R-9000 Textiles and Garments, Hyderabad V. Addl. CIT, Range - 5, Hyderabad

ITA 1467/HYD/2014

• Counselvise Citation: 146722514 RSA 2014
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Maximum Marginal Rate
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1467/HYD/2014 ASSESSMENT YEAR 2009-2010 R-9000 TEXTILES AND GARMENTS, HYDERABAD. PAN AACFR5930J VS. ADDL. CIT, RANGE-5 HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. V. RAGHAVENDRA RAO FOR REVENUE : SMT. G. APARNA RAO DATE OF HEARING : 22.01.2015 DATE OF PRONOUNCEMENT : 23.01.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.02.2014 PASSED BY THE LD . CIT-IV, HYDERABAD UNDER SECTION 263 REVISING THE ASSESSMENT MADE BY THE A.O. UNDER SECTION 143(3) OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSH IP FIRM WHICH IS ENGAGED IN THE BUSINESS OF DEALING IN TEXTILES AND GARMENTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 26.09.2009 DECLARI NG TOTAL INCOME OF RS.13,81,310 AFTER CLAIMING DEDUCTION OF RS.50 LAKHS ON ACCOUNT OF REMUNERATION PAID TO ITS PARTNE RS. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE ORDE R DATED 29.07.2011, THE INCOME AS RETURNED BY THE ASSESSEE WAS ACCEPTED BY THE A.O. 2 ITA.NO.1467/HYD/2014 R-9000, TEXTILES & GARMENTS, HYDERABAD. 2.1. RECORDS OF THE ASSESSMENT MADE BY THE A.O. UN DER SECTION 143(3) WAS SUBSEQUENTLY CAME TO BE EXAMINED BY THE LD. CIT-IV AND ON SUCH EXAMINATION, HE FOUND THAT T HE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PARTNER S REMUNERATION AMOUNTING TO RS.50 LAKHS WAS WRONGLY A LLOWED BY THE A.O. AS AGAINST THE MAXIMUM PERMISSIBLE DEDU CTION ALLOWABLE ON ACCOUNT OF SUCH REMUNERATION TO THE EX TENT OF RS.20,29,024 AS PER THE SPECIFIC PROVISIONS CONTAIN ED IN SECTION 40(B) OF THE ACT. HE, THEREFORE, ISSUED A N OTICE UNDER SECTION 263 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ORDER PASSED BY THE A.O. UNDER SECTION 143(3) ALLOW ING EXCESS CLAIM ON ACCOUNT OF PARTNERS REMUNERATION SHOULD NO T BE REVISED BEING ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. 2.2. IN REPLY, THE FOLLOWING SUBMISSIONS WERE MADE BY THE ASSESSEE IN WRITING : IT IS SUBMITTED THAT THE ORDER IS NOT PREJUDICIAL TO THE INTERESTS OF REVENUE. THIS IS BECAUSE THE EXPENDITU RE DISALLOWED IS TO BE ADJUSTED IN THE INCOME OF REMUNERATION OF THE PARTNERS U/S.28(V) OF THE I.T. ACT. FURTHER, THE RATE OF TAX APPLICABLE IN THE HANDS OF THE ASSESSEE FIRM ON THE AMOUNT OF RS.29,70,976/- WHEN DISALLOWED AND THE RATE OF TAX APPLICABLE THE INCOM E OF THE PARTNERS WHEN CORRESPONDINGLY ADJUSTED IS SAME, THAT IS 30%. WHATEVER IS PROPOSED TO BE DISALLOWED IN TH E HANDS OF THE ASSESSEE FIRM WILL HAVE TO BE REDUCED FROM THE INCOME OF THE PARTNERS U/S.28(V) OF THE I.T. A CT. THIS IS SO EVEN U/S.155(1A) R.W.S. 154(7) OF THE I.T. ACT. ACCORDING TO SEC. 155(1A) OF THE I.T. ACT, THE ASSESSMENT ORD ER OF THE PARTNERS WILL HAVE TO BE AMENDED ON THE BASIS OF TH E FINAL ORDERS IN THE CASE OF THE FIRM. IN CASE A REVISION IS MADE U/S.263 OF THE I.T. ACT AS PROPOSED THE DATE FROM W HICH THE PERIOD OF FOUR YEARS U/S. 154(7) RUNS WILL BE T HE DATE OF GIVING EFFECT TO THE ORDER OF THE PROPOSED REVIS ION. THUS, THERE IS NO PREJUDICE TO THE INTERESTS OF REVENUE I N THIS PARTICULAR CASE BECAUSE OF THE RATE OF TAX BEING TH E SAME 3 ITA.NO.1467/HYD/2014 R-9000, TEXTILES & GARMENTS, HYDERABAD. IN THE HANDS OF THE FIRM AND THE PARTNERS EITHER BE FORE OR AFTER REVISION. IN ORDER TO SHOW THAT THERE IS NO CHANGE IN RATE OF TAX BETWEEN THE FIRM AND THE PARTNERS, THE COPIES OF TH E ASSESSMENT ORDERS OF THE PARTNERS NAMELY ARE ENCLOS ED. 1. SRI P. VENKATESWARLU 2. SRI S. RAJA MOULI 3. SRI P. SATYANARAYANA 4. SRI T. PRASADA RAO WE FURTHER BRING TO YOUR KIND ATTENTION THAT THERE IS DISCREPANCY IN THE AMOUNT CONSIDERED AS MAXIMUM PERMISSIBLE U/S. 40(B) IN THE SHOW CAUSE NOTICE AS RS.20,29,024/-. TAKING INTO CONSIDERATION THE ABOVE FACTS AND CIRCUMSTANCES, IT IS PRAYED THAT THE REVISION PROCE EDINGS BE DROPPED SINCE THERE IS NO PREJUDICE TO THE INTER EST OF THE REVENUE. 3. THE LD. CIT DID NOT FIND MERIT IN THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE. ACCORDING TO HIM, THE STAND OF THE ASSESSEE THAT THE PARTNERS HAVING PAID TAX ON THE REMUNERATION AT THE SAME RATE OF 30% AS APPLICABLE TO THE ASSESSEE FIRM, THERE WAS NO PREJUDICE CAUSED TO THE INTEREST OF THE REVENUE, REQUIRED VERIFICATION OF FACTS FROM TH E RELEVANT RECORD AND SINCE THE SAME WAS NOT DONE BY THE A.O., THE ORDER PASSED BY THE A.O. UNDER SECTION 143(3) WAS ERRONEO US AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE, THEREFORE, SET ASIDE THE SAID ASSESSMENT ORDER WITH A DIRECTION TO A.O. TO DO THE SAME AFRESH, AFTER EXAMINING THE CLAIM OF THE A SSESSEE FOR DEDUCTION ON ACCOUNT OF PARTNERS REMUNERATION. AGGR IEVED BY THE ORDER OF LD. CIT PASSED UNDER SECTION 263, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4 ITA.NO.1467/HYD/2014 R-9000, TEXTILES & GARMENTS, HYDERABAD. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND ALSO PERUSED RELEVANT MATERIAL ON RECORD. IT IS A W ELL SETTLED POSITION OF LAW THAT THE TWO CONDITIONS WHICH MUST BE SATISFIED BEFORE THE COMMISSIONER CAN EXERCISE POWERS UNDER S ECTION 263 OF THE ACT ARE THAT ORDER OF ASSESSING AUTHOR ITY MUST BE FOUND TO BE ERRONEOUS AND FURTHER, IT MUST ALSO BE FOUND TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. UNLESS BOTH THESE CONDITIONS ARE SATISFIED, THE COMMISSIONER DOES NOT GET JURISDICTION TO PASS AN ORDER UNDER SECTION 263 REV ISING THE ASSESSMENT ORDER. IT IS ALSO WELL SETTLED THAT IT I S NOT NECESSARY THAT EVERY ORDER WHICH IS FOUND ERRONEOUS IS ALSO P REJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ORDINARY MEANING OF THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF REVENUE USED IN SECTION 263 IS THAT THE ORDER UNDER CONSIDERATION I S SUCH AS IS NOT IN ACCORDANCE WITH LAW AND IN CONSEQUENCE THERE OF, THE LAWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALIZ ED OR CANNOT BE REALIZED. THE WELL SETTLED PRINCIPLE IN C ONSIDERING THE QUESTION AS TO WHETHER AN ORDER IS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE OR NOT IS TO ADDRESS ONESELF TO THE QUESTION WHETHER THE LEGITIMATE REVENUE DUE TO THE EXCHEQUER HAS BEEN REALIZED OR NOT OR CAN BE REALIZED OR NOT IF THE OR DER UNDER CONSIDERATION IS ALLOWED TO STAND. FOR ARRIVING AT THIS CONCLUSION, IT IS NECESSARY AND RELEVANT TO CONSIDE R WHETHER THE INCOME IN RESPECT OF WHICH, TAX IS TO BE REALIZ ED HAS BEEN SUBJECTED TO TAX OR NOT OR IF IT IS SUBJECTED TO TA X, WHETHER IT HAS BEEN SUBJECTED TO TAX AT THE RATE AT WHICH IT C OULD YIELD THE MAXIMUM REVENUE IN ACCORDANCE WITH LAW OR NOT. IF T HE INCOME IN QUESTION HAS BEEN TAXED AND LEGITIMATE REVENUE D UE IN RESPECT OF THAT INCOME HAS BEEN REALIZED, THOUGH AS A RESULT OF ERRONEOUS ORDER HAVING BEEN MADE IN THAT RESPECT, T HE COMMISSIONER CANNOT EXERCISE POWERS FOR REVISING TH E ORDER 5 ITA.NO.1467/HYD/2014 R-9000, TEXTILES & GARMENTS, HYDERABAD. UNDER SECTION 263 MERELY ON THE BASIS THAT THE ORDE R UNDER CONSIDERATION IS ERRONEOUS. 5. IN THE PRESENT CASE, THE REMUNERATION OF RS.5 0 LAKHS WAS PAID BY THE ASSESSEE-FIRM TO FOUR OF ITS PARTNERS VIZ., MR. P. VENKATESWARLU, MR. S. RAJA MOULI, MR. P. SAT YANARAYANA AND MR. T. PRASADA RAO. AS DEMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US O N THE BASIS OF RELEVANT DOCUMENTARY EVIDENCE, ALL THESE FOUR PARTN ERS OF THE ASSESSEE-FIRM WERE REGULARLY ASSESSED TO TAX AND TH E REMUNERATION RECEIVED BY ALL OF THEM FROM THE ASSES SEE-FIRM WAS ENTIRELY TAXED AT THE MAXIMUM MARGINAL RATE AS APPLICABLE TO THE ASSESSEE-FIRM. EVEN THE LEARNED D.R. HAS NOT BEEN ABLE TO DISPUTE THIS POSITION CLEARLY MANIFEST FROM THE RELEVANT DOCUMENTARY EVIDENCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON RECORD. IT IS THUS CLEAR THAT ALTHOUGH THE ORDER PASSED BY A.O. UNDER SECTION 143(3) ALLOWING THE CL AIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PARTNERS REMUN ERATION OF RS.50 LAKHS WAS NOT IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 40(B) OF THE ACT AND THERE WAS AN ERROR IN THE ORDER OF THE A.O. ALLOWING EXCESS CLAIM ON ACCOUNT OF PARTNE RS REMUNERATION, THE SAME, IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, WAS NOT PREJUDICIAL TO THE INTERESTS OF THE R EVENUE SINCE THE EXCESS AMOUNT OF PARTNERS REMUNERATION ALLOWED AS DEDUCTION BY THE A.O. HAD BEEN TAXED IN THE HANDS O F THE SAID PARTNERS AT MAXIMUM MARGINAL RATE AND THE LEGITIMAT E REVENUE DUE IN RESPECT OF THAT AMOUNT HAD ALREADY BEEN REAL IZED. IN OUR OPINION, ONE OF THE CONDITIONS TO EXERCISE POWE RS CONFERRED UPON THE LEARNED COMMISSIONER OF INCOME TAX UNDER S ECTION 263 THUS WAS NOT SATISFIED IN THE PRESENT CASE INAS MUCH AS THE ORDER PASSED BY THE A.O. UNDER SECTION 143(3) WAS N OT 6 ITA.NO.1467/HYD/2014 R-9000, TEXTILES & GARMENTS, HYDERABAD. PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THE LD. COMMISSIONER OF INCOME TAX THEREFORE, WAS NOT JUSTI FIED IN REVISING THE ASSESSMENT ORDER PASSED BY THE A.O. BY EXERCISING HIS POWERS UNDER SECTION 263. IN THAT VIEW OF THE M ATTER, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. COMM ISSIONER OF INCOME TAX UNDER SECTION 263 AND RESTORE THAT OF THE ASSESSING OFFICER. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.01.2015. SD/- SD/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 23 RD JANUARY, 2015 VBP/- COPY TO 1. R-9000, TEXTILES & GARMENTS, C/O. R.S. BROTHERS, 7- 2- 1740, HOUSE NO. 14 & 15, OPP. FIRE STATION, SANATH NAGAR, HYDERABAD 18. 2. ADDL. CIT, RANGE-5, HYDERABAD. 3. COMMISSIONER OF INCOME TAX-IV, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 4. THE ACIT, CIRCLE 5(1), HYDERABAD 5. D.R. I.T.A.T. A BENCH, HYDERABAD.