnership firm for business purposes of his proprietorship concern. He accordingly issued show-cause notice to the assessee to explain the same. The assessee’s explanations as per his letter dated 12.03.2013 was as under:- “The assessee is a partner in a partnership firm under the name and style of M/s. Binani Enterprises. During the FY 2009-10 the assessee had overdrawn his investment in the partnership firm. Accordingly, the assessee had paid an interest of Rs.1,92,000/- to M/s. Binani Enterprises in respect of such overdrawn balances during the FY 2009- 10. The amount overdrawn by the assessee was employed by him in his proprietary concerns. As the capital employed by the assessee in his proprietary concern M/s. Binani Agri Inputs was much more than the capital employed by the assessee in his other proprietary concern M/s. Crop Care, the interest paid to M/s. Binani Enterprises was claimed as deduction from the net profit of M/s. Binani Agri Inputs. The position of capital employed by the assessee in his two proprietary concerns is as under:- ./2016 Assessment year: 2010-2011 Page 3 of 5

Name of the Opening Closing proprietary capital capital concerns employed as employed as on on 01.04.09(Rs.) 31.03.10(Rs.) M/s. Binani 92,83,302 98,87,515/- Agri Inputs Credit balance Credit balance M/s. Crop 26,51,241 28,96,539/- Care Debit balance Debit balance

The ld. Counsel for the assessee referred to page 67 of the paper book, wherein the capital account of the assessee in the books of M/s. ./2016 Assessment year: 2010-2011 Page 4 of 5 Binani Enterprises, a partnership firm, is contained to demonstrate that the amounts were withdrawn from the partnership firm. He further referred to page 69 of the paper book, wherein the capital account of the assessee in the books of M/s. Binani Agri Inputs (proprietorship concern) is contained to demonstrate that the amounts withdrawn from the partnership firm were credited in this proprietorship concern. He referred to page 73 of the paper book, wherein the capital account of the assessee in the books of M/s. Crop Care (another proprietorship concern) is contained to demonstrate that the total sum of Rs.2,12,070/- had been credited in the said account. The ld. Counsel for the assessee pointed out that the Assessing Officer wrongly concluded that the total withdrawals in the capital account of the assessee in the books of M/s. Binani Agri Inputs were Rs.14,74,309/- because the said withdrawals include a sum of Rs.10,26,528/- being the TDS receivable and, therefore, the said amount was not to be considered towards the withdrawals made by the assessee for coming to the conclusion that the withdrawals were more than the amount introduced in the capital account and, therefore, only proportionate disallowance should have been made.

The ld. D.R., on the other hand, submitted that this plea was never taken by the assessee before the revenue authorities and it has been taken for the first time and, therefore, the matter may be restored back to the file of Assessing Officer for examining the assessee’s plea in this regard.

I have considered the rival submissions and perused the material available on record. In principle the findings of lower revenue authorities that no amount was utilized towards business purposes out of the withdrawals made from partnership firm, is justified because if the amount withdrawn by the assessee from the partnership firm were more than the amount introduced in the capital account of his proprietorship concerns of the assessee, then it cannot be said that the amount has been utilized for business purposes. However, the assessee’s plea that TDS ./2016 Assessment year: 2010-2011 Page 5 of 5 receivable is not to be considered towards withdrawal deserves to be accepted subject to verification by the Assessing Officer. After verification of this plea, the Assessing Officer will only make proportionate disallowance in the case of Binani Agri Inputs. However, as far as the capital account of the assessee in the books of M/s. Crop Care is concerned, I find that only a sum of Rs.2,12,070/- was introduced in the capital account against which the withdrawals are much more and therefore it will not be concluded that the said withdrawals from partnership firm were utilized by the assessee for his proprietorship business purposes.