Pratikkumar Bipinchandra Patel v. ITO, Ward-3 Gandhingar
[Citation -2015-LL-0924-13]

Citation 2015-LL-0924-13
Appellant Name Pratikkumar Bipinchandra Patel
Respondent Name ITO, Ward-3 Gandhingar.
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 24/09/2015
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags reopening of assessment • assessee-partner • partnership deed • simple interest • capital contribution • interest expenditure • question of fact • memorandum of understanding • interest income • in accordance with law
Bot Summary: Brief facts of the case are that the assessee has filed his return of income on 4.9.2010 declaring total income of Rs.2,97,290/-. The clause 5 of the partnership deed contemplates that a simple interest at the rate of 12 per annum or at such other rate as may be mutually agreed upon or prescribed under section 40(b)(iv) of the Income Tax Act, 1961 would be applicable and would be given on their capital contribution. Since the assessee has not disclosed this interest income in the return, the AO has reopened the assessment. In response to the query of the AO, it was contended by the assessee that a memorandum of understanding was executed, whereby, it was provided that no interest would be paid to the partners on their capital contribution. Since no interest was paid the assessee did not recognize the interest income. AO ought to have visualized the fact that whether the ITA No.2063/Ahd/2015 3 partnership firm has claimed expenditure on account of interest which deemed to have been paid to the assessee. At the close of the year, if the partners have decided not to give interest on the partners capital contribution, then no interest income can be said to have arisen in the hands of the partners.


, B IN INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA No.2063/Ahd/2015 /Asstt. Year: 2009-2010 Pratikkumar Bipinchandra Patel ITO, Ward-3 249, Ramji Mandir Vs Gandhingar. Kadva Patel Vas Chandkheda Ahmedabad. PAN : AOFPP 9064 G / (Appellant) / (Respondent) Assessee by : Shri S.N. Divetia Revenue by : Smt. Smiti Samant, Sr.DR /Date of Hearing : 21/09/2015 /Date of Pronouncement: 24 /09/2015 /O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: assessee is in appeal before us against order of CIT(A), Gandhinagar dated 28.4.2015 passed for Asstt.Year 2009- 10. 2. solitary grievance of assessee is that ld.CIT(A) has erred in confirming addition of Rs.6,35,573/-. 3. Brief facts of case are that assessee has filed his return of income on 4.9.2010 declaring total income of Rs.2,97,290/-. assessment order was passed under section 143(3) of Income Tax Act on 26.12.2011. AO had reopened assessment by issuance of notice under section 148 of Income Tax Act. AO has ITA No.2063/Ahd/2015 2 observed that assessee is partner in firm viz. M/s.Syuog Infrastructure. clause 5 of partnership deed contemplates that simple interest at rate of 12% per annum or at such other rate as may be mutually agreed upon or prescribed under section 40(b)(iv) of Income Tax Act, 1961 would be applicable and would be given on their capital contribution. According to AO, assessee had invested capital of Rs.2,06,94,845/- in partnership firm . He ought to receive interest income on this capital from firm and such interest income ought to be offered for taxation. ld.AO has calculated such interest income of Rs.6,35,573/-. Since assessee has not disclosed this interest income in return, AO has reopened assessment. In response to query of AO, it was contended by assessee that memorandum of understanding was executed, whereby, it was provided that no interest would be paid to partners on their capital contribution. Since no interest was paid, therefore, assessee did not recognize interest income. ld.AO rejected this plea of assessee on ground that this memorandum of understanding is not on stamp paper and it has not been notarized. It is subsequent development and it is contrary to clause (5) of partnership deed. He gave preference to partnership deed instead of memorandum of understanding, and accordingly, made addition of Rs.6,35,573/-. 4. Appeal to CIT(A) did not bring any relief to assessee. 5. With assistance of ld. Representatives, we have gone through record carefully. assessee has placed on record copy of partnership deed. perusal of partnership deed would indicate that there are seven partners. To our mind veracity of memorandum of understanding ought not to be decided on peripheral issues, viz. it was not on stamp paper, and it was not notarized etc. ld.AO ought to have visualized fact that whether ITA No.2063/Ahd/2015 3 partnership firm has claimed expenditure on account of interest which deemed to have been paid to assessee. Whether other partners have made capital contribution ?. They had recognised such interest income in their returns. AO ought to have recorded statement of partners in order to ascertain whether memorandum of understanding was actually executed by partners or not. At close of year, if partners have decided not to give interest on partners capital contribution, then no interest income can be said to have arisen in hands of partners. But, this is question of fact, which can only be examined by examining accounts of firm as well as individual partners and by recording statement of partners. approach of AO is not in accordance with law, therefore, we set aside both impugned orders and restore this issue to file of AO for re- adjudication. 6. In result, appeal of assessee is allowed. Order pronounced in Court on 24th September, 2015 at Ahmedabad. Sd/- Sd/- (MANISH BORAD) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 24/09/2015 Pratikkumar Bipinchandra Patel v. ITO, Ward-3 Gandhingar
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