M/s. Hira Enterprises, Satara V. DCIT, Satara

ITA 1072/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3266 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 13-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S SINGH SMT MANJU AJWANI
• Assessee Lawyers: P S SHINGTE
• Section: 143(3); 40(b); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 1072/PN/08 (ASSTT. YEAR 2002-03) M/S. HIRA ENTERPRISES RAJASPURAD PETH, SATARA PAN NO. AABPH1170M .... APPELLANT VS. DCIT, SATARA CIRCLE, SATARA . RESPONDENT APPELLANT BY : SHRI P.S. SHINGTE RESPONDENT BY : SHRI A.S. SINGH/ SMT. MANJU AJWANI ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE CIT(A)-II, PUNE DATED 15/05/2008 AND THE GROUNDS RAISED ARE AS FOL LOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT THE NOTICE U/S. 148 ISSUED BY THE ASSESSING OFFICER IS WITHIN THE MEAN ING OF CLAUSE (C) OF EXPLANATION 2 TO SECTION 147 OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE NOTICE U/S . 148 IS ISSUED BEYOND THE TIME OF FOUR YEARS AS PROVIDED IN SECTION 147 F IRST PROVISO AND THE ASSESSMENT IS VOID AB-INITO, WHEN IN FACT THAT THE NOTICE U/S. 148 ISSUED BY THE AO IS WITHIN THE TIME LIMIT AS PER THE PROVI SIONS OF SECTION 149 (1)(B) OF THE INCOME TAX ACT, 1961? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E WHETHER CIT(A) IS RIGHT IN HOLDING THAT THE ASSESSEE HAS DISCLOSED ALL FACTS TRULY FULLY TO THE DEPARTMENT AND THERE IS NO FAILURE ON THE PART OF T HE ASSESSEE FOR ESCAPED ASSESSMENT. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BY VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. FACTUALLY, THE ASSESSMENT WAS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT BASED ON THE RETURN OF INCOME WITH ITS ANNEXURES. THE ANNEXURES CONTAIN THE P & L ACCOUNT WITH THE DETAILS ON THE IMPUGNED INTEREST RECEIPTS. BY VIRTU E OF THE CONTENTS OF THESE DOCUMENTS, IF THE AO SHOULD HAVE DECIDED THE ISSUE UNDER CONSI DERATION DURING THE ORIGINAL ASSESSMENT PROCEEDINGS ITSELF. THE ISSUE IN THE REA SSESSMENT PROCEEDINGS RELATES TO THE INTEREST RECEIPTS SHOULD HAVE BEEN EXCLUDED FROM TH E BOOK PROFIT FOR THE PURPOSE OF DECIDING THE ALLOWABLE QUANTUM OF REMUNERATION U/S 40(B) READ WITH EXPLANATION 3 OF THE ACT. IDENTICAL ISSUE WAS ADJUDICATED BY US IN T HE CASE OF ITA NO 664/PN/2009 ACIT VS. M/S. B.G. CHITALE, WHERE THE ISSUE WAS DEC IDED AS UNDER: ITA NO. 1072/PN/2008 A.Y 2002-03 PAGE 2 OF 3 2. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2001-02. NOT ICE U/S. 148 DATED 26-03-2008 WAS ISSUED ON THE ASSESSEE I.E., WITHIN 6 YEARS AND ACCORDINGLY, THE FIRST PROVISO TO SEC. 148 APPLIES IN THIS CASE. FURTHER, LD COUNSEL MENTIONED THAT REASON FOR REOPENING FOR THE ASSESSMENT IS THAT THE INTEREST RECEIPTS WERE NOT EXCLUDED BY THE A.O FROM THE SUM OF NET PROFIT FOR COMPUTING THE ALLOWABLE DEDUCTION U/S. 4 0(B) OF THE I.T. ACT. IN THIS REGARD LD. COUNSEL RELIED ON VARIOUS DECISIONS SUCH AS (2006) 99 TTJ 197 (RAJKOT) IN THE CASE OF ITO VS. JAMANADAS MULJI BHAI FOR THE PROPOSITION THAT ALLOWABLE DEDUCTION U/S. 40(B) SHO ULD BE COMPUTED ON THE NET PROFIT INCLUDING THE INCOME UNDER THAT HEAD OF INCOME. THEREFORE NON EXCLUSION OF THE INTEREST RECEIPTS IN THE ORIGI NAL ASSESSMENT IS IN ACCORDANCE WITH THE AVAILABLE LAW OF THE LAND. FURT HER THE COUNSEL ARGUED THAT THE RETURN OF INCOME AND ANNEXURE THERE OF CON TAINS RELEVANT PARTICULARS NECESSARY RELATING TO IMPUGNED INTEREST INCOME AND THE NET PROFIT FOR THE PURPOSE OF APPLYING THE PROVISIONS O F SECTION 40(B) OF THE ACT. THEREFORE ASSESSEE IS NOT A DEFAULTER SO FAR AS THE DISCLOSURE OF THAT FACTS TRULY AND FULLY TO THE DEPARTMENT. IN SUCH CI RCUMSTANCES, AS PER THE ASSESSEE, THE ASSESSEE IS NOT ALLOWED TO ASSUME JUR ISDICTION U/S 147/148 IN VIEW OF THE RELEVANT PROVISIONS OF THE SAID SECT ION AND ALSO IN VIEW OF THE PLETHORA OF CITATION SUCH AS DR. AMINS PATHOLO GY LABORATORY 252 ITR 673 (BOM.), REVATHY CP EQUIPMENT LTD 241 ITR 856., CIT VS. UTTAM CHAND NAHAR 295 ITR 403 (RAJ). FURTHER IT IS MENTIO NED THAT WHEN THERE IS NO CONCEALMENT OF INCOME, THE REOPENING SHOULD BE I NVALID. IN THIS REGARD, LD COUNSEL MENTIONED THAT THE ISSUE UNDER CONSIDERA TION STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF VARIO US BENCHES OF THE TRIBUNAL. LD COUNSEL FOR THE ASSESSEE RELIED ON THE RAJKOT BENCH DECISION OF THE ITAT IN THE CASE OF ACIT VS. SHETH BROTHERS AND READ OUT THE CONCLUSION PORTION OF THE ORDER WHICH IS AS UNDER. WHOLE INCOME EMBEDDED IN THE NET PROFIT AS APPEARI NG IN THE P & L A/C OF THE ASSESSEE-FIRM IS TO BE TAKEN INTO CONSID ERATION FOR ALLOWING DEDUCTION OF REMUNERATION PAID TO PARTNERS UNDER S. 40(B) WITHOUT EXCLUDING THE INTEREST INCOME WHICH FORMED PART OF THE BOOK PROFIT. FURTHER, THE COUNSEL FOR THE ASSESSEE ALSO RELIED O N THE DECISION OF JAIPUR BENCH IN THE CASE OF S.P. EQUIPMENT & SERVICES VS. ACIT, 128 TTJ 68, RELEVANT PORTION OF THE CONCLUSION IS READS AS UNDE R. NET PROFIT SHOWN BY A FIRM IN ITS P & L A/C IS NOT TO BE CLASSIFIED INTO DIFFERENT HEADS OF INCOME UNDER S.14 FOR THE PURPOS E OF S. 40(B) AND, THEREFORE, INTEREST INCOME IS NOT TO BE EXCLUDED FR OM THE NET PROFIT DECLARED BY THE ASSESSEE FOR COMPUTING BOOK PROFIT FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION OF REMUNERATION PAYABLE TO THE PARTNERS UNDER S. 40(B). 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AND THE DECISIONS REPRODUCED ABOVE. IT IS O BVIOUS FROM THE ABOVE CITATIONS THAT THE INTEREST INCOME IS NOT TO BE EXCLUDED FROM THE NET PROFIT DECLARED BY THE ASSESSEE FOR COMPUTING BOOK PROFIT FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION OF REMUNERAT ION PAYABLE TO THE PARTNERS UNDER S. 40(B). THUS, LEGALLY, THE REVENUE WRONGLY ASSUMED THAT THE INTEREST RECEIPTS ARE TO BE EXCLUDED FOR THE PU RPOSES OF SECTION 40(B) OF THE ACT. CONSEQUENTLY, THE AO WRONGLY INVOKED TH E PROVISIONS OF SECTION 147 OF THE INCOME TAX ACT. FURTHER, WE FIND THAT T HE ASSESSEE HAS NOT DEFAULTED SO FAR AS THE TRUE AND FULL DISCLOSURE OF THE RELEVANT FACTS. THUS, THE AO WRONGLY INVOKED THE PROVISIONS OF THE FIRST PROVISO TO SECTION 147 OF ITA NO. 1072/PN/2008 A.Y 2002-03 PAGE 3 OF 3 THE ACT. THEREFORE, THE REVENUE FAILS IN RESPECT OF ALL THE GROUNDS RAISED BY THEM. ACCORDINGLY, THE ALL THE GROUNDS ARE DISMISSED . 4. THUS, LEGALLY, THE REVENUE WRONGLY ASSUMED THAT THE INTEREST RECEIPTS ARE TO BE EXCLUDED FROM THE BOOK PROFITS FOR THE PURPOS ES OF QUANTIFYING THE ALLOWABLE REMUNERATION UNDER SECTION 40(B) OF THE A CT. CONSEQUENTLY, THE AO WRONGLY INVOKED THE PROVISIONS OF SECTION 147 OF TH E INCOME TAX ACT. THUS, IT IS A CASE OF AN ATTEMPT OF THE REVENUE TO WRONGLY EXCLUD E THE INTEREST RECEIPTS. IT IS A SETTLED LAW THAT WHERE THERE IS NO POSSIBILITY OF THE CONCEALED INCOME, THERE IS NO NEED FOR REOPENING THE CONCLUDED ASSESSMENT. RESPECTFULLY, FOLLOWING THE ABOVE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF M/S . B.G. CHITALE (SUPRA), WE ARE OF THE OPINION, THAT THE GROUNDS RAISED BY THE ASSE SSEE HAVE TO BE ALLOWED. 5. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON 24 TH SEPTEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 24 TH SEPTEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DCIT SATARA CIRCLE, SATARA 3. CIT(A)-II, PUNE 4. CIT-III, PUNE 5. D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE