M/s Ved Prakash Garg, Sonebhadra V. ITO, Mirzapur

ITA 164/ALLD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89814 (ITAT-ALLAHABAD)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH PATHAK
• Assessee Lawyers: ARVIND SHUKLA; O P SHUKLA
• Keywords: Business income; Salary income; Principle of natural justice; Commercial expediency
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI C. N. PRASAD, JUDICIAL MEMBER ITA NO. 164/ALLD/2014 ASSESSMENT YEARS: 2009-10 M/S. VED PRAKASH GARG CHOPAN, SONEBHADRA PAN:AAEFV 9000 H VS. ITO RANGE-3(4) MIRZAPUR (APPELLANT) (RESPO NDENT) ASSESSEE BY : SHRI ARVIND SHUKLA & SHRI O.P. SHUKLA REVENUE BY : SHRI UMESH PATHAK DATE OF HEARING : 22.04.2015 DATE OF PRONOUNCEMENT : 24.04.2015 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL BY THE ASSESSEE, AGAINST THE ORDER OF THE LD. CIT(A) ALLAHABAD DATED 16.01.2014 FOR THE A.Y. 2009-10, THE GROUNDS OF THE APPEAL ARE REPRODUCED AS UNDER:- 1. BECAUSE THE LEARNED COMMISSIONER OF INCOME TAX (A) WAS NOT JUSTIFIED TO CONFIRM THE ORDER OF THE ASSESSING OFF ICER TO ALLOW PARTNER SALARY CLAIMED BY THE ASSESSEE RS.50000.00 IN PLACE OF RS. 180000.00 IT IS WORTHWHILE TO MENTION THAT THE APPELLANT HAS PROVID E SALARY ONLY TO WORKING PARTNER OF THE FIRM WHO IS ACTIVELY ENGAGED IN COND UCTING THE AFFAIRS OF THE BUSINESS OR PROFESSION OF THE FIRM. AS PER EXPLANAT ION 4 OF SECTION 40 OF THE PARTNER SALARY TO BE ALLOWED ONLY TO THE WORKING PA RTNER WHO IS ACTIVELY ENGAGED IN CONDUCTION THE AFFAIRS OF THE BUSINESS OF THE FIRM AND AS PER EXPLANATION 3 THE CLEARLY MENTIONED THAT THE PARTNE R SALARY SHOULD BE ALLOWED FROM THE BOOK PROFIT COMPUTED IN THE MANNER LAID DO WN IN CHAPTER 4D OF THE BY THE AGGREGATE AMOUNT OF THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM. BUT IN THIS SECTION IT HAS NO T MENTIONED IN ANY WERE THE INCOME CREDITED TO THE PROFIT & LOSS WILL BE EXECUT ED FROM THE GROSS PROFIT CREDITED TO THE PROFIT & LOSS ACCOUNTS, SECONDLY TH E APPELLANT FIRM HAS MADE ADVANCE TO AQUA-VITA COMPANY WHETHER ONE OF THE PAR TNER OF THE FIRM ARE ALSO THE PARTNER OF THE FIRM AND AMOUNT HAS GIVEN E XCLUSIVELY FOR THE BUSINESS PURPOSES. THE APPELLANT HAS ALREADY SUBMITTED BEFOR E THE ASSESSING OFFICER AS WELL AS BEFORE THE HONBLE THE INCOME TAX APPELLATE AUTHORITY THAT AS PER ITA NO. 164/ALLD/2014 ASSESSMENT YEARS: 2009-10 2 PROVISION OF THE ACT, NO ANY BARRED TO CREDIT THE I NCOME TO THE PROFIT & LOSS ACCOUNT TO EXCLUDE FROM BOOK PROFIT CALCULATED BY T HE APPELLANT. 2. BECAUSE, THE LEARNED COMMISSIONER OF INCOME TAX (A) WAS NOT JUSTIFIED RESTRICT THE ADDITION UP TO 50% OF DISALL OWANCE MADE BY THE ASSESSING OFFICER UNDER THE HEAD LOADING & UPLOADIN G RS.21000.00, OFFICER EXP. RS.5000.00, REPAIR & MAINT OF RS.8500.00. IN T HIS CASE THE JUDGMENT OF HONBLE ITAT LUCKNOW BENCH IN THE CASE OF CHANDRA C ONFECTIONERY PVT LTD. DIRECTLY HIT TO THE APPELLANT CASE DUE TO THE ASSES SING OFFICER HAS NOT MADE ANY SPECIFIC REASON TO DISALLOW THE SAME AND MADE A D HOC ADDITION WITHOUT POINTING ANY SPECIFIC DEFECT OR INFORMATION GATHERE D. 3. BECAUSE, THE APPELLANT CRAVES FOR A RIGHT TO RAI SE ANY ADDITIONAL GROUND DURING THE COURSE OF HEARING OF THE CASE. 4. BECAUSE THE ORDER PASSED BY THE LEARNED ASSESSIN G OFFICER IS ERRONEOUS BAD IN LAW AND ON FACTS AND ADDITION MADE BY THE LEARNED ASSESSING OFFICER IS LIABLE TO BE DELETED. 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE A SSESSEE IS ENGAGED IN TRADING BUSINESS OF SUPPLY AND PURCHASE AND SALE OF BOLDERS . ASSESSEE FURNISHED THE RETURN OF INCOME DECLARING RS.1,47,630/-. IN THE SCRUTINY ASSESSMENT, AO INVOKED THE PROVISIONS OF SECTION 40(B) OF THE ACT AND MADE OTH ER ADDITIONS BEFORE DETERMINING THE ASSESSED INCOME AT RS.3,12,130/-. IN THE ASSESS MENT AO NOTICED THAT ASSESSEE RECEIVED AN INTEREST RECEIPTS OF RS.17,95,884/- FRO M THE SISTER CONCERNS AND THE SAME WAS COMMENTED UPON BY THE AO AS INCOME TAXABLE UNDER HEAD INCOME FROM OTHER SOURCES. HOWEVER, AO HAS NOT FORMERLY INVOKE D PROVISION OF SECTION 56 OF THE ACT AND GAVE HEAD WISE SEGREGATION IN THE COMPUTATI ON OF INCOME. FURTHER, AO EXCLUDED THE SAID INTEREST INCOME FROM THE BUSINES S INCOME OF THE FIRM AND HELD THE ASSESSEE DOES NOT HAVE A POSITIVE INCOME. ACCORDING LY HE RESTRICTED THE ALLOWABLE SALARY INCOME TO THE PARTNERS U/S 40(B) OF THE ACT TO RS.50,000/- ONLY AGAINST THE TOTAL CLAIM OF RS.1.8 LAKHS. THE LD. CIT(A) CONFIRM ED THE SAME. THUS, THE ISSUE FOR ADJUDICATION RELATES TO IF THE ASSESSEE HAS THE INC OME FROM BUSINESS OR NOT. 3. DURING THE PROCEEDINGS BEFORE US, LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE SAID INTEREST INCOME RECEIVED BY THE ASSES SEE CONSTITUTES BUSINESS INCOME. HE MENTIONED THAT THE ADVANCES/LOAN GIVEN BY THE AS SESSEE TO THE SISTER CONCERNS IS IN THE BUSINESS INTEREST OF THE ASSESSEE. HOWEVE R, NO FACTS ARE BROUGHT TO OUR NOTICE ABOUT THE COMMERCIAL EXPEDIENCY OF GIVING IN TEREST BEARING LOANS TO THE SISTER ITA NO. 164/ALLD/2014 ASSESSMENT YEARS: 2009-10 3 CONCERNS. IN THIS REGARD, LEARNED COUNSEL SUBMITTED THAT REQUISITE DETAILS WILL BE FURNISHED, ONE MORE CHANCE GIVEN TO THE ASSESSEE. 4. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO. DURING THE PROCEEDINGS IN TRIBUNAL, A QUERY WAS RAI SED FROM THE BENCH ABOUT TAXING OF THE SAID INTEREST INCOME OF RS.17,95,884/- UNDER HEAD INCOME FROM OTHER SOURCES QUA THE COMPUTATION OF INCOME. LD. DR ADMI TTED THAT THE SAID INCOME WAS NOT FORMERLY SEGREGATED. HOWEVER, FOR THE PURPOSE O F COMPUTING ALLOWABLE DEDUCTION ON ACCOUNT OF SALARIES U/S 40(B) OF THE A CT, THE SAID INTEREST INCOME WAS EXCLUDED FROM BUSINESS INCOME AND ARRIVED AT THE BU SINESS LOANS. 5. ON HEARING BOTH THE PARTIES AND PERUSAL OF THE O RDERS, WE FIND THAT THERE IS AN OBLIQUE REFERENCE IN THE ORDER OF THE AO FOR CHARGI NG THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, IN THE COMPUTA TION OF INCOME, WE FIND THE SAID INTEREST INCOME WAS TREATED AS PART OF THE PRO FITS OF THE BUSINESS. WE CANNOT APPRECIATE THE APPROACH OF THE AO. ON ONE SIDE HE T REATED THE INTEREST INCOME AS BUSINESS INCOME WITH COMPUTATION AND OTHER SIDE, FO R THE PURPOSE OF SECTION 40(B), THE SAME INCOME WAS TREATED AS INCOME FROM OTHER S OURCES. THUS, THE ORDER OF THE AO IS MESSY ON THIS ISSUE. WE ALSO CONSIDERED THE R EQUEST OF THE LEARNED COUNSEL FOR REMANDING TO THE AO FOR DEMONSTRATE IN THE BUSINESS NATURE OF THE IMPUGNED INTEREST RECEIPTS AMOUNTING TO RS.17,95,884/-. AT T HE END WE ARE OF THE OPINION THAT IT IS IN THE INTEREST OF JUSTICE THE MATTER SHOULD BE REMANDED TO THE FILE OF THE AO. AO SHALL GRANT REASONABLE OPPORTUNITY OF THE BEING HEA RD TO THE ASSESSEE IN ACCORDANCE WITH THE SAID PRINCIPLES OF NATURAL JUSTICE. IN CAS E, THE SAID INTEREST RECEIPTS ARE HOLD AS BUSINESS RECEIPTS, THE CLAIM OF THE ASSESSEE SHO ULD BE ALLOWED IN FULL. ACCORDINGLY, GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 2 RELATES TO DISALLOWANCE OF CERTAIN EXPENSES ON AD HOC BASIS. AO CLAIMED EXPENSES UNDER THE HEAD IN LOADING AND UNLO ADING EXPENSES, OFFICE EXPENSES, AND REPAIR AND MAINTENANCE EXPENSES FOR W ANT OF DIRECT THIRD PARTY EVIDENCES. AO DISALLOWED ON AD-HOC BASIS OF 20% OF THE CLAIMS OF THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. CONSIDERING THE FAILURE OF THE ASSESSEE IS DISCHARGING THE ONUS CIT(A) RESTRICTED THE DISALLOWANCE TO THE 10% OF THE CLAIM. BEFORE US, AGAINST THE SAID DECISION OF THE LD. CIT(A), THE COUNSEL DE MONSTRATED THAT HE SHALL FURNISH ITA NO. 164/ALLD/2014 ASSESSMENT YEARS: 2009-10 4 THE DETAILS EXHAUSTIVELY IN CONNECTION WITH SUPPORT OF EACH AND EVERY CLAIM IN THESE THREE ACCOUNTS. THUS, THIS MATTER SHOULD ALSO BE RE MANDED TO THE FILE OF THE AO. 7. AFTER HEARING THE LD. DR, WE FIND THIS ISSUE SHO ULD ALSO BE REMANDED TO THE FILE OF THE AO FOR FRESH ADJUDICATION BY THE AO. AO SHALL GRANT REASONABLE OPPORTUNITY TO THE ASSESSEE BEFORE ANY DECISION IS TAKEN IN THI S REGARD. ACCORDINGLY, GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF APRIL, 2015. SD/- SD/- (C. N. PRASAD) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER ALLAHABAD, DATED: 24.04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, ALLAHABAD THE CIT(A) CONCERNED, ALLAHABAD THE DR BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, ALLAHABAD.