M/s. Gandhi Oil Mill, Baroda v. The ACIT.,Circle-5,, Baroda

ITA 1147/AHD/2010 | 2005-2006
Pronouncement Date: 06-08-2010 | Result: Allowed

Appeal Details

RSA Number 114720514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 1147/AHD/2010
Duration Of Justice 3 month(s) 21 day(s)
Appellant M/s. Gandhi Oil Mill, Baroda
Respondent The ACIT.,Circle-5,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 06-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 06-08-2010
Date Of Final Hearing 30-07-2010
Next Hearing Date 30-07-2010
Assessment Year 2005-2006
Appeal Filed On 15-04-2010
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MUKUL KUMAR SHRAWAT JM AND D.C.AGRAW AL AM M/S GANDHI OIL MILL NR. TAJ CINEMA TAJ GIN COMPOUND BODELI-391 135. VS. ASSTT. CIT CIR-5 RACE COURSE CIRCLE VADODARA-390 007. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI MEHUL K. PATEL AR REVENUEBY:- SHRI K. MADHUSUDAN SR.DR O R D E R PER D. C. AGRAWAL ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUND :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. ACIT-CIR-5 ERRED IN DISALLOWING AND THE LD. CIT (A)-V ERRED IN CONFIRMING THE DISALLOWANCE AMOUNT OF RS.90 620/ - OUT OF INTEREST ALLOWED TO PARTNERS ON THEIR CURRENT CAPIT AL ACCOUNTS. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS THAT AO HAS DISALLOWED PAYMENT OF INTEREST TO THE PARTNERS ON CURRENT ACCO UNTS. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING OF OIL FROM COTTON/GROUND NUT SEEDS. 4. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO OBSERVED THAT ASSESSEE HAS GIVEN INTEREST TO SMT. HINABEN K. GAND HI ONLY ON ONE ACCOUNT WHEREAS TO OTHER PARTNERS THE INTEREST HAS BEEN PAID ON FIXED ITA NO.1147/AHD/2010 ASST. YEAR :2005-06 ITA NO.1147/AHD/2010 ASST. YEAR 2005-06 2 CAPITAL AS WELL AS ON CURRENT CAPITAL AND THAT SUCH INTEREST PAYMENT WAS NOT ALLOWABLE U/S 40(B)(II) AS IT IS NOT AUTHORISE D BY THEIR PARTNERSHIP DEED. ACCORDINGLY THE AO DISALLOWED RS.90 620/- ON INTEREST PAID ON PARTNERS CURRENT CAPITAL ACCOUNTS. THE LD. CIT(A) C ONFIRMED THE DISALLOWANCE FOR THE SAME REASON. HE OBSERVED AS UN DER :- 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. I AM IN AGR EEMENT WITH THE AO THAT THERE IS NO MENTION IN THE PARTNERSHIP DEED TH AT THE INTEREST WOULD BE PAID ON CURRENT ACCOUNT. ON IDENTICAL MATTER IN THE CASE OF NOVEL DISTRIBUTING ENTERPRISES VS. DCIT 251 ITR 704 (KERA LA) THE HON. HIGH COURT HAS HELD THAT THE TERMS OF SECTION 40(B) IF T HE PARTNERSHIP DEED DOES NOT PROVIDE FOR PAYMENT OF INTEREST ON CURRENT ACCO UNT THE SAME IS NOT AN ALLOWABLE EXPENDITURE. THE INTEREST DISALLOWANCE OF RS.90 620/- IS THUS CONFIRMED. 5. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DIFFERENCE BETWEEN THE CURRENT ACCOUNT OR CAPITAL A CCOUNT AS AT THE END OF THE YEAR CURRENT ACCOUNT IS MERGED INTO CAPITAL ACC OUNT. THE PARTNERSHIP DEED PROVIDED FOR PAYMENT OF INTEREST TO THE PARTNE RS ON THE BALANCES IN THEIR CAPITAL ACCOUNT AND THE MONEY OF THE PARTNER GIVEN TO THE FIRM IS ALWAYS A CAPITAL AND NO ARTIFICIAL DISTINCTION CAN BE MADE MERELY BECAUSE ONE ACCOUNT WHERE MONEY IS CREDITED IS TITLED AS CA PITAL ACCOUNT AND OTHER ACCOUNT IS TITLED AS CURRENT ACCOUNT. THIRDLY THE AO HAS TAXED INTEREST RECEIPT FROM THE PARTNERS ON THEIR CURRENT ACCOUNT THEN THERE IS NO REASON NOT TO ALLOW INTEREST PAID BY THE FIRM TO THE CURRE NT ACCOUNT OF THE PARTNERS. ALTERNATIVELY THE CLAIM OF THE PAYMENT OF INTEREST ON CURRENT ACCOUNT SHOULD BE ALLOWED UNDER SECTION 36(1)(III). ITA NO.1147/AHD/2010 ASST. YEAR 2005-06 3 6. THE LD. DR ON THE OTHER HAND RELIED ON THE JUDGE MENT OF HON. KERALA HIGH COURT IN THE CASE OF NOVEL DISTRIBUTING ENTERPRISES VS. DCIT (SUPRA) FOR THE PROPOSITION THAT WHERE THE PARTNERS HIP DEED DOES NOT PROVIDE PAYMENT OF INTEREST ON CURRENT ACCOUNT THEN SUCH INTEREST CANNOT BE ALLOWED UNDER SECTION 40(B)(II). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE DISALLOWANCE UNDER SECTION 40(B)(II) HAS BEEN MADE PROPERLY BY THE AO FOLLOWIN G THE DECISION OF HON. KERALA HIGH COURT AS PARTNERSHIP DEED DOES NOT PROVIDE PAYMENT OF INTEREST TO THE PARTNERS ON THEIR CURRENT ACCOUNT. HOWEVER HON. KERALA HIGH COURT DID NOT CONSIDER THE ALLOWABILITY OF INT EREST UNDER SECTION 36(1)(III). IF PARTNERS CURRENT ACCOUNT IS NOT TREA TED AS EQUIVALENT TO CAPITAL ACCOUNT THEN IT IS EQUAL TO MONEY BORROWED FROM ANY OUTSIDER ON INTEREST ON WHICH ASSESSEE IS LIABLE TO MAKE PAYMENT OF INTE REST WHICH CAN BE ALLOWED UNDER SECTION 36(1)(III). THUS THE ALTERNAT IVE CLAIM OF THE ASSESSEE THAT INTEREST SHOULD BE ALLOWED UNDER SECT ION 36(1)(III) IS IN ACCORDANCE WITH LAW. PAYMENT OF INTEREST TO PARTNER S ON MONEY BORROWED BY THE FIRM SHOULD BE PRIMARILY CONSIDERED U/S 40(B )(II). FAILING WHICH IT SHOULD BE CONSIDERED U/S 36(1)(II) AS IF MONEY IS B ORROWED FROM OUTSIDE PARTIES. FURTHER ONCE AO IS TREATING INTEREST PAID BY THE PARTNERS ON THE DEBIT BALANCE AS INCOME OF THE FIRM THEN THERE IS N O REASON WHY INTEREST PAID BY THE FIRM TO THE PARTNERS ON THEIR CREDIT BA LANCE/CURRENT ACCOUNT SHOULD NOT BE ALLOWED BY TREATING CREDIT BALANCE IN SUCH CURRENT ACCOUNT AS MONEY BORROWED FROM THE MARKET ON INTEREST. ACCO RDINGLY WE ALLOW THE ALTERNATIVE CLAIM OF THE ASSESSEE U/S 36(1)(III ). ITA NO.1147/AHD/2010 ASST. YEAR 2005-06 4 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 6/8/2010 SD/- SD/- (MUMUL KR. SHRAWAT) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD DATED : 6/8/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD