Cash loan Raised and Repaid between Firm and Partner not violation of 269SS and 269T of Income Tax Act: ITAT sets aside Revision Order [Read Order]

The Raipur bench of the Income Tax Appellate Tribunal (ITAT) has recently held that cash loans raised and repaid between firm and partner is not in violation of provisions of 269SS and 269T of the Income Tax Act and set aside the revision order passed by the PCIT.

R. Rao, Advocate appeared for the assessee. Ila M. Parmar, Advocate appeared for the revenue

The appeal was filed by assessee Anjay Surana against the order of PCIT passed under Section 263 of the Income Tax Act.

Assessee was a partner in a partnership firm viz. M/s. Rajat Builders had a negative opening balance of Rs.98,97,438/- in his capital account on 01.04.2016.

Assessee had thereafter overdrawn an amount of Rs.34,93,751/- during the year under consideration, as a result whereof his negative/debit capital balance in the firm was increased to (-) Rs.1,29,07,588/- on 31.03.2017

The Pr. CIT, considering the cash additions and withdrawals made in the “Capital a/c” of the assessee during the year, was of the view that he had as a matter of fact both raised and repaid in cash loans from/to the partnership firm in violation of the mandate of Sections 269SS and 269T of the Income Tax  Act.

Further it was observed by the Pr. CIT that through the Clause 5 of the partnership deed of the aforesaid firm, that is M/s. Rajat Builders contemplated payment of interest @12% per annum in case of “debit balance” in the account of any partner but no such interest was paid by the assessee to the firm.

Aggrieved by the order, assesee filed an appeal before the tribunal.

It was observed by the tribunal that “no infirmity emerges from the order of the A.O, wherein he in the backdrop of Clause 5 of the partnership deed of the firm, viz. M/s Rajat Builders, which as per the mutual arrangement amongst the partners permitted over withdrawing of capital account, thus, had arrived at a possible and plausible view by not recharacterizing the simpliciter cash over withdrawing/additions made by the assessee as a partner in his “capital a/c” as raising/repayment of loans in contravention of the modes prescribed under Section  269SS and 269T of the Income Tax Act”

Therefore, the tribunal bench confirmed that nature of the transaction entered into by the assessee with the aforesaid firm.

It was observed that further transactions in question could not have been characterized as advance/repayment of loans between the assessee and the partnership firm. Also, the cash transaction between the firm and partner is not a contravention of Sections 269SS and 269T of the Income Tax Act.

Ravish Sood, (Judicial Member) and Arun Khodpia, (Accountant Member) thereby set aside the revision order passed by the PCIT and restored the order passed by the AO under Section 143(3) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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