Ramakanta Pattnail, Khurda V. ITO, Khurda

ITA 130/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4423 (ITAT-CUTTACK)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Section: 144

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 130/CTK/2011 (ASSESSMENT YEAR 2006 - 07) RAMAKANTA PATTNAIK, C/O. KAILASH AUTOM OBILE CHILIKA ROAD, BALUGAON,KHURDA PAN: AMOPS 7252 D VERSUS INCOME - TAX OFFICER, KHURDA WARD, KHURDA, ORISSA. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI RAJAT KAR, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT ME MBER : THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE DISALLOWANCE OF SALARY AND REMUNERATION TO THE PARTNERS ON THE ASSESSING OFFICER HAVING COMPLETED THE ASSESSMENT UNDER THE PROVISI ONS OF SECTION 144. THE ASSESSING OFFICER HAD ALSO ESTIMATED NET INCOME AT 5% OF THE GROSS RECEIPTS WHICH INTERALIA HAS BEEN AGITATED BEFORE THE LEARNED CIT(A) ON THE BASIS OF COMPARABLE CASE OF A LABOUR CONTRACTOR. 2. THE BRIEF FACTS RELATING TO THE DISPU TE ARE THAT THE ASSESSEE FILED ITS RETURN ON 30.10.2006 AT AN INCOME OF RS.1,28,600 WHO NOTED THAT THE GROSS RECEIPTS OF THE ASSESSEE FROM A SINGLE SOURCE AMOUNTED TO RS.1.21 CRORES FOR SUPPLYING LABOURERS. HE NOTED THAT THE NET PROFIT RETURNED WAS LESS T HAN 5%. REQUIRING THE ASSESSEE TO PRESENT HIMSELF AND PROVIDE THE DETAILS AS PROVIDED IN SECTION 142(1 ) ISSUED NOTICE U/S. 143(2). THE ASSESSING OFFICER NOTIFIED THE ASSESSEE THAT HE WOULD BE CONSTRAINED TO PASS THE BEST JUDGMENT ASSESSMENT UNDER THE PROVI SIONS OF SECTION 144 IF HE DOES NOT APPEAR OR SEEK ADJOURNMENT. THE ASSESSING OFFICER PASSED THE ORDER DT.15.9.2008 BY ESTIMATING THE NET PROFIT AT RS.6,09,010. HE ALSO NOTED THAT NO DEDUCTION OF SALARY AND INTEREST ETC., TO THE PARTNERS WILL BE ALLOWABLE AS PER THE PROVISIONS OF SECTION 184(5) OF THE ACT. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. HE ARGUED THAT ADOPTING 5% RATE AS THAT OF A SIMILAR BUSINESS OF RETAIL TRADERS IS NOT APPLICABLE TO THE FACTS OF THE ITA NO.130/CTK/2011 2 ASSESSEES CASE BEING A LABOUR CONTRACTOR. THE ASSESSEE HAD FILE D THE AUDIT REPORT IN FORM NO.3C B ALONG WITH THE FINANCIAL STATEMENT WHICH INDICATED THAT THE GROSS MARGIN WAS 5.24% AND THE NET MARGIN WAS ONLY 2.82% THEREFORE NECESSARILY WAS TO BE ALLOWED REMUNERATION AND SALARY TO THE PARTNERS. THE COMPARABLE CASE WHICH THE LEARNED CIT(A) REJECTED WAS COVERED BY THE DECISION OF THE TRIBUNAL WAS ALSO NEGATED WHEN THE LEARNED CIT(A) HELD THAT THE ASSESSMENT HAVING BEEN COMPLETED U/S.144, THE DEDUCTION OF SALARY AND INTEREST PAID TO PARTNERS WAS NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 184(5) OF THE ACT. HE CONFIRMED THE ORDER OF THE A.O. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO REASON FOR THE AO TO PASS THE ORDER U/S.144 WHEN AFTER HAVING A PPEARED BEFORE THE AO FIVE TIMES FOR SEEKING ADJOURNMENT, THE AO WAS CONSTRAINED TO NOTE THAT THE STATUS OF THE FIRM CONTINUED AS PARTNERSHIP FIRM AS SUCH AND ALSO THE ORDER WAS PASSED U/S.143(3) AS DULY NOTED BY THE ASSESSING OFFICER IN ITS DEMAND AND CO LLECTION REGISTER. HE PERUSED THE ORDER OF THE AO WHEREIN INCOL.5 AND 13, HE HAS NOTED THAT IT WAS ONLY A WARNING TO PASS THE ORDER U/S.144 IF NO FURTHER COMPLIANCE IS MADE. ALL THE MATERIAL WAS AVAILABLE TO THE ASSESSING OFFICER FOR JUSTIFYING HIS BEST JU DGMENT BY RESORTING AT 5% ESTIMATION OF INCOME ON GROSS RECEIPTS, THE ASSESSEE BEING A LABOUR CONTRACTOR . HE ARGUED THAT WHEN THE ASSESSEE BEING A SUB0 - CONTRACTOR WAS SUBJECTED TO DEDUCTION OF TAX @1%, THE ASSESSING OFFICER ERRED IN DISPUTING THE NET PROFI T RETURNED BY THE ASSESSEE AT LESS THAN 5% OF THE GROSS RECEIPTS WHEN THE INTEREST, SALARY TO THE PARTNERS BECOMES AN EXPENSE AS PROVIDED IN SECTION 40(B). NONOBSTANTE CLAUSE OF SECTION 184(5) THEREFORE HAD TO BE SPECIFICALLY POINTED OUT IN HIS ORDER HAVIN G OVERRIDING EFFECT ON HAVING DETERMINED ON ESTIMATION THE NET PROFIT AT 5%, THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED SALARY AND INTEREST TO THE PARTNERS AS PROVIDED UNDER THE PROVISO TO SECTION 44 AD. THE LEARNED CIT(A) THEREFORE ERRED IN INVOK ING THE P ROVISIONS OF SECTION 18 4(5) R.W.S. 144 WHEN THE PROVISO CLEARLY INDICATES THAT THE INCOME SO COMPUTED SHOULD BE UNDER SUB - SECTION (1) SUBJECT TO THE CONDITIONS AND LIMIT SPECIFIED IN CLAUSE (B) OF SECTION 40.THEREFORE, HE SUBMITTED THAT THE DISALLOWANCE OF SALARY AND INTEREST TO THE PARTNERS AND ENHANCING THE PROFIT BECOME CONTRADICTORY TO THE FINDING S TO THE ITA NO.130/CTK/2011 3 BEST OF HIS JUDGMENT U/S.144 WHEN THE AO IN HIS MIND HAD NOTED THAT THE RESTRICTION IS TO BE GRANTED TO THE ASSESSEE BEING PARTNERSHIP FIRM AS SUCH WH EN REQUISITE COPY OF THE DEED HAD BEEN FILED ALONG WITH THE RETURN. NO DEFICIENCY HAS BEEN POINTED OUT BY THE AUTHORITIES BELOW IN THE CLAIM OF THE ASSESSEE VIOLATING THE PROVISIONS OF SECTION 40(B).THE NET PROFIT AT 5% WAS TO BE AFTER DEDUCTION OF THE AMO UNT CLAIMED AS SALARY AND INTEREST TO THE PARTNERS WHICH MAY KINDLY BE DIRECTED TO BE CARRIED OUT. 4. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL INDICATING THAT THE ASSESSEE COULD NOT GET THE BETTER OF HIS SHORTCOMINGS. SEVERAL OPPORTUNI TIES WERE GRANTED TO FURNISH THE DETAILS AND APPEAR BEFORE THE TAX AUTHORITIES WHICH THE ASSESSEE IGNORED WAS THEREFORE RIGHTLY CONSIDERED FOR LEVY OF PENALTY U/S.271(1)(B) BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS CONSTRAINED TO PASS THE ORDER U /S.144 BY ESTIMATING THE INCOME AT 5% WHICH THE LEARNED CIT(A) HAS CONFIRMED BY CATEGORICALLY INDICATING THAT THE ASSESSMENT U/S.1 44 AUTOMATICALLY INVOKES THE PROVISIONS OF SECTION1 84(5) BY REFUSING REGISTRATION OF THE FIRM AS SUCH. HE FULLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER FOR HIS PART SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE, WE ARE INCLINED TO HOLD THAT THE ASSESSING OFFICER WA S NOT CONSTRAINED TO PASS THE ORDER U/S.144 WHEN ON THE BASIS OF MATERIAL AVAILABLE TO IT WAS THE AUDITED FINANCIAL STATEMENTS AND THE COPY OF THE PARTNERSHIP DEED SEEKING STATUS AS PARTNERSHIP FIRM AS SUCH WAS NOT THE ISSUE. IN ORDER TO RESORT ESTIMATION WITHOUT BRINGING ON RECORD THE REASON FOR THE SAME , HE TRIED TO BALANCE THE DECLIN ING OF THE REMUNERATION AND INTEREST TO THE PARTNERS ON THE BASIS OF PERCENTAGE AVAILABLE AS NET OF GROSS MARGIN. HE THEREFORE COMPUTED THE NET MARGIN WHEN THE LAW PROVIDES U NDER THE PROVISIONS OF SECTION 44AD, THE ASSESSEE BEING A CONTRACTOR, THAT NOTWITHSTANDING CONTAINED IN ANY OTHER PROVISIONS OF THE ACT , WHERE IN RESPECT OF ANY ASSESSMENT YEAR THERE IS FAILURE ON THE PART OF A FIRM AS IS MENTIONED IN SECTION 144, THE FIRM SHALL BE SO ASSESSED AND THE SALARY AND INTEREST PAID TO ITS PARTNERS SHALL BE DEDUCTED FROM THE INCOME COMPUTED SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) OF SECTION 40 . HE, THEREFORE, FAILED TO ENHANCE THE SAME WHEN SPECIFICALLY COMPUTING ITA NO.130/CTK/2011 4 INCOME AT 5% OF THE GROSS RECEIPTS. THE LAW PROVIDES THAT WHEN THE ASSESSEE IS TO BE TAXED ON ESTIMATION AT 5%, THE DEDUCTION ALLOWABLE UND ER THE PROVISIONS OF SECTIONS 30 TO 38 SHALL BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION WILL BE ALLOWED PROVIDED THAT WHERE THE ELIGIBLE ASSESSEE IS A FIRM THE SALARY AND INTEREST PAID TO THE PARTNERS SHALL BE DEDUCTED FROM T HE INCOME COMPUTED UNDER SUB - SECTION (1) SUBJECT TO THE CONDITIONS AND LIMIT SPECIFIED IN CLAUSE (B) OF SECTION 40. NO CONTRAVENTION OF THE SAID PROVISION HAS BEEN ESTABLISHED BY THE ASSESSING OFFICER SO ERRONEOUSLY CONFIRMED BY THE LEARNED CIT(A). THE LEA RNED COUNSEL FOR THE ASSESSEE HAS AGREED TO THE PROPOSITION THAT THE NET PROFIT SO COMPUTED BY THE AO BE REDUCED BY THE SALARY AND INTEREST PAID TO THE PARTNERS IN ACCORDANCE WITH THE PROVISIONS OF LAW WHICH WOULD MEET THE ENDS OF JUSTICE. INSOFAR AS HE HA S NOT BEEN ABLE TO ESTABLISH AS TO HOW THE ESTIMATION AT 5% IS ON HIGHER SIDE BY DEEMING THE EXPENSES CLAIMED U/S.3 0 TO 38 HAVE BEEN ALLOWED TO IT UNDER THE DEEMING PROVISIONS BUT NOT BEEN SPECIFIED BY THE AO. 6. IN VIEW OF THE ABOVE, THE ASSESSEES APPEA L IS PARTLY ALLOWED TO THE EXTENT THAT THE ASSESSING OFFICER IS DIRECTED TO ALLOW SALARY AND REMUNERATION TO THE PARTNERS CLAIMED IN THE PROFIT & LOSS ACCOUNT ON THE ESTIMATED INCOME COMPUTED BY THE AO IN THE STATUS OF PARTNERSHIP FIRM. 7. IN THE RESULT, T HE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 20 TH MAY, 2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 20 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.130/CTK/2011 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: RAMAKANTA PATTNAIK, C/O. KAILASH AUTOMOBILE CHILIKA ROAD, BALUGAON,KHURDA 2. THE RESPONDENT: INCOME - TAX OFFICER, KHURDA WARD, KHURDA, ORISSA. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. G UARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.