Ita/100/2007 Of Commissioner Of Income Tax,Trivandrum v. M/S.anugraha Builders,Rathapurakunnu,Tvm

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID WEDNESDAY, THE 17TH DECEMBER 2008 / 26TH AGRAHAYANA 1930 ITA.No. 100 of 2007() --------------------- AGAINST THE ORDER IN ITA.374/COCH/2003 of I.T.A.TRIBUNAL,COCHIN BENCH FOR THE ASSESSMENT YEAR 1998-99 .................... APPELLANT/APPELLANT: --------------------------- THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT/RESPONDENT: -------------------------------- M/S. ANUGRAHA BUILDERS, RATHAPURAKUNNU, SASTHAMANGALAM, THIRUVANANTHAPURAM. BY ADV. SRI.T.M.SREEDHARAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/12/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR &HARUN-UL-RASHID, JJ. -------------------------------------------- I.T.A. No. 100 OF 2007 -------------------------------------------- Dated this the 16th day of December, 2008 JUDGMENT Ramachandran Nair,J. The question raised in the appeal filed by the revenue is whetherthe Tribunal was justified in sustaining the order of CIT (Appeals)upholding disallowance of interest claimed by the firm amounting toRs. 3,94,385/-. We have heard standing counsel appearing for theappellant and counsel appearing for the assessee. The total interestclaimed for the assessment year concerned, namely, 1998-99, is aroundRs. 60 lakhs. However, on verifying the accounts the assessing officernoticed that one of the partners has made interest free withdrawal ofaround Rs. 21 lakhs during the previous year and on account ofpersonal withdrawal by one of the partners, the firm was short ofliquidity leading to higher incidence of debt and consequently interestliability. On going through the orders and after hearing parties, we feelthe assessee also does not controvert the legal position that personalwithdrawal of cash by the partner will lead to liquidity problem leading to higher debt burden on the firm and therefore proportionate interestattributable to cash retained by the partner should be disallowed.However, the specific case of the assessee is that firm was neveracquiring land and partner was acquiring land in his personal name forthe business purpose of the firm after taking advances from the firm. Ifthis is factually correct, then there will be no justification fordisallowance of interest because advances taken by the partner areutilised for firm and profit earned is enjoyed by the firm. However,assessee did not produce any details about utilisation of advancesretained by partner for the purchase of property for the businesspurpose of the firm. In fact Commissioner (Appeals) without verifyingthe facts allowed the appeal on the ground that Officer made additionbased on suspicion. We are unable to uphold the order of the Tribunalconfirming that of the CIT (Appeals). Since assessee has specific casethat advances drawn by the partner are not for personal purpose but forbusiness purpose that is for acquisition of property for the purpose ofbusiness of the firm, we feel one more opportunity should be given tothe assessee to prove the case with facts and details pertaining to advances given to the partner and utilisation thereof by him for purposeof the firm during the previous year. The orders of the Tribunal andthat of CIT (Appeals) pertaining to this issue are set aside withdirection to assessee to furnish details before the assessing officer forhim to revise the assessment after giving one more opportunity to theappellant. Appeal is disposed of as above. (C.N.RAMACHANDRAN NAIR)Judge. (HARUN-UL-RASHID) Judge. kk