Case Law Details
Lypsa Diamonds Vs ITO (ITAT Mumbai)
The issue under consideration is whether disallowance u/s 36(1)(iii) made by AO forming an opinion that interest bearing funds were withdrawn from the firm being capital withdrawn by the partners and interest free advances is justified in law?
ITAT states that, it is quite evident that the firm has not provided any interest on credit balances of partners’ capital in earlier years and likewise it has also not charged the interest on debit balances during the year. The partners’ had credit balances in all earlier three years whereas debit balances have arisen only due to the withdrawals during the year. The assessee’s financial statements for the year, as placed on record, would show that there is overall reduction in secured and unsecured loans during the year whereas sundry creditors for goods and expenses have shown hefty increase which would lead to a conclusion that the withdrawals were funded out of credit float enjoyed by the assessee. Further, the assessee has reflected taxable income of Rs.204.42 Lacs which could be said to have accrued evenly throughout the year. Therefore, unless direct nexus of borrowed funds vis-à-vis capital withdrawals was established, no such disallowance u/s 36(1)(iii) could have been made. ITAT find that Ld. AO has failed to bring on record this nexus. Therefore, not convinced with the stand of lower authorities, ITAT are inclined to delete the said disallowance. Accordingly the appeal filed by the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
1.1 Aforesaid appeals are recalled matter since the appeals were earlier disposed-off vide order dated 27/03/2019. However, the order has subsequently been recalled, upon assessee’s misc. application MA Nos. 413-415/Mum/2019 order dated 09/12/2019. Accordingly, the appeals have come up for fresh hearing before this bench. Facts as well as issues are stated to be pari-materia the same in all the three years and adjudication in any one year shall equally apply to the other year also. The order under challenge is common order for all the three years.
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