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TMI Blog2021 (6) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... n a sum of ₹ 8,55,587/- which means the substantial amount except a meager sum of ₹ 3,80,630/- was withdrawn by the partner and was not available with the partnership firm for its business purpose. Hence, the claim of interest for full year @ 12% is otherwise not allowable in terms of Section 36(1)(iii) or Section 37(1) of the Act as the case may be. Once the basic condition as prescribed u/s 36(1) (iii) or Section 37(1) of the Act was not satisfied regarding allowability of particular claim of interest then the said claim cannot be allowed by invoking the Section 40(b)(iv) of the Act, which is a restrictive provisions and not enabling provision. Accordingly, the Assessing Officer has rightly allowed the claim on pro-rata basis i.e. the average of opening and closing balance was taken as eligible amount while allowing the interest paid to the partner. This ground of the assessee s appeal is dismissed. Disallowance of 5% of repair and maintenance expenditure - AO asked the assessee to explain the details of TDS payment on transport expenses - HELD THAT:- Except the narration of being cash paid for plant repair and maintenance no other particulars or details are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntaining the stock register of such dust stock. Once the explanation of the assessee is reasonable keeping in view the nature of scrap generating during the manufacturing process then the action of the Assessing Officer in making the adhoc addition is not justified. Hence, the addition made by the Assessing Officer is deleted. Disallowance of entertainment expenses @ 20% - HELD THAT:- It is noted that the Assessing Officer has made disallowance of 20% of the entertainment expenses on the ground of not fully verifiable. The Assessing Officer made a similar disallowance in respect of the repair and maintenance expenses but @ 5% which has been confirmed by this Tribunal in the preceding part of this order. Accordingly to maintain the rule of consistency the disallowance made by the Assessing Officer is restricted to 5%. This ground of the appeal is partly allowed. Disallowance @ 20% of telephone expenses on the ground of personal use of partners - AO made the disallowance on the ground of personal use in respect of telephone expenses - HELD THAT:- AO has not discussed anything about the personal use of telephone. Hence, except the suspicion of the AO regarding the possible p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Because the appellant case is covered by the several judgment of Hon'ble ITAT in case of Chandra Confectionery Pvt. Ltd. 2003(2) MTC 1022, whether the court held that no any disallowance can be made on lump- sump basis otherwise any specific defect found in the books of accounts. 8. Because, the appellant craves for a right to raise any additional ground during the course of hearing of the case. 9. Because the order passed by the Ld. Commissioner (Appeal) is erroneous, bad in law and on facts and against the judgment jurisdictional court and is deserve to be quashed. 2. Ground No.1 is regarding restriction of claim of interest payment on partner s capital. The assessee is a partnership firm and claimed interest of ₹ 1,04,734/-on opening balance of partner s capital @ 12% per annum. During the assessment proceedings, the Assessing Officer noted that the assessee has paid the interest on the opening balance of ₹ 8,72,785/- but during the year Shri Satish Kumar Agarwal, the partner of assessee firm has drawn ₹ 8,55,587/- and consequently, the closing balance in the capital account of Shri Satish Kumar Agarwal is ₹ 3,80,600/-. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the subsequent withdrawals made by the partner. The assessee has taken a stand that since the partnership deed provides the payment of interest on the opening balance of the capital account of the partner, therefore, the subsequent withdrawals of the amount from the capital account of the partner is irrelevant. It is pertinent to note that Section 40(b)(iv) is restrictive in nature and not a provision enabling the deduction. For the ready reference Section 40(b)(iv) is reproduced as under:- Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . (a) xxxxxxxxxxxxxxxx (b) in the case of any firm assessable as such,- (i) to (iii) xxxxxxxxxxx (iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or 6. Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 8,72,785/- but during the year the said partner has withdrawn a sum of ₹ 8,55,587/- which means the substantial amount except a meager sum of ₹ 3,80,630/- was withdrawn by the partner and was not available with the partnership firm for its business purpose. Hence, the claim of interest for full year @ 12% is otherwise not allowable in terms of Section 36(1)(iii) or Section 37(1) of the Act as the case may be. Once the basic condition as prescribed u/s 36(1) (iii) or Section 37(1) of the Act was not satisfied regarding allowability of particular claim of interest then the said claim cannot be allowed by invoking the Section 40(b)(iv) of the Act, which is a restrictive provisions and not enabling provision. Accordingly, the Assessing Officer has rightly allowed the claim on pro-rata basis i.e. the average of opening and closing balance was taken as eligible amount while allowing the interest paid to the partner. This ground of the assessee s appeal is dismissed. 8. Ground no. 2 is regarding disallowance of 5% of repair and maintenance expenditure. The Assessing Officer asked the assessee to explain the details of TDS payment on transport expenses. In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a sum of ₹ 10,65,600/- under the head repair and maintenance. The Assessing Officer has stated in the assessment order that the claim of the assessee is not verifiable and accordingly the Assessing Officer made disallowance of 5% of such expenses which comes to ₹ 53,280/-. The CIT(A) has confirmed the disallowance made by the Assessing Officer by recording the reasons that the assessee has not produced any record in support of the claim. There is no quarrel on the point that if the claim of expenditure is found to be genuine and incurred for the purpose of business of the assessee then without giving a finding that a specific amount is not incurred towards the purpose of business of assessee the Assessing Officer ought not to have made an adhoc disallowance. However, in the case in hand, the assessee has claimed ₹ 10,65,600/- under the head repair and maintenance and all these expenditure are claimed to have been incurred in cash. The copy of ledger accounts of plant repair and maintenance is placed at pages 14 to 18 of the paper book. Ongoing through the details and entries of the ledger account it is noted that the assessee has shown the entries of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other documentary evidence, which would justify the Assessing Officer in disallowing certain portion of such expenses. 8. In the light of the aforesaid, we are of the opinion that the Tribunal committed an error in allowing the appeal of the assessee and by totally deleting the disallowance of 5%. We, accordingly, allow the Ist question of law as stated aforesaid, in favour of the appellant, i.e., the Department and against the assessee and set aside that part of the order of the Tribunal on this aspect and restore the order of the Ist Appellate Authority. In our opinion, the disallowance of 5% in the facts of the case is justified. 12. The decision relied upon by the AR of the assessee in the case of CIT vs. Baburam Ajit Prasad (Supra) would not help the case of the assessee. The said decision is only in respect of a possible view and opinion and the Assessing Officer taken a view against the assessee. Accordingly, this ground of the assessee s appeal is dismissed. 13. Ground No.3 is regarding the addition made by the Assessing Officer on account of valuation of closing stock of dust. The assessee has valued the closing stock of dust at ₹ 1,90,200/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any reasonable basis. Once the Assessing Officer is not satisfied about the valuation of the closing stock of the dust then it is incumbent upon the Assessing Officer to conduct a proper enquiry and to apply proper criteria or basis for valuation of the closing stock. The wrong valuation of the closing stock on the part of the assessee does not authorized the Assessing Officer to make a wrong addition. Therefore, even if the valuation of the closing stock made by the assessee is not found to be correct the Assessing Officer has to make the valuation on some proper guidance and criteria. In the absence of any basis the adhoc addition made by the Assessing Officer is not justified and the same is deleted. It is pertinent to note that since the closing stock shown by the assessee is regarding the dust of the stone chip which is generated during the course of the manufacturing of the stone chip. Therefore, the assessee has explained the reasons for not maintaining the quantitative details and maintaining the stock register of such dust stock. Once the explanation of the assessee is reasonable keeping in view the nature of scrap generating during the manufacturing process the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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