M/S B.K. ROPE STORE,LUDHIANA vs. ITO, LUDHIANA

That the learned CIT (Appeal)has erred in allowing Part relief to the assessee which is against law & facts of the case.

That the Assessment framed under sec 143 (3) \ 147 has been wrongly re- open it is a case of change of opinion only and bases on Audit Objection. Next year no addition has been made on the similar grounds in this case.

That the learned CIT has wrongly confirmed the interest disallowed on the loan taken by the partners and other co-applicant under the head (Home Loans). It was used by the firm and Loan is a loan. All the relevant papers were given at the time of assessment as well as before the CIT (A).

Brief facts of the case are that the original assessment was framed under section 143(3) on 10.12.2009 and the notice u/s 148 issued on 28.3.2012 i.e. within four years of the original assessment. Reasons were duly recorded for issue of notice u/s 148. The said notice was issued after the approval of the joint Commissioner of income tax concerned and the objections raised by the assessee against the notice under section 148 have been duly discussed in the assessment order under section 143 (3) read with section 147 of the act. The reasons for issuing of notice under section 148 are as under: Assessment in this ease was completed u/s 143(3) of the l.T. Act at an income of Rs 86,060/- on 10.12.2009. From perusal of record, it is found that the assessee has furnished copy of partnership deed for the period 01.04.2008 onwards whereas assessment u/s 143(3) was made for the period 01.04.2006 to 31.03.2007. As the assessee has failed to produce the partnership deed for the relevant period therefore, the case has to be assessed as per provisions of Section 185 of the l.T. Act. 1961.Hence, the interest paid amounting to Rs.5.43.269/- to the partners of the firm is required to be added back to the assessed income of the assessee.

Section 40A(2)(b);- From the perusal of P&L account, it has been noticed that the assessee has declared interest income amounting to Rs. 2,46,828/-. From the relevant documents, it has been noticed that the assessee has charged interest on advances and loans @ 9% only. Further, it has been noticed that the assessee has taken unsecured loans amounting to Rs. 90,78,440/- and paid interest on these loans @ 12% and @ 18%. The assessee has paid higher rate of interest to the related persons @ 1 8% whereas it has charged interest @ 9% on the loans and advances given by it. Nonce, the excess/ unreasonable interest paid by the firm to the related persons excess of 9% amounting to Rs. 5,00,538/- is required to be disallowed u/s 40A(2)(b) of the l.T. Act, 1961 and added back to the assessed income of the assessee.

Further, one of the partner Sh. Bhawnesh Kumar has taken home loan amounting to Rs. 75 lacs from IC1CI Bank Ludhiana. This loan ahs been repaid in equal monthly installments of Rs. 1,01,200/-. The outstanding balance of housing loan amounting to Rs. 71,99,697/- as on 31.03.2007 has been shown in the Balance Sheet statement of the firm. As per bank statement, assessee has paid interest on this house loan amounting to Rs. 6,19,147/- upto 31.03.2007. The assessee has debited the bank interest amounting to Rs. 8,23,000/- to P&F account. Out of this amount interest amounting to Rs. 6,19,147/- is "required to be disallowed u/s 36(10(iii) being paid for non-business purpose and this amount of Rs. 6.IS), 147/- is required to be added back to the assessed income of the assessee.

One of the partner Sh. Milkhi Ram has made addition to his capital account amounting to Rs. 3 Facs after deposit of cash amounting to Rs. 2,76,000/-in his saving bank account No. 02510120008155 maintained with Kotak Mahindra Bank. Ludhiana. The source of this cash credit has to be verified.

The Assessing Officer has mentioned that one of the partners has taken home loan and paid interest of Rs. 619147/- to the bank on account of home loan taken by the partner. This assumption of the Assessing Officer is not correct as per the facts on record. The loan has been received by all the members of the Firm (the Assessee) and the amounts have been duly reflected in the balance sheet of the Assessee. Hence, primafacie no escapement of income can be determined. Since, the reopening is on wrong facts the same cannot be held to be valid.

The Assessing Officer mentioned that one of the partner made addition to the capital account of Rs. 3,00,000/- and the source needs to be verified. Having completed the assessment under section 143(3) in the absence of any other information the provisions of Section 148 cannot be used to re- examine the issues stands examined in the original proceedings.

Since we hold that the re-opening done by the Assessing Officer is not valid based on the facts on record, the appeal of the assessee taken up at Ground No. 2 is hereby allowed.

In the result, appeal of the Assessee is allowed.

""यथ"/ The Respondent 3. आयकर आयु"त/ CIT 4. आयकर आयु"त (अपील)/ The CIT(A)

"वभागीय ""त"न"ध, आयकर अपील"य आ"धकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File