COMMISSIONER OF INCOME-TAX Vs. ANUGRAHA BUILDERS

JUDGEMENT

(1.) The question raised in the appeal filed by the revenue is whether the Tribunal was justified in sustaining the order of CIT (Appeals) upholding disallowance of interest claimed by the firm amounting to Rs. 3,94,385. We have heard standing Counsel appearing for the appellant and Counsel appearing for the assessee. The total interest claimed for the assessment year concerned, namely, 1998-99, is around Rs. 60 lakhs. However, on verifying the accounts the Assessing Officer noticed that one of the partners has made interest free withdrawal of around Rs. 21 lakhs during the previous year and on account of personal withdrawal by one of the partners, the firm was short of liquidity leading to higher incidence of debt and consequently interest liability. On going through the orders and after hearing parties, we feel the assessee also does not controvert the legal position that personal withdrawal of cash by the partner will lead to liquidity problem leading to higher debt burden on the firm and, therefore, proportionate interest attributable to cash retained by the partner should be disallowed. However, the specific case of the assessee is that firm was never acquiring land and partner was acquiring land in his personal name for the business purpose of the firm after taking advances from the firm. If this is factually correct, then there will be no justification for disallowance of interest because advances taken by the partner are utilised for firm and profit earned is enjoyed by the firm. However, assessee did not produce any details about utilisation of advances retained by partner for the purchase of property for the business purpose of the firm. In fact Commissioner (Appeals) without verifying the facts allowed the appeal on the ground that Officer made addition based on suspicion. We are unable to uphold the order of the Tribunal confirming that of the CIT (Appeals). Since assessee has specific case that advances drawn by the partner are not for personal purpose but for business purpose that is for acquisition of property for the purpose of business of the firm, we feel one more opportunity should be given to the assessee to prove the case with facts and details pertaining to advances given to the partner and utilisation thereof by him for purpose of the firm during the previous year. The orders of the Tribunal and that of CIT (Appeals) pertaining to this issue are set aside with direction to assessee to furnish details before the Assessing Officer for him to revise the assessment after giving one more opportunity to the appellant.