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TMI Blog2016 (12) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... ase it is reversed on 01-04-2006 by the firm by reducing WIP. We further find that the A.O. has not made any enquiry with the said firm to bring on record any incriminating material to disprove the contentions and the submissions of the assessee. The addition of interest expenditure of ₹ 33,23,178/- to the income of the assessee is in our considered view is not sustainable in the eyes of law and is hereby ordered to be deleted. - Decided in favour of assessee - I. T. A. No. 6157 / Mum/ 2012 - - - Dated:- 15-12-2016 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member Assessee by : Dr. K. Shivaram Revenue by : Shri Vikash Kumar Agarwal ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee, being ITA No. 6157/Mum/2012, is directed against the appellate order dated 19th July 2012 passed by learned Commissioner of Income Tax (Appeals)- 9, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 19th August, 2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er amounts towards the capital of the firm, as may be required from time to time as mutually agreed upon by the partners. Interest : The partners shall be entitled to interest at the rate of 12% on amount standing to the credit of the capital deposit, loan, advance and/or current account of the partners and reduced by permitted withdrawals, if any. The said rate of interest can be increased or decreased to such other maximum rate allowable as deduction under the Income-tax Act, 1961 as mutually agreed upon by the parties from time to time and recorded in writing. Profit/loss Sharing : The net profit and loss of the partnership business after the payment of all expenses, interest to partners and other outgoings, including capital losses if any shall be shared by and between the parties hereto in the following proportion. *** *** On verification of the return of income filed by the assessee, it was observed by the AO that the assessee company has not shown any interest income. The assessee was called upon to furnish the audit report of the partnership firm Kamlashri Builders for the assessment year 2006-07 whereby it was noticed that the partnership firm h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of either partner or partnership firm. Even otherwise, if there is any mala-fide intention was found, it is on the part of the firm and not the partner and hence the assessee cannot be penalized for the fault of the partnership firm namely Kamlashri Builders . The A.O. after considering the submissions of the assessee held that during the original assessment proceedings u/s 143(3) of the Act, the assessee has furnished partnership deed on 10th September, 2008 but has not furnished revised partnership deed along with original partnership deed. The revised partnership deed was submitted only after issue of show cause notice and not even at the first instance i.e. immediate after the reasons for reopening of assessment was provided on 11.12.2009, thus it was observed by the AO that it is an afterthought by the partners and the firm to save themselves from the tax liability under the provisions of the Act. The revised partnership deed was executed on 18th January, 2006. The partnership firm Kamlashri Builders had filed its return for assessment year 2006-07 on 30th October, 2006 and the assessee has filed its return for assessment year 2006-07 on 2nd November, 2006 , thus it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 of the Act, the assessee filed its first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) the assessee argued that the assessee has entered into partnership with nine other partners and formed a partnership firm namely Kamlashri Builders on 25th August 2005 where the assessee was sharing 27.50% of the net profit/(loss) of the firm and it has contributed ₹ 7.1 crores towards partner's capital contribution during the year. As per the original partnership deed dated 25th August 2005, interest to the partners was payable @ 12% p.a. on their capital contribution, however, the said interest clause was deleted by amending the partnership deed on 18th January 2006 w.e.f. 25-08-2005 , hence the assessee has not considered any interest income on the capital introduced in said partnerships firm as partner's contribution. Thus, it was submitted by the assessee that the assessee has finalized its books of account for the year ended 31st March 2006 as per the amended partnership deed dated 18-01-2006. However, by mistake the said partnership firm had finalized its accounts for the year ended 31st March 2006 as per the original partnership deed dated 25-08- 2005 and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership with nine other partners and formed a partnership namely M/s Kamlashri Builders on 25th August, 2005. The assessee has contributed ₹ 7.10 crores towards partners capital contribution. As per the original partnership dated 25th August, 2005, the interest to the partners on their capital contribution was payable @ 12% per annum. M/s. Kamlashri Builders had finalized their books of accounts for the year 31st March, 2006 in accordance with the original partnership deed dated 25th August, 2005 and as a result, interest of ₹ 31.90 lacs was provided by the said M/s Kamlashri Builders to the assessee in their books of accounts. The ld.CIT(A) observed that the concept of real income cannot be so used as to make accrued income non-income because after the event of accrual the assessee reverses the entry in the next year or the partnership deed is amended subsequently, the effect of which is given in the next accounting year. The ld. CIT(A) relied on the following cases:- 1. Decision of Hon'ble Supreme court in the case of State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) 2. Decision of Hon'ble Bombay High Court in the case of Western India Oil Distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no income is accrued. It was submitted that only real income can be brought to tax and no hypothetical income can be brought to tax is settled proposition of tax-laws. It is submitted that amendment in partnership deed dated 18-01-2006 cannot be ignored. It was submitted that before accrual of the interest being payable on capital contributed by partners , partnership deed were amended on 18-01-2006 and no inteerst was accrued. The ld. Counsel relied on the following cases:- 1. Godhra Electricity Co. Ltd. V. CIT [1997] 225 ITR 746 (SC)/ CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 (SC). 2. Alison Singh Co. v. CIT [2013] 358 ITR 458 (All) HC 3. D.S. Bist Sons v. CIT [1984] 149 ITR 276 (Del) HC 4. Shin Satellite Public Co. Ltd. V. Jain Studios Ltd. [2006] 2 SCC 628 5. CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) It is submitted that no interest has been received or realised by the assessee till date hence it cannot be brought to tax. It is submitted that partnership deed has reversed the entry in the immediately succeeding year on 01-04- 2006 itself . It cannot be an afterthought but as there was an error committed by the partnership firm, the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the Act, the assessee has not submitted amended partnership deed dated 18.01.2006 . Even after the supply of reasons for reopening of the assessment , the assessee did not submit the amended partnership deed dated 18.01.2006 . The Revenue has doubted the amended partnership deed dated 18.01.2006. We have observed that the assessee has placed on record the original partnership deed dated 25.08.2005 as well as amended partnership deed dated 18.01.2006. The interest payable on capital contributed by partners was debited to the closing WIP by the partnership firm and no expense was claimed per se while computing the income for the assessment year 2006-07 by the partnership firm. The said interest payable on the capital of the partners @ 12% which was provided by the firm M/s Kamlashri Builders was reversed on the next day i.e. 1st April, 2006 by the said partnership firm by reducing the WIP which is prior to the issue of the reopening notice dated 06.11.2009 u/s 148 of the Act. Notice has been issued on 6th November, 2009 which clearly indicates that the action has been taken by the said firm of reversing interest expenditure before it was detected by the Revenue. Keeping in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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