ITO 14(2)(2), MUMBAI vs. PATTANI OPTICALS & CONTACT LENS CLINIC, MUMBAI

ITA 6061/MUM/2014Status: DisposedITAT Mumbai20 October 2015AY 2010-113 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal affirmed the CIT(A)'s decision, noting that the precedent relied upon by the CIT(A) remained valid and that there were no changed facts for the current assessment year. Therefore, the disallowance of interest on notional capital was deleted.

What were the facts?

The Assessing Officer disallowed interest paid to partners on notional capital, which arose from a revaluation of the firm's shop premises in a prior assessment year. The CIT(A) deleted this addition, relying on a previous Tribunal order in the assessee's own case.

What were the issues?

Whether interest paid to partners on notional capital, arising from revaluation of assets, is a deductible expense for the firm.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Munjal Sales Corporation v. CIT
298 ITR 298 · 2008 · SC · Read judgment
191 citing

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

For Appellant: Shri Sunil Kumar Agarwal

For Respondent: Ms. Vinita Shah

Hearing: 20/10/2015Pronounced: 20/10/2015

The captioned appeal is preferred by the Revenue and is directed against the impugned order dated 23/07/2014 of CIT(A)-25, Mumbai, pertaining to the assessment year 2010-11, which in turn has arisen from an order passed by the Assessing Officer dated 11/03/2013 under section 143(3) of the Income Tax Act, 1961( in short “the Act”).

In this appeal the Revenue has raised the following Grounds of appeal:-

(Assessment Year : 2010-11) “1. On the facts and in the circumstances, the CIT(A) has erred in deleting the addition of Rs.17,63,276/- being interest paid to the partners on notional capital being capital accretion on revaluation of shop. 2 . On the facts and in the circumstances, the CIT(A) has erred in allowing the interest paid to the partners on capital balances which reflects book entry only, the partners did not bring any money or new capital asset in the firm.

For the above mentioned reason and any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the AO be restored.”

3. Briefly put, the relevant facts are that the respondent assessee is a partnership firm, which is engaged in the business of retail trading of Spectacles, etc. In the assessment finalized under section 143(3) on 11/3/2013, the Assessing Officer made a disallowance of Rs.17,63,276/- out of interest paid to partners on notional capital. The relevant background is that shop premises owned by the assessee firm were revalued in the past Assessment Year of 2000-01 and corresponding credit was given to the capital account of the partners. In Assessment Year 2000-01 and in some of the subsequent Assessment Years including the Assessment Year under consideration, the Assessing Officer treated such amount credited to the partner’s capital account as a notional capital and disallowed interest paid on such capital balance. For Assessment Year under consideration, such disallowance worked out to Rs.17,63,276/-, which is the subject matter of dispute before me.

The CIT(A) has since set aside the action of the Assessing Officer by noticing that in the preceding Assessment Years of 2007-08 and 2008-09 in assessee’s own case, the Tribunal vide its orders in dated 03/1/2014 has deleted the disallowance, after considering the judgment of the Hon’ble Supreme Court in the (Assessment Year : 2010-11) case of Munjal Sales Corporation vs. CIT, 298 ITR 298(SC). Against such decision the Revenue is in appeal before the Tribunal.

Before me it was a common point between the parties that the precedent relied upon by the CIT(A) continue to hold the field as the same has not been altered by any higher authority and, therefore, the issue is liable to be decided in the light of such precedent. There is no change in the facts for the instant year, which has been brought out by the Ld. Departmental Representative before me, and under these circumstances following the order of the Tribunal dated 3/01/2014 (supra), I hereby affirm the conclusion of the CIT(A).

As a consequence, the appeal of the Revenue is dismissed.

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