M/s Shiv Shakti Builder, Fatehpur V. ITO, Fatehpur

ITA 109/ALLD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94953 (ITAT-ALLAHABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K
• Assessee Lawyers: PRAVEEN GODBOLE
• Keywords: Additional evidence
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH ALLAHABAD BEFORE SHRI P.K. BANSAL , ACCOUNTANT MEMBER I TA NO. 1 09 /ALLD/ 20 12 ASSESSMENT YEAR: 2 0 05 - 06 M/S SHIV SHAKTI BUILDERS , VS. INCOME TAX OFFICER , HARIHAR GANJ RANGE - II(4) FATEHPU R FATEHPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAVEEN GODBOLE, A.R. REVENUE BY : SHRI A.K. PANDEY , DR. DATE OF HEARING: 03 .0 9 .2015 ORDER PRONOUNCE D ON: 13/ 10 /2015 ORDER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A), DATED 21.02.2012 BY TAKING THE FOLLOWING GROUNDS OF APPEAL: 1. THAT IN ANY VIEW OF THE MATTER DECLARED INCOME IN THE RETURN AND DECLARED STATUS SHOULD H AVE BEEN ACCEPTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT IN ANY VIEW OF THE MATTER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS HIGHLY UNJUSTIFIED IN NOT ACCEPTING THE ADDITIONAL EVIDENCE FILE BEFORE HIM AND THE REASONS GIVEN IN THE OR DER FOR NOT ACCEPTING THE ADDITIONAL EVIDENCE ARE INCORRECT. ITA NO.109/ALLD/2012 2 3. THAT IN ANY VIEW OF THE MATTER ASSESSMENT AS FRAMED BY THE ASSESSING OFFICER AS PER ORDER DATED 23.11.2007 IN THE STATUS OF A.O.P. AND HIS ACTION AS CONFIRMED BY THE COMMISSIONER OF INCOME TA X (APPEALS) IS HIGHLY UNJUSTIFIED. 4. THAT IN ANY VIEW OF THE MATTER APPELLANT IS A FIRM SUPPORTED BY A PARTNERSHIP DOCUMENT WHICH WAS EXECUTED IN TIME AND THE REQUIREMENTS OF SECTION 184(2) WERE COMPLIED HENCE THE TWO LOWER AUTHORITIES WERE WRONG IN ADOPT ING THE STATUS A.O.P. AND ALSO WRONG IN DISALLOWING SALARY AND INTEREST PAID TO PARTNERS. 5. THAT IN ANY VIEW OF THE MATTER THE CORRECT STATUS OF THE APPELLANT IS OF FIRM AND NOT A.O.P IS INCORRECT AND THE ENTIRE DISCUSSION AS PER PARA 6 OF THE ORDER IS I NCORRECT. 6. THAT IN ANY VIEW OF THE MATTER BEFORE CHANGING THE STATUS AND BEFORE DISALLOWING THE SALARY AND INTEREST NO OPPORTUNITY WAS ALLOWED TO THE ASSESSEE. HENCE THE ACTIONS OF TWO LOWER AUTHORITIES ARE INCORRECT. 7. THAT IN ANY VIEW OF THE MATTER PAYMENT OF REMUNERATION OF RS.90,000/ - AND PAYMENT OF INTEREST OF RS.38,125/ - TO THE PARTNERS AS PER THE ITA NO.109/ALLD/2012 3 TERMS OF PARTNERSHIP DEED HENCE IT IS AN ALLOWABLE DEDUCTION BUT THE TWO LOWER AUTHORITIES ARE NOT CORRECT IN DISALLOWING THE SAME. 8. THAT IN ANY VIE W OF THE MATTER COPY OF PARTNERSHIP DEED WAS FILED IN TIME AND AS PER TERMS OF DEED, PAYMENT OF SALARY AND INTEREST WAS CLAIMED THEREFORE, THE TWO LOWER AUTHORITIES WERE WRONG IN THEIR ACTION. 9. THAT IN ANY VIEW OF THE MATTER A RATE OF 7% AS APPLIED BY T HE COMMISSIONER OF INCOME TAX (APPEALS) NOT CORRECT SPECIALLY WHEN THE TWO LOWER AUTHORITIES WERE ADMITTED THAT THE ASSESSEE IS A SUB - CONTRACTOR HENCE THE DECLARED PROFIT SHOULD HAVE BEEN ACCEPTED ESPECIALLY WHEN THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT PROVISION OF SECTION 44AD IS NOT APPLICABLE. 10. THAT IN ANY VIEW OF THE MATTER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HIGHLY UNJUSTIFIED AND INCORRECT IN SAYING THAT THE EXPENDITURE CLAIMED IN PROFIT AND LOSS ACCOUNT ARE NOT VER IFIABLE HENCE APPLICATION OF RATE 7% IS UNWARRANTED AND DECLARED PROFIT LIABLE TO BE ACCEPTED. ITA NO.109/ALLD/2012 4 2. THE GROUND NOS. 1,2,3,4,5 & 6 RELATE TO ONLY ISSUE OF MAKING THE ASSESSMENT OF THE ASSESSEE UNDER THE STATUS OF THE AOP, NOT A S FIRM. 3. BRIEF FACTS OF TH E CASE ARE THAT ; THE ASSESSEE SUBMITTED INCOME TAX RETURN ON 31 ST OCTOBER, 2005 ON AN INCOME OF RS. 1170/ - . THE ASSESSEE ENCLOSED AUDIT ED BALANCE SHEET ALONGWITH THE RETURN . THE AO TREATED THE ASSESSEE AS AOP AS THE NO PARTNERSHIP DEED WAS FILED ALONGWITH T HE RETURN. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED THE APPLICATION UNDER RULE 4 6A FOR ADMISSION OF ADDITIONAL EVIDENCE AND ALSO ENCLOSED THE COPY OF THE PARTNERSHIP DEED . T HE LD. CIT(A) DID NOT ACCEPT THE ADDITIONAL EVIDEN CE AND CONFIRM THE ORDER OF THE AO, ASSESSING THE ASSESSEE AS AOP. 4. I HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE ORDER OF THE TAX AUTHORIT IES BELOW. I NOTED THAT THE ASSESSEE HAS SUBMITTED THE COPY OF THE ORIGINAL PARTNERSHIP DEED FILED BE FORE THE AO. I HAVE ALSO PE RUSED THE APPLICATION MADE BY THE ASSESSEE FOR THE ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A BEFORE THE LD. CIT(A) . THE ASSESSEE REQUESTED BY THIS APPLICATION THAT DUE TO THE NON AWARENESS , HE WAS NOT AWARE OF ABOUT THE FUR NISHING OF THE DOCUMENTS BEFORE THE AO AND THEREFORE, HE REQUESTED TO KINDLY ACCEPT THE SAME AS ADDITIONAL EVIDENCE. ITA NO.109/ALLD/2012 5 5. FROM PERUSAL OF RULE 46A, I NOTED THAT THE CASE OF THE ASSESSEE, IN OUR OPINION FALLS UNDER RULE 46A (C) , T HE ASSESSEE HAS BEEN CONSTIT UTED FOR THE FIRST TIME DURING THE MAIN ASSESSMENT YEAR AS PER THE PROVISION OF SECTION 184 OF THE ACT. IT WAS NECESSARY ON THE PART OF THE ASSESSEE TO ENCLOSE A CERTIFIED COPY OF THE INSTRUMENT OF PARTNERSHIP DEED ALONGWITH THE RETURN OF INCOME OF THE FIR M O F THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER 1 ST APRIL 1993 IN RESPECT OF WHICH ASSESSMENT AS A FIRM IS FIRST SOUGHT . THE ASSESSEE FIRM HAS BEEN CONSTITUTED VIDE PARTNERSHIP DEED DATED 12.10.2004 BETWEEN SHRI ANAND KUMAR AN D SHRI ASHISH KUMAR . T HE PARTNERSHIP DEED HAS BEEN EXECUTED ON A STAMP PAPER OF RS.750/ - . T HE FIRM HAS STARTED THE BUSINESS FOR THE FIRST TIME ON 12.10.2004, THEREFORE, IN MY OPINION IT IS POSSIBLE THAT THE ASSESSEE WHO IS NOT AWARE OF ABOUT THE INT RICACI ES OF THE INCOME TAX ACT AND MAY NOT BE AWARE OF ABOUT THE RELEVANT PROVISION THAT THE COPY OF THE PARTNERSHIP DEED HAS TO BE ENCLOSED ALONGWITH THE INCOME TAX RETURN OR THE COPY THEREOF HAS TO BE FILED BEFORE THE ASSESSING OFFICER. 6. I NOTED THAT IN THIS CASE THE ASSESSEE HAS GIVEN THE VAKALATNAMA IN FAVOUR OF SHRI RAVI KUMAR RASTOGI, ADV OCATE AND THEREFORE, IT IS THE DUTY OF THE ADVOCATE TO GUIDE THE ASSESSEE AND TO FILE THE COPY OF THE PARTNERSHIP DEED , FOR IN ACTION OF THE ADVOCATE THE ASSESSEE FIRM SHO ULD NOT BE PENALIZED HONBLE SUPREME COURT ITA NO.109/ALLD/2012 6 IN THE CASE OF MOTI LAL PADAMPAT SUGAR MILLS CO. LTD. VS. STATE OF UTTAR PRADESH AND ORS. 118 ITR 326 AT PAGE 330 HELD AS UNDER: (II) THERE IS NO PRESUMPTION THAT EVERY PERSON KNOWS THE LAW. IT IS OFTEN SA ID THAT EVERY ONE IS PRESUMED TO KNOW THE LAW, BUT THAT IS NOT A CORRECT STATEMENT THERE IS NO SUCH MAXIM KNOWN TO THE LAW. 7. IN VIEW OF THE AFORESAID DICTUM OF LAW BY THE HONBLE SUPREME COURT ; I AM OF THE VIEW THAT THE ASSESSEE MAY NOT BE AWARE OF ABOUT THE IN T RICACIES OF THE INCOME TAX ACT. THIS FACT IS ALSO PROVE D FROM THE CONDUCT OF THE ADVOCATE ON WHICH THE ASSESSEE HAS RELIED AND TO WHOM HE HAS GIVEN THE VAKALATNAMA, IF THE ADVOCATE WOULD AWARE OF THE RELEVANT PROVISION OF THE INCOME TAX ACT , HE COULD HAVE FILED T HE COPY OF THE PARTNERSHIP DEED E VEN DURING THE COURSE OF ASSESSMENT. I THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND I AM OF THE VIEW THAT IT IS A FIT CASE WHERE THE ADDITIONAL EVIDENCE HAS BEEN SUBMITTED BY THE ASSESSEE HAS T O BE ADMITTED. 8. NOW COMING TO THE QUESTION WHETHER THE ASSESSEE FIRM HAS TO BE ASSESSED AS AOP OR FIRM. THE RELEVANT PROVISION OF SECTION 184(2) LAYS DOWN AS UNDER: A CERTIFIED COPY OF THE INSTRUMENT OF PARTNERSHIP REFERRED TO IN SUB - SECTION (1) SHALL ACCOMPANY THE RETURN OF INCOME OF THE FIRM OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR ITA NO.109/ALLD/2012 7 AFTER THE 1 ST DAY OF APRIL, 1993 IN RESPECT OF WHICH ASSESSMENT AS A FIRM IS FIRST SOUGHT. 9. FROM THE PERUSAL OF THE AFORESAID PROVISION, IT IS APPARENT THAT ON THE PART OF THE ASSESSEE FIRM TO ENCLOSE THE COPY OF THE PARTNERSHIP DEED ALONGWITH THE RETURN AS THE WORD HAS BEEN USED S HALL BUT THE COURT HAS INTERPRETED SIMILAR PROVISION IN RESPECT OF SECTION 80IA WHEN THE QUESTION HAS ARISEN WH ETHER THE AUDIT REPORT CAN BE FILED SUBSEQUENTLY OR HAS TO BE FILED ALONGWITH RETURN IF THE ASSESSEE CLAIMS DEDUCTION U/S 80I . T HE RELEVANT PROVISION OF SECTION 80IA(7) WHICH ALSO USED THE SIMILAR LANGUAGE REQUIRING THE COPY OF THE AUDIT REPORT , IS LA ID DO WN AS UNDER FOR READY REFERENCE: THE DEDUCTION] UNDER SUB - SECTION (1) FROM PROFITS AND GAINS DERIVED FROM AN [UNDERTAKING] SHALL NOT BE ADMISSIBLE UNLESS THE ACCOUNTS OF THE [UNDERTAKING] FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR WHICH TH E DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB - SECTION (2) OF SECTION 288 , AND THE ASSESSEE FURNISHES, ALONG WIT H HIS RETURN OF INCOME, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT. 10. IN BOTH THE PROVISION , THE WORD HAS BEEN USED AS S HALL . W HILE INTERPRETING THE PROVISION OF SECTION 80IA(7) THE FOLLOWING HIGH COURT HAS TAKEN THE VIEW THAT FILING OF THE AUDIT REPORT ALONGWITH THE RETURN ARE NOT MANDATORY BUT DIRECTORY AND IF THE ITA NO.109/ALLD/2012 8 AUDIT REPORT IS FILED AT ANY TIME BEFORE FRAMING OF ASSESSMENT , THEN REQUIREMENT OF SECTION 80IA(7) WOULD BE MET ; (I) CIT VS. CONTIMETERS EL ECTRICALS (P) LTD. (2009) 178 TAXMAN 422 (DEL) . (II) CIT VS. ACE MULTITAXES SYSTEMS (P) LTD. (2009) 317 ITR 307 (KAR.) (III) CIT VS. MEDICAPS LTD. (2010) 323 ITR 554 /234 CTR 96 (MP) . (IV) CIT VS. SANJAY KUMAR BANSAL 219 TAXMAN 41 (UTTARAKHAND). 1 1 . BOMBAY HIGH COURT HAS ALSO TAKEN THE VIEW THAT FILING OF THE AUDIT REPORT ALONGWITH THE RETURN IS NOT MANDATORY IN THE CASE OF CIT VS. SHIVANAND ELECTRONICS 209 ITR 63 (BOM). IN THIS CASE I NOTED THAT THE COPY OF THE PARTNERSHIP DEED SHOULD BE FILED ALONGWITH TH E RETURN BUT IN CASE IT WAS NOT FILED ALONGWITH THE RETURN , T HE AO SHOULD HAVE ASKED THE ASSESSEE TO FILE THE COPY OF THE PARTNERSHIP DEED . W HEN THE ASSESSEE FILE D THE SAME BEFORE THE LD. CIT(A), THE LD. CIT(A) MUST HAVE ACCEPTED THE SAME , ENCLOSING THE CO PY OF THE PARTNERSHIP DEED. IN MY VIEW IT IS MERELY TECHNICAL REQUIREMENT SO THAT THE REVENUE MUST HAVE AWARE OF THAT A PARTNERSHIP HAS GENUINELY BE E N CONSTITUTED . I THEREFORE, IN THE INTEREST OF JUSTICE AND IN VIEW OF THE FACT THAT THE PROVISION OF SECTIO N 184(2) IS NOT MANDATORY AND IS ONLY DIRECTORY AS THE SIMILAR LANGUAGE HAS BEEN USED U/S 80IA(7). I SET ASIDE THE ORDER OF THE LD. ITA NO.109/ALLD/2012 9 CIT(A) ON THIS IS SUE AND HELD THAT THE ASSESSEE BE ASSESSED AS FIRM NOT AS AOP . THUS THE GROUND NO. 1 TO 5 ARE ALLOWED. 1 2 . THE GROUND NOS. 6, 7 & 8 RELATE TO THE DISALLOWANCE OF REMUNERATION AND INTEREST TO THE PARTNERS IN ACCORDANCE WITH THE PARTNERSHIP DEED . A FTER HEARING THE RIVAL SUBMISSIONS , AND GOING THROUG H THE ORDER OF THE TAX AUTHORITIES BELOW . I NOTED THAT THE R EMUNERAT ION AND INTEREST TO THE PARTNER WAS DISALLOWED BY THE AO AS THE ASSESSEE HAS BEEN ASSESSED AS AOP NOT AS A FIRM. SINCE WHILE DISPOSING OF F THE GROUND NO. 1 TO 5 , I HAVE ALREADY HELD THAT THE ASSESSEE BE ASSESSED IN THE STATUS OF THE FIRM. I ACCORDI NGLY DIRECT THE AO TO ALLOW INTEREST AND SALARY TO THE PARTNERS SUBJECT TO THE COMPLIANCE OF THE CONDITIONS AS STIPULATED U/S 40 ( B ) OF THE ACT. THUS THE GROUND NOS. 6, 7 & 8 STAND S ALLOWED. 1 3 . THE GROUND NO. 9 & 10 RELATE TO THE ESTIMATION OF THE PROFIT IN THE CASE OF ASSESSEE BY APPLYING THE PROVISO TO SECTION 44AD. THE FACTS RELATING TO THESE ISSUE ARE THAT THE AO REJECTED THE BOOKS OF ACCOUNT S AND APPLIED THE PROVISO TO SECTION 44AD AND ESTIMATED THE INCOME @ 8% ON THE TOTAL RECEIPT OF RS.63,45,732/ - A T RS.5,07,658/ - WHEN THE MATTER WENT BEFORE THE LD. CIT(A), THE LD. CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THE PROVISION OF SECTION 44AD ARE NOT APPLICABLE IN THE CASE OF ASSESSEE AS GROSS RECEIPT EXCEEDS RS.40 LACS BUT SINCE THE ASSESSEE D ID NOT PRODUCE THE BILLS AND VOUCHERS IN RESPECT OF THE PURCHASE OF THE MATERIAL AND OTHER EXPENSES. HE TOOK THE VIEW THAT AO HAS ITA NO.109/ALLD/2012 10 RIGHTLY INVOKED THE PROVISION OF SECTION 145(3) OF THE ACT TO RESTRICT THE ESTIMATION OF THE INCOME @ 7%. 1 4 . I HAVE HEARD TH E RIVAL SUBMISSION AND CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TA X AUTHORIT IES BELOW. THE ASSESSEE HAS NOT TAKEN ANY GROUND AGAINST THE REJECTION OF THE BOOKS ACCOUNT THEREFORE, THE ONLY QUESTION WHICH REMAINS AND IS UNDER APPEAL BEFORE ME RELATE TO THE ESTIMATION OF THE PROFIT . THERE IS NO DISPUTE THAT THE ASSESSEE HAS THE GROSS CONTRACTUAL RECEIPTS AS A SUB - CONTRACT OR AT RS.63,45,732/ - FROM GUPTA BUILDERS , KANPUR. THIS IS FIRST YEAR OF THE BUSINESS OF THE ASSESSEE , THEREFORE, NO COMPARATIVE INSTANC E IN THE CASE OF THE ASSESSEE AS EARNING OF THE PROFIT AS A SUB - CONTRACTOR IS AVAILABLE ON RECORD. THE ASSESSEE HAS RETURNED THE INCOME AT RS.1170/ - NATURALLY THE BALANCE OF THE RECEIPTS HAS BEEN CLAIMED BY THE ASSESSEE AS AN EXPENDITURE THE ONUS IS ON THE ASSESSEE TO PROVE THAT HE HAS INCURRED THE EXPENSES. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE FAIL ED TO PRODUCE THE BILLS AND VOUCHERS TO PROVE THE GENUINITY OF THE EXPENSES ALTHOUGH THE ASSESSEE HAS PRODUCED THE BOOKS OF ACCOUNT . T HIS IS ALSO THE FACT THAT IN THE CASE OF SUB - CONTRACTOR THE MARGIN OF THE PROFIT IS LESS AS THE MARGIN IN RESPECT OF CONTRACTOR IS BEING SHARED BETWEEN THE MAIN CONTRACTOR AND THE SUB - CONTRACTOR. THE ASSESSEE HAS SUBMITTED BEFORE ME AT PAGE 54 A COPY OF ORDER DATED 11.05.2011 OF THE LD. CIT(A) IN WHICH HE HAS ESTIMATED THE PROFIT RATE @ 5% OF THE TOTAL RECEIPT . I N THE ABSENCE OF ANY COGENT MATERIAL BEING BROUGHT ON ITA NO.109/ALLD/2012 11 RECORD FROM EITHER OF THE SIDE I THINK IT APPROPRIATE THAT THE GROSS PROFIT IN RESPECT OF A SUB - CONTRACTOR BE ESTI MATED @ 4% AND ACCORDINGLY I REDUCE THE ADDITION IN RESPECT OF THE GROSS PROFIT @4%. THUS THE GROUND NO S . 9 & 10 ARE PARTLY ALLOWED. 1 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 / 10 /201 5 . SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER DATED: 13 / 10 /201 5 A.K.V. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR