Karnavati Dyestuff Industries, Ahmedabad v. The Income tax Officer,Ward-12(4),, Ahmedabad

ITA 2263/AHD/2010 | 2007-2008
Pronouncement Date: 31-08-2010 | Result: Allowed

Appeal Details

RSA Number 226320514 RSA 2010
Assessee PAN AABFK9340G
Bench Ahmedabad
Appeal Number ITA 2263/AHD/2010
Duration Of Justice 1 month(s) 24 day(s)
Appellant Karnavati Dyestuff Industries, Ahmedabad
Respondent The Income tax Officer,Ward-12(4),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 31-08-2010
Assessment Year 2007-2008
Appeal Filed On 07-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D. C. AGRAWAL AM) ITA NO.2263/AHD/2010 A. Y.: 2007-08 KARNAVATI DYESTUFF INDUSTRIES 6 SHIVA APARTMENT NR. RAMNAGAR MANINAGAR AHMEDABAD VS THE INCOME TAX OFFICER WARD 12(4) NARAYAN CHAMBERS AHMEDABAD PA NO. AABFK 9340 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. M. PATEL AR ASSESSEE BY SHRI K. M. MAHESH DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)- XX AHMEDABAD DATED 23-04-2010 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUND S: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-XX IS NOT JUSTIFIED IN CONFIRMING NOTIONAL INTEREST OF RS.1 56 535 ON DEBIT BALANCE OF PARTNERS. 2. THE LEARNED COMMISSIONER OF INCOME TAX IS NOT JU STIFIED IN NOT FOLLOWING THE JUDGMENT OF HONORABLE GAUAHTI HIGH COURT REPORTED AT 242 ITR 22 IN CASE OF B & A PLANT ATION AND INDUSTRIES LTD. VS CIT IN LETTERS AND SPIRIT. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIAL ON RECORD. 3. THE AO ASKED THE ASSESSEE AS TO WHY INTEREST IS NOT CHARGED ON THE DEBIT BALANCE OF THE PARTNER NAMELY DR. P. M. CHHAY A (RS.3 76 518) AND DR. D. K. SHAH (RS.9 27 942). THE ASSESSEE SUBMITT ED BEFORE THE AO THAT NO INTEREST WAS CHARGED ON THE DEBIT BALANCE OF THE PARTNERS AS IT WAS ITA NO.2263/AHD/2010 KARNAVATI DYESTUFF INDUSTRIES VS ITO W -12(4) AHD 2 DECIDED NOT TO CHARGE ANY INTEREST ON THE DEBIT BAL ANCE. THE AO NOTED THAT NO PROOF OF THE SAME HAS BEEN FILED AND ACCORD ING TO THE PARTNERSHIP DEED THE PARTNERS SHALL BE PAID INTEREST @18% ON L OANS FROM THE PARTNERS AND ALSO TO CHARGES INTEREST ON DEBIT BALA NCE OF PARTNERS UNDER THE CIRCUMSTANCES. THE CONTENTION OF THE ASSESSEE W AS NOT ACCEPTED AND THE AO DIRECTED TO CHARGE INTEREST OF THE DEBIT BAL ANCE OF THE PARTNERS @12% AND MADE ADDITION OF RS.1 56 535/- U/S 40 (B) OF THE IT ACT. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO THE CLAUSES IN THE PARTNERSHIP THRO UGH WHICH IT WAS NOT MANDATORY TO CHARGE INTEREST ON DEBIT BALANCE AS PA RTNERS ARE ENTITLED TO CHANGE THE RATE OF INTEREST FROM TIME TO TIME. IT W AS ALSO EXPLAINED THAT IN THE CURRENT YEAR THE PARTNERS HAVE DECIDED MUTU ALLY NOT TO CHARGE INTEREST ON THE DEBIT BALANCE. THEREFORE THE ADDIT ION IS UNJUSTIFIED. THE LEARNED CIT(A) HOWEVER CONFIRMED THE ADDITION AND NOTED THAT THE DEBIT BALANCE WAS APPEARING ON 01-04-2006 AGAINST THE PA RTNERS AND ACCORDINGLY CONFIRMED THE ADDITION. THE LEARNED COU NSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND RELIED UPON THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF B & A. PLANTATIONS AND INDUSTRIES LTD. VS CIT 242 ITR 2 2 AND SUBMITTED THAT NO NOTIONAL INTEREST COULD BE CHARGED UNDER THE ACT AND THAT SECTION 40(B) OF THE IT ACT IS PROVISION FOR DEDUCTION OF T HE EXPENDITURE. THEREFORE ADDITION IS UNJUSTIFIED. ON THE OTHER HA ND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE ADDITION IS CLEARLY UNJUSTIFIED AND IS LIABLE T O BE DELETED. THE HONBLE GAUHATI HIGH COURT IN THE CASE OF B & A PLANTATION AND INDUSTRIES LTD. (SUPRA) HELD THAT THERE IS NO PROVISION IN THE INCOME TAX ACT EMPOWERING THE ITO TO INCLUDE IN THE INCOME OF THE ASSESSEE INTEREST WHICH WAS NOT DUE OR COLLECTED . HONBLE SUPREME COURT IN THE CASE OF CIT VS RAMAN (A) & CO. 67 ITR 11 HELD T HAT LAW DOES NOT ITA NO.2263/AHD/2010 KARNAVATI DYESTUFF INDUSTRIES VS ITO W -12(4) AHD 3 OBLIGE A TRADER TO MAKE MAXIMUM PROFIT. SECTION 40(B) OF THE IT ACT PROVIDES FOR DEDUCTION OF EXPENDITURE WHILE COMPUTI NG THE BUSINESS INCOME AND SECTION 40(B) (IV) OF THE IT ACT PROVIDE S THAT PAYMENT OF INTEREST TO THE PARTNERS IS ALLOWABLE DEDUCTION IF THE SAME IS AUTHORIZED AND WAS IN ACCORDANCE WITH THE DIRECTION OF THE PAR TNERSHIP DEED. HOWEVER THE SAME PROVISIONS DOES NOT PROVIDE FOR C HARGING OF NOTIONAL INTEREST ON THE DEBIT BALANCE OF THE PARTNERS. THER E IS NO SPECIFIC PROVISION IN THE CLAUSES OF THE PARTNERSHIP DEED IN THIS CASE AS IS REPRODUCED IN THE IMPUGNED ORDER TO ADVISE CHARGE I NTEREST ON DEBIT BALANCE. THE ASSESSEE PLEADED THAT IN THIS YEAR THE PARTNERS HAVE DECIDED NOT TO CHARGE ANY INTEREST ON DEBIT BALANCE OF THE PARTNERS. THEREFORE THE AO WAS NOT JUSTIFIED IN DIRECTING TO CHARGE NOTIONAL INTEREST ON THE DEBIT BALANCE OF THE PARTNERS. MORE OVER THE INTEREST IS CALCULATED ON THE DEBIT BALANCE AS ON 01-04-2006 A CCORDING TO THE FINDINGS OF THE LEARNED CIT(A) WHICH IS THE BEGINNI NG OF THE FINANCIAL YEAR TO THE ASSESSMENT YEAR UNDER APPEAL. CONSIDERING TH E ABOVE WE DO NOT FIND ANY JUSTIFICATION TO CHARGE ANY NOTIONAL INTER EST ON THE DEBIT BALANCE OF THE PARTNERS ACCOUNT. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BE LOW AND DELETE THE ADDITION. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-08-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 31-08-2010 LAKSHMIKANT/- ITA NO.2263/AHD/2010 KARNAVATI DYESTUFF INDUSTRIES VS ITO W -12(4) AHD 4 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD