A.C.I.T CIR - 54,KOLKATA, KOLKATA vs. M/S LOVELOCK & LEWES, KOLKATA

The assessee in the present case is a partnership firm of Chartered Accountants. The return of income for the year under consideration was filed by it on 31.10.2004 declaring total income of Rs.13,18,52,040/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.1,01,77,450/- was debited by the assessee on account of interest ./2013 Assessment year: 2004-2005 Page 2 of 5 expenditure. During the course of assessment proceedings, the claim of the assessee for the deduction on account of interest was examined by the Assessing Officer and on such examination he found that the assessee during the year under consideration had given substantial loans/advances to its sister concerns free of interest. According to the Assessing Officer, if the assessee-firm had not given such interest-free advances to its sister concerns, it would not have acquired to pay any interest on loan. He, therefore, proposed to make a disallowance on account of interest and sought the explanation of the assessee in this regard. In reply, it was submitted by the assessee that debit balances appearing in the name of the sister concerns are in the nature of sundry debtors arising on account of sale of services, etc. and there being no diversion of borrowed funds for giving any interest-free advances for non-business purpose, there was no question of any disallowance of interest expenditure. The explanation of the assessee was not found acceptable by the Assessing Officer as he noticed from the balance-sheet of the assessee that there was a separate debit balance of Rs.3.21 crores appearing as “fees and expenses receivable”. He held that it was thus a case where the money was allowed to remain by the assessee-firm with the sister concern without charging any interest on the one hand and interest bearing loans were drawn on the other hand with an intention to reduce the taxable profit. He, therefore, made a disallowance of Rs.76,96,794/- out of interest being interest paid on partners Current Account and Bank Overdraft.

The disallowance made by the Assessing Officer on account of interest was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee and the material available on record, the ld. CIT(Appeals) found that a similar disallowance made on account of interest in assessee’s own case for earlier years, i.e. A.Ys. 2001-02, 2002-03 and 2003-04 involving identical facts was deleted by the Tribunal. He, therefore, followed the decision rendered by the Tribunal on the similar issue in assessee’s own ./2013 Assessment year: 2004-2005 Page 3 of 5 case for A.Ys. 2001-02, 2002-03 and 2003-04 and deleted the disallowance made by the Assessing Officer on account of interest. Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.

We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, the issue involved in this appeal of the Revenue for A.Y. 2004-05 relating to the deletion by the ld. CIT(Appeals) of the disallowance made by the Assessing Officer on account of interest is squarely covered by the decision of the Tribunal rendered in assessee’s own case for A.Ys. 2001-02, 2002-03 and 2003-04. The copies of the relevant orders of the Tribunal are placed on record before us and perusal of the same shows that a similar disallowance on account of interest made in assessee’s own case for A.Ys. 2001-02 and 2002-03 was deleted by the Tribunal for the following reasons given in paragraphs no. 10 & 11 of its common order dated 17th January, 2007 passed in & 977/KOL/2006:- “10. We have considered the rival submission made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed by the Ld. Counsel on behalf of the appellant and the various case decisions cited by both the sides, including that of the decision of the Co-ordinate Bench of Tribunal in the case of ACIT Vs. Price Water House, Ko/kata vide ITA No.1280/Ko1/2005 dated 22nd September, 2006 for the assessment year 2001-02. 10.1. We find that the Hon'ble Tribunal in the case of Price Water House (Supra) at para 24 of the order had held as under: "24. We have heard both the parties and taken into consideration the orders of tax authorities. We have also considered the paper book filed by the Ld Counsel for the assessee and the case laws relied upon. In this case, from the facts and evidences placed on record, it is evident that out of Rs.11.62 crores, Rs.9.47 crores is opening balance and such balance includes adjustment by way of sale of services out of pocket expenses related to such sale of services, debits on account of sharing common infrastructure, recoveries ./2013 Assessment year: 2004-2005 Page 4 of 5

The aforesaid decision of the Tribunal rendered in A.Ys. 2001-02 and 2002-03 has been subsequently followed by the Tribunal to delete a similar disallowance made on account of interest in assessee’s case for A.Y. 2003-04 vide paragraph no. 5.2 of its order dated 25th January, 2008 passed in which reads as under:- “5.2. The learned counsel of the assessee submitted that no money was advanced to any of the sister concerns. The debit balance in the accounts of sister concerns is on account of the bills for the professional charges raised to them which remained outstanding. When no amount is actually paid to them, the question of diversion of interest bearing fund to those sister concerns does not arise. He further submitted that the Tribunal in the assessee's own case for assessment years 2001-02 and 2002-03 has accepted the claim of the assessee. This statement by the learned counsel at the bar has not been controverted before us by the Ld. Departmental Representative. In view of the above, respectfully the decision of the Tribunal for the said assessment years, we delete the addition of Rs.63,03,266/”.

As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Ys. 2001-02, 2002-03 and 2003-04, we respectfully follow the decision of the Coordinate Bench ./2013 Assessment year: 2004-2005 Page 5 of 5 of this Tribunal rendered for the said years and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest.