SUNIL CONSTRUCTION CO, MUMBAI V. ACIT CC 19(3), MUMBAI

ITA 128/MUM/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4061 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 10-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Application of stay; Additional evidence
• Section: 40(b)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM ITA NO. 128 /MUM/201 9 ( ASSESSMENT YEAR : 2012 - 13 ) & SA NO.25/MUM/2018 (ARISING OUT OF ITA NO. 128 / MUM/20 1 9) (ASSESSMENT YEAR : 2012 - 13 ) M/S. SUNIL CONSTRUCTION CO., 44, 4 TH FLOOR, TARDEO AIR CONDITION MARKET, TARDEO , MUMBAI 400 034 VS. ACIT - CENTRAL CIRCLE 19(3) MUMBAI PAN/GIR NO. AAAFS7206G ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI BHUPENDRA SHAH REVENUE BY SHRI CHAUDHARY A RUNKUMAR SINGH DATE OF HEARING 28 / 02 /201 9 DATE OF PRONOUNCEMENT 08 / 03 /201 9 / O R D E R PER M. BALAGANESH (A.M) : ITA NO.128/MUM/2019 FOR ASSESSMENT YEAR :2012 - 13 THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF C OMMISSIONER OF INCOME TAX (APPEALS) - 59 , [HEREINAFTER REFERRED TO AS THE ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 2 LD CITA] MUMBAI DATED 11/12/2018 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961. 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUI RE ANY SPECIFIC ADJUDICATION. 2.1. THE ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF PARTNERS REMUNERATION IN THE SUM OF RS.25 LAKHS AND INTEREST PAID ON CAPITAL ACCOUNT TO PARTNERS IN TH E SUM OF RS.43,13,282/ - IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND HAD FILED ITS RETURN OF INCOME FOR THE A.Y.2012 - 13 ON 07/09/2012 DECLARING TOTAL INCOME OF RS.1,56,25,995/ - . THE ASSESSEE FIRM IS CARRYING ON THE BUSINESS OF CONTRACTORS / SUB - CONTRACTORS FOR CIVIL CONSTRUCTION. THE DETAILS CALLED FOR BY THE LD. AO WERE DULY FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE FIRM PAID REMUNERAT ION OF RS.25 LAKHS TO ITS PARTNERS AND CLAIMED THE SAME AS DEDUCTION U/S.40(B) OF THE ACT. FROM THE PERUSAL OF THE PARTNERSHIP DEED DATED 23/11/2011, THE LD. AO OBSERVED THAT THE SAID DEED DID NOT SPECIFY THE QUANTUM OF REMUNERATION THAT COULD BE PAID TO P ARTNERS AND ACCORDINGLY DISALLOWED THE SAME AS NOT IN ACCORDANCE WITH SECTION 40(B) OF THE ACT AND DISALLOWED RS.25 LAKHS. THE LD. AO ALSO OBSERVED THAT THE MAXIMUM REMUNERATION PAYABLE AS PER CLAUSE C(9) OF THE DEED OF ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 3 PARTNERSHIP WHICH DETERMINES THE MAN NER OF COMPUTATION OF REMUNERATION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(B) OF THE ACT, WORKS OUT TO RS.94,65,597/ - AND OUT OF WHICH , THE REMUNERATION ACTUALLY PAID TO PARTNERS WAS ONLY RS.25 LAKHS. BASED ON THIS, THE LD. AO CONCLUDED THAT DRAWIN G REMUNERATION FROM THE FIRM I S COMPLETELY LEFT TO THE DISCRETION OF THE FIRM AND THAT THE REMUNERATION WAS PAID IN TERMS OF SUBSEQUENT MEMORANDUM OF UNDERSTANDING (MOU) ENTERED BETWEEN THE PARTNERS REGARDING THE QUANTUM AND THE AMOUNT TO BE PAID TO THEM. THE LD. AO ALSO OBSERVED THAT NO COPY OF SUCH MEMORANDUM OF UNDERSTANDING (MOU) WAS PLACED ON RECORD BEFORE THE LD. AO. 3.1. THE ASSESSEE PLACED A COPY OF MOU DATED 31/03/2012 BEFORE THE LD. CIT(A) AS AN ADDITIONAL EVIDENCE WHEREIN AS PER THE MUTUAL AGRE EMENT BETWEEN THE FOUR PARTNERS , THE REMUNERATION PAYABLE TO THEM WAS WORKED OUT AS UNDER: - SR. NO. NAME OF THE PERSON AMOUNT (RS.) 1. SHRI SUNIL RAMNIKLAL VASA 8,55,000/ - 2. SHRI AJAY ISHWARLAL SANGHAVI 5,91,250/ - 3. SHRI NISHITH AJAY SANGHAVI 4,83,750 / - 4. SHRI BHAVYA SUNIL VASA 5,70,000/ - TOTAL 25,00,000/ - ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 4 3. 2 . IT WAS SPECIFICALLY PROVIDED IN THE SAID MOU THAT THIS SUM OF RS.25 LAKHS CONSTITUTES REMUNERATION TO THE FOUR PARTNERS FOR THE PERIOD FROM 23/11/2011 TO 31/03/2012. THE ASSESSEE ALSO PLAC ED ON RECORD THE COPY OF INCOME TAX RETURN ACKNOWLEDGEMENT, TAX COMPUTATION AND INTIMATION U/S.143(1) OF THE ACT OF THE PARTNERS (WHEREVER AVAILABLE) AND ALSO PLEADED THAT THE COPY OF MOU AS WELL AS PARTNERS DETAILS WERE NEVER CALLED FOR BY THE LD. AO TO E NABLE THE ASSESSEE TO PRODUCE THE SAME BEFORE HIM. ACCORDINGLY, ASSESSEE REQUESTED THE LD. CIT(A) TO ADMIT THESE DOCUMENTS AS ADDITIONAL EVIDENCES IN TERMS OF RULE 46A OF THE IT RULES . 3. 3 . THE ASSESSEE ALSO STATED THAT MOU DATED 31/03/2012 HAD DULY TAKEN INTO ACCOUNT THE ESTIMATED PROFIT OF THE FIRM, PLANS FOR FUTURE PROJECTS AND EXPANSION OF BUSINESS AND ACCORDINGLY, THE PARTNERS AGREED TO DRAW REMUNERATION OF RS.25 LAKHS IN TOTAL FROM THE FIRM FOR THE PERIOD 23/11/2011 TO 31/03/2012. THE SAID MOU ALSO I NCLUDED THE CLAUSE TO PAY INTEREST TO PARTNERS @12% PER ANNUM. THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM THE LD. AO WITH REGARD TO THE MOU DATED 31.3.2012, AMONG OTHERS. THE LD. AO SUBMITTED A REMAND REPORT DATED 02/01/2018 WHEREIN HE DID NOT DOUBT THE GENUINENESS OF THE SAID MOU NOR OBSERVED THAT THE AMOUNT OF REMUNERATION OR INTEREST ON CAPITAL WERE EXCESSIVE. THE ASSESSEE ALSO STATED THAT THERE WAS ABSOLUTELY NO DISPUTE RAISED IN THE ISSUE BY THE LD. AO FOR THE A.YRS 2008 - 09, 2013 - 14 AND 2014 - 15. ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 5 3. 4 . THE LD. CIT(A) IGNORED THE AFORESAID CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT HE DOES NOT HAVE ANY POWER TO ADMIT ANY DOCUMENT AS ADDITIONAL EVIDENCE IN TERMS OF RULE 46A OF THE IT RULES. THE LD. CIT(A) ALSO OBSERVED THAT PURPORTED MOU DATED 31/0 3/2012 WAS ENTERED PRACTICALLY TO AMEND THE PARTNERSHIP DEED DATED 23/11/2011 AND T HAT IT IS NOT CLEAR AS TO WHY THE ASSESSEE COULD NOT PRODUCE THE SAME BEFORE THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS DE S PITE THE FACT THAT HEARINGS WERE CONDU CTED ON VARIOUS OCCASIONS. ACCORDINGLY, WITH THESE OBSERVATIONS, THE LD. CIT(A) REJECTED THE CLAIM OF THE ASSESSEE TO TREAT THE MOU DATED 31/03/2012 AS AN ADDITIONAL EVIDENCE. THE LD. CIT(A) THEREAFTER, PROCEEDED TO RE ITERATE THE FINDINGS OF THE ASSESSING OFFICER BY STATING THAT THE CLAUSE IN THE PARTNERSHIP DEED DID NOT QUANTIFY THE REMUNERATION PAYABLE TO THE PARTNERS AND ACCORDINGLY UPHELD THE ACTION OF THE LD. AO. 3. 5 . SIMILAR DISALLOWANCE WAS MADE BY THE LD. AO TOWARDS INTEREST PAID ON CAPITAL ACCOUNT OF PARTNERS TO THE TUNE OF RS.43,13,282/ - . BASED ON THE SAME REASONING AS WAS GIVEN FOR PARTNERS REMUNERATION, THE LD. AO DISALLOWED THE SUM OF RS.43,13,282/ - TOWARDS INTEREST ON CAPITAL ACCOUNT IN THE ASSESSMENT. THE ASSESSEE IN THE MOU DATED 31/03/2012 WHICH WAS PRODUCED FOR THE FIRST TIME BEFORE THE LD. CIT(A) PLEADED THAT THE SAID MOU INDEED CONTAINED THE MANNER OF PAYMENT OF INTEREST TO THE PARTNERS AS UNDER: - ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 6 INTEREST SHALL BE PAID @12% PER ANNUM CALCULATED ON THE QUARTERLY R ESTS ON THE BALANCE AVAI LABLE IN THE CAPITAL ACCOUNT OF ALL THE PARTNERS. 4. THE LD. CIT(A) UPHELD THE ACTION OF THE LD. AO BY MAKING SIMILAR OBSERVATIONS AS WAS MADE FOR PARTNERS REMUNERATION AND CONFIRMED THE DISALLOWANCE OF INTEREST ON CAPITAL ACCOUNT TO THE TUNE OF RS.43,13 ,282/ - . AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND FROM THE PERUSAL OF THE PARTNERSHIP DEED DATED 23/11/2011 ENCLOSED IN PAGES 41 TO 53 OF THE PAPER BOOK THE FOLLOWING POINTS. THE CAPITAL CONTRIBUTED BY E ACH PARTNERS ARE MENTIONED . THE PROFIT SHAR ING RATIO OF EACH PARTNER IS MENTIONED . THE REMUNERATION SHALL BE PAID ONLY TO WORKING PARTNERS FOR DEVOTING THEIR TIME AND ATTENTION . THOUGH THE SPECIFIC QUANTUM OF REMUNERATION WAS NOT MENTIONED IN THE SAID PART NERSHIP DEED, THE DEED HOWEVER, DID CONTAIN THE MANNER OF DETERMINATION OF PARTNERS REMUNERATION AS A SPECIFIC PERCENTAGE OF BOOK PROFITS AS DEFINED IN SECTION 40(B) OF THE ACT. 5.1. WE FIND THAT ONCE THE MANNER OF DETERMINATION OF PARTNERS REMUNERATION I S DEFINED IN THE PARTNERSHIP DEED AND THE ACTUAL REMUNERATION PAID WAS WELL WITHIN THE LIMITS PRESCRIBED IN THE SAID MANNER AND IN TERMS OF SECTION 40(B) OF THE ACT, NO DISALLOWANCE OF PARTNERS REMUNERATION COULD BE MADE IN THE HANDS OF THE FIRM. IT IS NOT IN ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 7 DISPUTE THAT THE PARTNERS HAD DULY OFFERED THE PARTNERS REMUNERATION AND INTEREST ON CAPITAL ACCOUNT AS THEIR INCOME IN THEIR RESPECTIVE RETURNS. 5.2. WITH REGARD TO INTEREST ON CAPITAL, WE FIND THAT THE PARTNERSHIP DEED DID CONTAIN CLAUSE FOR MAKING B ORROWINGS FROM VARIOUS PERSONS INCLUDING THE PARTNERS AT A N AGREED RATE OF INTEREST. IN THE INSTANT CASE, THE ASSESSEE PURSUANT TO THE MOU DATED 31/03/2012 HAD AGREED AT THE INTEREST RATE OF 12% ON CAPITAL ACCOUNT PAYABLE TO THE PARTNERS WHICH IS THE MAXIM UM AMOUNT PRESCRIBED U/S.40(B) OF THE ACT ALSO. WE ALSO FIND THAT THE LD. CIT(A) HAD NOT ADMITTED THE ADDITIONAL EVIDENCE IN THE FORM OF MOU DATED 31/03/2012 FILED BY THE ASSESSEE BEFORE HIM FOR THE FIRST TIME BUT, HE HAD CALLED FOR A REMAND REPORT FROM TH E LD. AO WITH REGARD TO THE VERY SAME EVIDENCE. WE ARE NOT ABLE TO APPRECIATE THIS BEHAVIOUR OF THE LD. CIT(A) , WHEREIN , ON ONE HAND , HE OBTAINS REMAND REPORT FROM THE LD. AO ON THE VERY SAME MOU DATED 31/03/2012 TO EXAMINE ITS VERACITY , BUT ON THE OTHER H AND , FINALLY CONCLUDING THAT MOU IS NOT ADMITTED AS AN ADDITIONAL EVIDENCE. THE VERY PURPOSE OF THE LD. CIT(A) SEEKING THE REMAND REPORT FROM THE LD. AO ITSELF IS ONLY AFTER ADMISSION OF THE MOU AS ADDITIONAL EVIDENCE. 5.3. WE FIND FROM THE MOU DATED 31/0 3/2012 THAT THE SIMPLE INTEREST @12% PER ANNUM HAS BEEN DULY QUANTIFIED FOR EACH PARTNER FOR THE PERIOD 23/11/2011 TO 31/03/2012 AND ASSESSEE HAD ALSO CLAIMED THE SAME AS DEDUCTION, WHICH IN OUR CONSIDERED OPINION , IS SQUARELY ALLOWABLE ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 8 AS DEDUCTION. IT IS NOT IN DISPUTE THAT THE PARTNERS OF THE FIRM HAD ALSO DULY DISCLOSED INTEREST ON CAPITAL ACCOUNT AS THEIR INCOME IN THEIR RESPECTIVE RETURNS. HENCE, THERE IS ABSOLUTELY NO LOSS OF REVENUE OF THE EXCHEQUER. COPY OF THE REMAND REPORT DATED 02/01/2018 IS ENC LOSED IN PAGES 65 - 70 OF THE PAPER BOOK. THE ASSESSEE S REPLY TO THE REMAND REPORT IS ENCLOSED IN PAGES 71 TO 76 OF THE PAPER BOOK. COPY OF ANOTHER REMAND REPORT DATED 23/10/2018 IS ENCLOSED IN PAGES 94 - 98 OF THE PAPER BOOK. COPY OF REPLY TO SUCH REMAND REP ORT IS ENCLOSED IN PAGES 99 TO 102 OF THE PAPER BOOK. WE ALSO FIND THAT THE VERY SAME PARTNERSHIP DEED HAS BEEN ACCEPTED BY THE LD. AO FOR THE A.Y RS .2013 - 14 AND 2014 - 15 (SUBSEQUENT ASSESSMENT YEARS). 5.4. WE HOLD THAT THE ASSESSEE FIRM HAD PAID INTEREST ON CAPITAL TO ITS PARTNERS WITHIN THE MAXIMUM LIMITS PRESCRIBED U/S.40(B) OF THE ACT WHICH HAS BEEN DULY AUTHORISED AND AGREED IN THE PARTNERSHIP DEED READ WITH MOU. WE HAVE HELD THAT MOU DATED 31/03/2012 HAS BEEN IMPLIEDLY ADMITTED BY THE LD CIT(A) AS THE A DDITIONAL EVIDENCE IN AS MUCH AS HE HAD SOUGHT FOR A REMAND REPORT ON TWO OCCASIONS ON THE VERY SAME MOU AND IT IS NOT IN DISPUTE THAT THE LD. AO HAD ALSO FURNISHED TWO REMAND REPORTS ON THE VERY SAME DOCUMENTS AND EVIDENCES. HENCE, IT COULD BE SAFELY CONC LUDED THAT THE MOU DATED 31/03/2012 HAD TO BE READ TOGETHER WITH PARTNERSHIP DEED AND HAD TO BE TREATED AS AMENDMENT TO PARTNERSHIP DEED. SINCE THE SAID MOU DULY CONSTITUTES THE MANNER OF ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 9 QUANTIFICATION OF PARTNERS REMUNERATION AND MANNER OF QUANTIFYING TH E INTEREST ON CAPITAL TO PARTNERS ACCOUNT , WHICH IN ANY CASE , ARE WELL WITHIN THE MAXIMUM LIMITS PRESCRIBED U/S.40(B) OF THE ACT , WE HOLD THAT THE ASSESSEE FIRM IS DULY ENTITLED FOR DEDUCTION FOR BOTH PARTNERS REMUNERATION AND INTEREST ON CAPITAL. ACCORDIN GLY, THE GROUNDS NO. 2 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED. 5.5. THE GROUND NO.5 RAISED BY THE ASSESSEE WITH REGARD TO CHARGEABILITY OF INTEREST U/S.234 A,B,C OF THE ACT WHICH ARE CONSEQUENTIAL IN NATURE. THE GROUND RAISED BY THE ASSESSEE WITH REGARD T O INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS PREMATURE TO BE ADJUDICATED AT THIS STAGE. SA NO.25/MUM/2019 THIS STAY APPLICATION AROSE OUT OF ITA NO.128/MUM/2019. 6. AS WE HAVE ALREADY DISPOSED ASSESSEES APPEAL, T HIS STAY PETITION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE STAY PETITION IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 / 03 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - ( M.BALAG ANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 08 / 03 /201 9 ITA NO.128/MUM/2019 & S.A.NO.25/MUM/2019 M/S. SUNIL CONSTRUCTION CO. 10 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) I TAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//