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TMI Blog2016 (1) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of the partnership for the purpose of section 78 of the Act. It is not in dispute that all the partners after reconstitution of firm remained same and there is no instance of any incoming or outgoing partner. It is also borne out on record that the firm was incurring continuous losses and filing returns of income as such. if there is change in the constitution of a firm by way of a retirement or death of any partner, then the firm is not entitled to have carried forward and set off so much of the loss proportionate to the share of a retired or deceased partner which exceeds his share of profits. In the instant case, the reconstitution of the firm is not made as a result of retirement of any partner or death of any partner. As a matter of fact, the reconstitution of the partnership was made only as a result of changes in the profit sharing ratio amongst the partners. Therefore, in our considered opinion, the ld. CIT(A) has rightly allowed carry forward losses to be set off, as claimed by the assessee - Decided in favour of assessee Disallowance u/s. 37(1) - CIT(A) deleted the addition - Held that:- The narration made on bill No. SRK/4/(08-09)/154 dated 30.07.2008 is “T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of penalty. - Decided in favour of assessee Disallowance of interest and bank charges - CIT(A) allowed claim - Held that:- A perusal of the impugned order reveals that the ld. CIT(A) has deleted the addition only on the ground that such expenses were allowed in the preceding assessment years 2002-03 to 2006-07 on the identical facts. The record nowhere reveals whether the loan taken by the assessee was a term loan for construction/renovation etc. of building, or it was working capital loan taken for the purpose of business. No documentary evidences of the bank are available before us to ascertain this fact. Secondly, the ld. CIT(A) has failed to consider the new fact emerged only in the year under consideration, inasmuch as three floors of the building are let out by the assessee and remaining two floors were used for business purposes. Therefore, in case, it was a term loan taken for construction/renovation of building, then the expenses incurred by the assessee on such loan, shall be apportioned in the ratio of 60:40 as done in the case of other expenses dealt by the ld. CIT(A) itself. If it was a working capital loan, then it has to be thrashed out as to under what circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stage in spite of the fact that assessee does not fulfill the mandatory conditions of rule 46A. 2. Whether the CIT(A) has erred in the facts and circumstances of the case in holding that the case of assessee is not a case where new firm had been constituted or had taken over any old firm and carry forward and set off brought forward losses/unabsorbed depreciation. 3. Whether in the facts and circumstances of case the CIT(A) is justified in deleting the addition of ₹ 3,00,000/- made on account of disallowance of expenses claimed for representing the case of assessee in block assessment proceedings. 4. Whether the CIT(A) is justified in the facts and circumstances of the case in allowing relief of ₹ 24,379/- out of the addition of ₹ 57,212/-. 5. Whether in the facts and circumstances of case the CIT(A) is justified in deleting the addition of ₹ 16,04,832/- holding that the expense claimed was not towards penalty. 6. Whether in the facts and circumstances of case the CIT(A) is justified in deleting the addition of ₹ 60,79,928/- made u/s. 36(1)(iii). 7. Whether in the facts and circumstances of case the CIT(A) is justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999 and again on 02.04.2007 and the changes were made only in the profit sharing ratio. The firm was running in losses which were being carry forwarded year to year. As per computation of income, the assessee had shown business loss of ₹ 80,54,133/- and has claimed set off of this loss against income of ₹ 1,48,80,947/- shown from house property. The remaining house property income of ₹ 68,26,815/- was also set off by adjusting the brought forward unabsorbed depreciation of the same amount and thus has shown nil income in the return. On 02.04.2007, the firm was reconstituted as a going concern concept, which has taken over the business of old firm also named as M/s. Deepsons Southend constituted under the deed of partnership dated 22.11.1999. The Assessing Officer observed that the profit sharing ratio in the new partnership deed executed on 02.04.2007 is different from the profit sharing ratio of the earlier firm having the same name and there is a new source of income in the hands of the new firm which shows existence of a new firm on 02.04.2007, irrespective of the fact that the name and partners of both the firms are same. He, therefore, observed that the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of the firm is not made as a result of retirement of any partner or death of any partner. As a matter of fact, the reconstitution of the partnership was made only as a result of changes in the profit sharing ratio amongst the partners. Therefore, in our considered opinion, the ld. CIT(A) has rightly allowed carry forward losses to be set off, as claimed by the assessee. Accordingly, this ground of appeal of the Revenue also deserves to be dismissed. 8. In ground No. 3, the Revenue has challenged the deletion of disallowance of ₹ 3,00,000/- made by the AO u/s. 37(1) of the Act. In the assessment proceedings, the AO noticed that the assessee had paid a sum of ₹ 3,00,000/- to M/s. S.R. Kapoor Company for appearing in block assessment proceedings. The AO observed that since no block assessment order was passed in the case of assessee firm, the expenses booked by the assessee might have related to the block assessment completed in the case of the partner or in the case of other concern of the group. He, therefore, disallowed the expenses u/s. 37(1) of the Act. The ld.CIT(A) allowed the claim of assessee stating that the appeals against the block assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of ₹ 3,95,353/- towards repair of the building, out of which the expenses attributable to property income were shown at ₹ 1,80,000/- and remaining expenses of ₹ 2,15,353/- were claimed against business income. The AO, however, considering the fact that out of the total five floors of the building, three floors have been let out during the year and remaining two were used by assessee firm, apportioned these expenses in the ratio of 60:40 and allowed ₹ 1,58,141/- against business income as against ₹ 2,15,353/- shown by the assessee. Accordingly, the AO added the difference of ₹ 57,212/- to the total income of the assessee, inasmuch as he disallowed expenses of ₹ 2,37,212/- as attributable towards property income as against ₹ 1,80,000/- shown by the assessee under this head. The ld. CIT(A) after considering the explanation of the assessee and the statement of repairs and maintenance furnished by assessee, observed that the actual expenses in respect of the repair and maintenance of building were ₹ 3,54,271/- and remaining expenses of less than ₹ 5000/- amounting to ₹ 40,633/- were for other repairs and maintenance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the payments were made based on laws of the Government and in connection with the business. The bills or receipts of the payments nowhere show that the alleged payments were in the nature of penalty. He, therefore, deleted the disallowance. 14. Having considered the rival submissions on the issue, we find that the ld. CIT(A) has rightly allowed these expenditure. We do not find any error in the finding of CIT(A) that the impugned expenditure were incurred by the assessee irrespective of the fact the same were paid by his sister concern. The bills raised were in the name of assessee and in the ledger account of assessee, the sister concern is shown as creditor. The expenditures were in the nature of annual commercial use charges, registration charges and regularization charges etc. The documentary evidences furnished by the assessee nowhere depict the nature of payment to be that of penalty in contravention of any law. In fact these payments were made in compensation to protect the asset which was being used for assessee s business for so many years. No good ground is made out on behalf of the Revenue to hold that the impugned payments were in the nature of penalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable before us. In the assessment order, the AO has disallowed the interest expenditure of ₹ 60,79,928/- paid to the bank and expenditure incurred on bank charges of ₹ 53,374/- on the ground that these expenditure were not made for the purpose of business. In this context, we think it appropriate to reproduce the balance sheet and trading, Profit Loss account of three financial years, i.e., 2006-07, 2007-08 and 2008-09 as under : The trading, profit and loss account of the assessee is as under : From the above details, it is clear that the assessee s turnover is continuously going down. The closing stock is also decreasing in the year 2006-07 and there is minor increase in the year 2007-08 and 2008-09. The financial results of the business activities undertaken by the assessee are very poor. The assessee has credited rental income in the profit and loss account, therefore, it is resulting into profit in the F.Y. 2008-09. From the examination of balance sheet, incorporated in the assessment order and the appellate order, we find that the assessee has taken loan from Punjab National Bank, which are continuously decreasing. This shows that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed two letters of the creditors, which were the covering letters of the creditor for sending the DDs of the above amount. The above letters not being in the nature of confirmation of creditors giving details of nature of transaction, the AO required the assessee to file the original confirmation of the creditor of advancing loan to the assessee alongwith bank statement, IT return, PAN etc. However, by the time the original confirmation was alleged to have been placed before the AO, the assessment order is said to have been passed. The Assessee, therefore, sent these documents by speed post to the AO and also furnished the same before the ld. CIT(A) alongwith application for admitting additional evidences, which stood admitted after giving proper opportunity to the AO. The AO also furnished remand report on the issue after enquiry. The AO disallowed the claim of assessee as the creditworthiness of creditor and genuineness of the transaction stood unproved before him. The ld. CIT(A) considering the evidences furnished deleted the addition holding that the lender was the old creditor of the assessee and all the ingredients of section 68 stood satisfied. 19. We have considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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