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TMI Blog2016 (6) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... ile of the Assessing Officer for de novo examination on the issue in accordance with law after giving proper opportunity of being heard to the assessee - Decided in favour of assessee for statistical purposes Allowability of loss - Held that:- We find ourselves in agreement with the directions given by the CIT(A). Winding up of a unit of business is different from winding up the entire business operations. The bad debt is allowable expenditure under section 36(1)(vii) of the Act provided it has been incurred in course of trade and debt or part thereof has been taken into account while computing the income of the assessee in the earlier years. In view of the aforesaid legal position, we remit the issue to the file of the Assessing Officer for de novo examination of the issue. The Assessing Officer shall allow the aforesaid claim on being satisfied that the debts were incurred in the course of trade and conditions as per section 36(1)(vii) r.w.s. 36(2) of the Act are satisfied - Decided in favour of assessee for statistical purposes - ITA No.797/PN/2014 - - - Dated:- 3-6-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Shrenik Gandh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business purpose but have been utilized by way of withdrawals by the partners. No interest has been charged on the money utilized by the partners which is against the business practices. He, accordingly, proceeded to disallow the proportionate amount from the interest paid on borrowed funds under section 36(1)(iii) of the Act to the partners which was worked out to ₹ 15,74,077/- out of total interest of ₹ 40,61,336/- paid on borrowed funds and charged to Profit Loss Account. The CIT(A) confirmed the action of the Assessing Officer. 3.2 The Ld. Authorized Representative (AR) for the assessee Shri Shrenik Gandhi reiterated the facts placed before the Revenue authorities and contended that there is no warrant for disallowance of interest against debit balances of the partners. He submitted that outstanding balances of all the partners when clubbed together has credit balance at the beginning of the year as well as at the end of the financial year. While balances attributable to some partners reflects debit balance, credit available in the hands of the other partners far outweighs the debit balances. Resultantly, there is a clear credit balance against the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss continues to remain positive. In the circumstances, presumption stands in favour of the assessee that borrowed funds have been utilized for the purposes of business. Mere over-withdrawal by some of the partners resulting in debit balances in their hands cannot be seen in isolation when other partner s positive capital is sufficient to mitigate and overweigh such debit balances. We find that the decision of the Hon ble Kerala High Court in the case V.I. Baby and Co. (supra) relied upon by the Ld. DR is clearly distinguishable on facts. In that case, the overall partners capital was found to be in negative. We, thus, do not see as to how the aforesaid decision is applicable to the facts of present case. In the instant case, borrowed funds have been presumably utilized for the withdrawal by some of the partners. However, in the same vein, the overall capital continues to remain positive and therefore allowability of interest in the case of the assessee is squarely covered by the decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., (2009) 313 ITR 340 (Bom.). Thus, contentions advanced by the Ld. AR for the assessee merits acceptance. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AO is also directed to ascertain as to whether the payment is made out of the accounted funds or not and also find out as to whether the Appellant has claimed deduction in the profit and loss account or not. If the Appellant has made payment from its accounted funds without making TDS and debited to profit and loss account then the payment will be disallowed u/s 40(a)(ia). The learned AO is directed to allow or disallow the payment in accordance with the directions contained in this paragraph. 4.2 We note that the CIT(A) has directed the Assessing Officer to reconcile the difference between the entries made in the books of account qua the TDS certificate while drawing conclusion on the issue. We find no infirmity in such direction given as a matter of fair play. Accordingly, we remit the issue back to the file of the Assessing Officer for de novo examination on the issue in accordance with law after giving proper opportunity of being heard to the assessee. Hence, the Ground No.2 is allowed for statistical purposes. 5. The facts concerning Ground No.3 as culled out from the assessment order are that as per submissions made by the assessee, there are no ongoing busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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