Meenakshi Traders Vs ITO (ITAT Chennai)
Income Tax Appellate Tribunal (ITAT), Chennai Bench, heard the appeal filed by Meenakshi Traders against the order of the Commissioner of Income Tax (Appeals) (CIT(A)), National Faceless Appeal Centre (NFAC), Delhi, concerning the assessment year 2017-18. The core issue of the appeal was the confirmation of two specific disallowances made by the Assessing Officer (AO) through a rectification order under Section 154 of the Income Tax Act, 1961: interest paid to partners and remuneration paid to partners.
Condonation of Delay
The appeal was initially filed with a delay of 40 days. After examining the affidavit submitted by the assessee and hearing both parties, the Tribunal found the reasons for the delay to be bonafide. Consequently, the delay was condoned, and the appeal was admitted for adjudication.
Disallowance of Interest Paid to Partners
The assessee challenged the confirmation of a disallowance of ₹1,83,248 paid as interest to partners. The AO, in the rectification order, had restricted the interest allowance to only five months on the premise that the partnership firm’s business operations only commenced on October 26, 2016.
Upon reviewing the partners’ ledger accounts, the Tribunal noted that the interest on capital was correctly paid as of March 31, 2017 (the last day of the financial year). The Tribunal agreed with the Authorized Representative (AR) that the AO’s action of restricting the interest payment based on the date of business commencement was not justified, as the Income Tax Act does not impose such a restriction. Therefore, the ITAT deleted the entire disallowance of ₹1,83,248, allowing the grounds raised by the assessee on this matter.
