Shree Yogeshwar Developers, Ahmedabad V. The Income Tax Officer, Ward-9(1), Ahmedabad

ITA 1173/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6260 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-04-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: S N DIVATIA
• Keywords: Business income; Depreciation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 1173/AHD/2014 (ASSESSMENT YEAR: 2005-06) M/S SHREE YOGESHWAR DEVELOPERS 16, VASUDHA SOCIETY, SARDAR PATEL COLONY, NARANPURA, AHMEDABAD V/S INCOME TAX OFFICER, WARD- 9 (1), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABAS2296N APPELLANT BY : SHRI S. N. DIVATIA, AR RESPONDENT BY : SHRI RAHUL KUMAR, SR. D.R. ( )/ ORDER DATE OF HEARING : 06 -04-201 7 DATE OF PRONOUNCEMENT : 13 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A)-XX, AHMEDABAD DATED 04.03.2014 PERTAINING TO A.Y. 2005-06, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE US. ITA NO. 1173 /AHD/2014 . A.Y. 2005-06 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSES SEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PART NERS REMUNERATION OF RS. 5,13,714/-. 3. THE ASSESSEE CONTENDS THAT THE LD. CIT(A) ERRED IN HOLDING THAT BROUGHT FORWARD BUSINESS LOSS IS FIRST TO BE TAKEN INTO CON SIDERATION FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S. 40(B) OF THE ACT. 4. WHILE SCRUTINIZING THE RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION, THE A.O. NOTICED THAT THE FIRM HAS CLAIMED REMUNERA TION TO PARTNERS AT RS. 7,73,486/-. THE A.O. WAS OF THE FIRM BELIEF THAT TH E CORRECT REMUNERATION ALLOWABLE IS RS. 2,59,772/- AND HENCE THE INCOME TO THE TUNE OF RS. 5,13,714/- HAS ESCAPED ASSESSMENT. 5. THE ASSESSMENT WAS REOPENED AND ACCORDINGLY STATUTO RY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE W AS SHOW CAUSED AS TO WHY THE EXCESS REMUNERATION TO THE TUNE OF RS. 5,13 ,714/- SHOULD NOT BE DISALLOWED AS THERE WERE BROUGHT FORWARD LOSSES WHI CH WERE TO BE ADJUSTED BEFORE COMPUTING THE BOOK PROFIT FOR THE ALLOWABILI TY OF REMUNERATION TO PARTNERS. 6. THE ASSESSEE FURNISHED A DETAILED REPLY STATING THA T THE BROUGHT FORWARD BUSINESS LOSSES WILL NOT BE DEDUCTED FROM BOOK PROF IT AND THE NET PROFIT AFTER ALLOWING REMUNERATION AND INTEREST TO PARTNER S SHOULD BE CONSIDERED FOR THE CALCULATION OF SET OFF AGAINST BROUGHT FORW ARD BUSINESS LOSS. ITA NO. 1173 /AHD/2014 . A.Y. 2005-06 3 7. THIS CONTENTION OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. WHO WAS OF THE OPINION THAT SECTION 32(2) IS GOVERNED B Y SECTION 72(2) OF THE ACT. THEREFORE, TO DETERMINE BOOK PROFIT FOR THE PU RPOSE OF REMUNERATION PAID TO PARTNERS EFFECT OF SECTION 72(2) SHOULD BE GIVEN FIRST BEFORE GIVING EFFECT TO THE UNABSORBED DEPRECIATION U/S. 32(2) OF THE ACT. THE A.O. ACCORDINGLY RE-COMPUTED THE BOOK PROFIT FOR THE PUR POSE OF REMUNERATION TO PARTNERS AND DISALLOWED THE REMUNERATION TO THE TUNE OF RS. 5,13,714/-. 8. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 9. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. PER CONTRA, THE LD. D .R. SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW QUA THE ISSUE. THE BOOK PROFIT HAS BEEN DEFIN ED IN EXPLANATION 3 BELOW SECTION 40(B) OF THE ACT AND THE SAME READS A S UNDER:- EXPLANATION-3 - FOR THE PURPOSE OF THIS CLAUSE, 'B OOK PROFIT' MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVA NT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY TH E AGGREGATE AMOUNT OF REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT' ONLY FROM THE BUSINESS INCOME OF THE FIRM. 11. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE BOOK PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT HAS TO BE COMPUTED IN THE M ANNER LAID DOWN IN CHAPTER IV-D. THEREFORE, IN OUR CONSIDERED OPINION, BOTH THE LOWER ITA NO. 1173 /AHD/2014 . A.Y. 2005-06 4 AUTHORITIES HAVE ERRED IN SETTING OFF BROUGHT FORWA RD LOSSES FIRST IN COMPUTING THE BOOK PROFIT FOR THE ALLOWABILITY OF R EMUNERATION TO PARTNERS. IN OUR UNDERSTANDING OF THE LAW, THE REMUNERATION T O PARTNERS SHOULD BE FIRST ALLOWED AND THEREAFTER BROUGHT FORWARD BUSINE SS LOSSES SHOULD BE SET OFF. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE L D. CIT(A) AND DIRECT THE A. O. TO DELETE THE DISALLOWANCE OF RS. 5,13,714/-. 12. APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 04- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 13 /04/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD