N.G. Corporation, Ahmedabad vs Department Of Income Tax

सन ु वाई क तार ख/Date of Hearing : 22-06-2015 घोषणा क तार ख /Date of Pronouncement: 25/06/2015

आदे श/O R D E R

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER.

This appeal is filed by the Revenue against the order of CIT (A)- XV, Ahmedabad dated 1-2-2010 for Assessment Year 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. The assessee is a partnership firm stated to be engaged in the business of Organizer and development of real estate projects. The ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 2

assessee filed its return of income for A.Y. 2007-08 on 29-10-2007 declaring total income of Rs.47,44,290/-. The case was selected for scrutiny and thereafter assessment was framed u/s.143 (3) of the Act vide order dated 24-12-2009 and the total income was determined at Rs.1,45,90,590/-. Aggrieved by the order of A.O., assessee carried the matter before CIT (A) who vide order dated 18-5-2010 granted substantial relief to the assessee. Aggrieved by the aforesaid order of CIT (A), the Revenue is now in appeal before us and has raised the following grounds of appeal.

"(1) The Ld. CIT (A)-XV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.15,04,001/- made by the Assessing Officer u/s. 41(1) as cessation of liability.

(2) The Ld. CIT (A)-XV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.82,42,294/- made by the Assessing Officer as estimated interest on diversion of funds."

4. GroundNo.1 is with respect to the deletion of addition made u/s. 41(1).

5. During the course of assessment proceedings the A.O. noticed that under the heading of "loans and advances" the assessee was showing Rs.15,04,001/- against Aswamegh Medows Booking. The assessee was asked to give the details of the same and also to explain as to how the balances were outstanding from a scheme that was cancelled long back. In response to which the assessee filed the names of the persons but did not furnish the address of the parties, confirmations etc. The A.O. noted that it was 15 years since the money was payable and since the parties were not insisting for payment and the assessee also had not made any payment, the liability has ceased to exist and therefore he considered Rs.15,04,001/- as income of the ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 3

assessee. Aggrieved by the order of the Assessing Officer the assessee carried the matter before the CIT (A) who after considering the submissions deleted the addition by holding as under :-

"7. During the course of appellate proceedings the Ld. AR informed that the names and addresses of persons who had made a booking with the appellant but the scheme got cancelled were furnished to the A.O. vide letter dated 23-11-2009. Copy of this letter with its enclosures was submitted. The relevant enclosure showing the names and addresses is enclosed as Annexure-1 of this order.

It was argued by the AR that Rs.15,04,001 was not claimed as deduction or expense in the return of any earlier year and for making addition u/s. 41(1) that was mandatory. Hon'ble ITAT Bench B Ahmedabad decision dated 30-10-2009 in the case of Govindbai C. Patel vs. DCIT in ITA No.1675/Ahd/2009 was cited in support wherein it has been held that where the assessee has incurred a trading liability and this liability has been allowed as a deduction in earlier year and something has later on been recovered in respect of such liability or such liability has either been remitted or has ceased to exist then section 41(1) comes into operation. Hon'ble ITAT upheld the deletion of addition u/s. 41(1) by CIT (A) on the ground that only that liability can be added or taxed which has ceased but which has been allowed as a deduction in any earlier year.

8. After going through rival submissions the AO is directed to delete the addition of Rs.15,04,001 made u/s. 41(1) because the issue is covered by Hon'ble ITAT Bench B Ahmedabad decision in the case of Govindbhai C. Patel mentioned in the preceding paragraph. However, the addition of Rs.1,00,000/- is upheld as it was confirmed during the appellate proceedings by the Ld. AR that deduction of this amount on account of purchase of escalators had been taken in earlier years and the appellant was disputing the payment to Bharat Bijlee but no proofs could be submitted even during the appellate proceedings."

6. Aggrieved by the aforesaid order of the CIT (A) the Revenue is now in appeal before us.

ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 4

7. Before us the Ld. D.R. supported the order of the A.O. On the other hand, the ld.AR reiterated the submissions made before the A.O. and the CIT (A) also placed the reliance on the order of Hon'ble Gujarat High Court in the case of CIT vs. Miraa Processors Pvt. Ltd., (2012) 22 Taxmann.com 120 (Guj) and the decision in the case of CIT vs. Nitin S. Garg (2012) Taxmann.com 59 (Guj.) and thus supported the order of the CIT (A).

8. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to addition u/s. 41(1) of the Act. We find that the CIT (A) while deleting the addition has noted that the issue in the present case was covered by the decision of Ahmedabad Bench Tribunal in the case of Shri Govindbhai C. Patel vs. DCIT in ITA No.1675/Ahd./2009 for Assessment Year 2005-06 order dated 30-10-2009. Before us the Revenue has not brought any contrary binding decision in its support nor could point out any fallacy in the order of CIT (A). We therefore find no reason to interfere with the order of CIT (A). Thus this ground of the Revenue is dismissed.

9. Ground No.2 is with respect to the addition on account of interest.

10. Assessing Officer on perusing the balance sheet noticed that the unsecured loan received by the assessee was diverted for the personal use of the partners by allowing them to withdraw the capital from the firm. He also noticed that assessee has incurred interest charges of Rs.15,64,570/- as against which the interest that was charged to partners worked out to 2.4% as against 9% to 24% paid by the assessee on some of the loans taken by it. He was of the view that had the funds been deposited with bank the assessee could have earned interest at 12% and by advancing amount to the parners there was loss ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 5

to assessee. He thereafter, worked out the interest on the monthly balances of the partners, being the interest that could have earned by the assessee, and added Rs.82,42,294/- to the income of the assessee.

11. Aggrieved by the order of the A.O., the assessee carried the matter before the CIT (A) who vide his order dated 1-2-2010 deleted the addition by holding as under:-

"11. After going through rival submissions I find that the conclusion drawn by the A.O. is not supported by facts The AO has not given any account of interest bearing and non-interest bearing funds, he has taken total of deposits, loans from sister concerns and other loans figure totaling to Rs.7,59,36,553 as loan amount, without mentioning fresh loan acquired during the year or rate of interest on a particular loan. In this background the argument of the A.R. that out of this non-interest bearing funds were available of Rs.6,64,08,881/- supports the case of the appellant with respect to withdrawals. Further during the year no withdrawals had been made by the partners and neither any loans were taken by the appellant firm. No effective interest deduction has been taken by the appellant firm as interest debited of Rs.15,38,484/- in the P & L account has been credited in the P & L account and has been debited to the three partners' account in their profit sharing ratio which is available in para 4.3 of the assessment order itself. The A.O. is therefore, directed to delete the addition of Rs.82,42,294/-."

12. Aggrieved by the aforesaid order of CIT (A), the Revenue is now in appeal before us.

13. Before us, the Ld. DR supported the order of the A.O. On the other hand, the Ld. A.R. reiterated the submissions made before the A.O. and the CIT (A) and supported the order of the CIT (A).

14. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 6

addition on account of notional loss to assessee. We find that the CIT (A) while deleting the addition has noted that the conclusion of the A.O. of diversion of funds by the assessee is not supported by facts and has further given a finding that during the year no withdrawals have been made by the partners and neither any loans were taken by the assessee and no effective interest deduction has been claimed by the assessee. Before us, Revenue has not brought any material on record to controvert the findings of the CIT (A). In view of the aforesaid, we find no reason to interfere with the order of the CIT (A) and thus this ground of the Revenue is dismissed.

14. In the result, appeal of the Revenue is dismissed.

Order pronounced in the Court on , the 2015 at Ahmedabad.

Sd/- Sd/- (S.S. GODARA) ( ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. Dated 25 /6/2015

Patki

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु!त / Concerned CIT 4. आयकर आय! ु त(अपील) / The CIT(A) XV, Ahmedabad

5. $वभागीय 'त'न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड- फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील!य अ"धकरण, अहमदाबाद / ITAT, Ahmedabad ITA No. 2411 / Ahd/2010 Assessment Year 2007-08 7

1. Date of dictation- 22-6-2015

2. Date on which the typed draft is placed before the Dictating Member 23-6-2015

3. Date on which the approved draft comes to the Sr.P.S./P.S. 23-6-2015.

4. Date on which the fair order is placed before the Dictating Member for Pronouncement: 25-6-2015

5. Date on which the file goes to the Bench Clerk: 25-06-2015

6. Date on which the file goes to the Head Clerk..................................

7. The date on which the file goes to the Assistant Registrar for signature on the order..........................

8. Date of Despatch of the Order..................