M/s. Agrawal Business Corporation, Nashik V. Assistant Commissioner of Income tax,

ITA 164/PUN/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4319 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-04-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 24-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Rule of consistency

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.164/PUN/2017 / ASSESSMENT YEAR : 2013-14 M/S. AGRAWAL BUSINESS CORPORATION, 09, YASHOMANDI, NEAR RAVINDRA SCHOOL, TAKALI ROAD, DWARKA, NASHIK 422 101 PAN : AAOFA3947J . /APPELLANT VS. ACIT, CIRCLE-1, NASHIK . / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI ACHAL SHARMA / DATE OF HEARING : 25.07.2018 / DATE OF PRONOUNCEMENT: 03.08.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDE R OF CIT(A)-1, NASHIK, DATED 03-11-2016 FOR THE ASSESSMENT YEAR 2013-14. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW LOWER AUTHORITIES HAVE ERRED IN TREATING THE INTEREST EAR NED ON BUSINESS ADVANCES AS INCOME TAXABLE UNDER THE HEAD INCOME FROM OTHER SOU RCES THEREBY REJECTED APPELLANTS CLAIM THAT THIS INTEREST IS EARNED OUT OF BUSINESS ACTIVITY OF THE APPELLANT AND THEREFORE CORRECTLY TREATED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW LEARNED ASSESSING OFFICER FURTHER ERRED IN DISALLOWING REMU NERATION PAID TO PARTNERS BY INVOKING PROVISIONS OF SECTION 40(B) OF THE INCOME TAX ACT, 1961, TO THE EXTENT OF RS.13,98,503/- BY REJECTING THE APPELLANTS CONT ENTION THAT INTEREST EARNED ON BUSINESS ADVANCES IS ALSO PART OF BUSINESS INCOM E OF THE APPELLANT. ITA NO.164/PUN/2017 M/S. AGRAWAL BUSINESS CORPORATION 2 FROM THE ABOVE, IT IS EVIDENT THAT THE GROUND NO.2 IS CO NSEQUENTIAL TO GROUND NO.1 THAT RELATES TO THE PROPER HEAD OF INCOME FO R TAXING THE INTEREST INCOME RECEIVED BY THE ASSESSEE. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE INCLUDE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF BUILDERS/DEVEL OPERS AND ESTATE AGENT. ASSESSEE FILED THE RETURN OF INCOME ON 23-0 9-2013 DECLARING TOTAL INCOME OF RS.23,30,840/-. DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE FIRM EARNED INTEREST INCOME OF RS.23,6 1,817/- AND CREDITED THE SAME TO THE PROFIT AND LOSS ACCOUNT. AS A RESULT, THE NET PROFIT AS PER BOOKS OF ACCOUNT WORKS OUT TO RS.60,5 2,097/-. ASSESSEE TREATED THE SAME AS BUSINESS INCOME AND COMPUTED TH E ALLOWABLE REMUNERATION ON THE SAID INCREASED PROFITS. IN THE ASSESSMENT PROCEEDINGS, THE AO TREATED THE INTEREST INCOME AS TAXABLE U/S.56 OF THE ACT AND THEREFORE, THE ALLOWABLE REMUNERATION I S REDUCED PROPORTIONATELY. IN EFFECT, AGAINST THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF REMUNERATION AT RS.37,21,258/-, THE SAME IS REDUCED BY THE AO TO RS.23,22,755/-. IT IS THE CLAIM OF THE ASSES SEE THAT HE IS ALSO INTO THE MONEY LENDING BUSINESS AND THEREFORE, THE INTERE ST INCOME CONSTITUTES THE BUSINESS INCOME OF THE ASSESSEE. I N THIS REGARD, THE ASSESSEE RELIED ON VARIOUS DECISIONS IN THIS REGARD . RELYING ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. REPORTED IN 42 ITR 49, THE AO HELD THAT MERE OBJECT OF FORMATION OF A COMPANY OR A FIRM DOE S NOT DEFINE THE CHARACTER OF INCOME. HE ACCORDINGLY DISALLOWED THE CLAIM OF REMUNERATION TO THE EXTENT OF RS.13,98,503/- AND TH E SAME IS ADDED TO THE INCOME OF THE ASSESSEE. CIT(A) CONFIRMED THE S AME. IN PARA NO.5 OF HER ORDER, THE CIT(A) CONCLUDED THAT THE ASSESSEE D OES NOT POSSESS ITA NO.164/PUN/2017 M/S. AGRAWAL BUSINESS CORPORATION 3 LICENCE FOR MONEY LENDING ACTIVITY AND THE TRANSACTIO NS OF LENDING ARE NOT SUBSTANTIAL. RELYING ON VARIOUS DECISIONS MENT IONED IN THE SAID PARA, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. CIT(A) ALSO DISMISSED THE CONTENTION OF THE ASSESSEE RELAT ING TO THE PRINCIPLE OF CONSISTENCY STATING THAT THE ASSESSEES CLAIM OF SAI D INCOME AS BUSINESS INCOME WAS NOT DISTURBED IN THE EARLIER ASSESSMENT YEARS. 4. AGGRIEVED WITH THE SAME, THE ASSESSEE IS IN APPE AL BEFORE US WITH THE ABOVE REFERRED GROUNDS. 5. LD. COUNSEL FOR THE ASSESSEE EXPLAINED THE ABOVE FACTS OF THE CASE AND SUBMITTED THAT THE INTEREST INCOME IS TAXABLE A S BUSINESS INCOME WHEN THE ASSESSEE EARNED THE SAME FROM THE FIXED DE POSITS. IN SUPPORT OF HIS CASE, LD. COUNSEL RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PARAMOUNT PREMISES (P) LTD. 190 ITR 259 (BOM.). HE ALSO RELIED ON CERTAIN DECISIONS THE CO PIES OF WHICH ARE FILED IN THE PAPER BOOK FROM PAGES 32 TO 34 OF THE PAPER BOOK. 6. ON THE OTHER HAND, LD. DR FOR THE REVENUE MENTIO NED THAT THE INTEREST EARNED ON FIXED DEPOSITS IS UNRELATED TO T HE BUSINESS ACTIVITY OF THE ASSESSEE WHEN THE SAME COULD NOT BE PART OF THE BOOK PROFITS OF THE FIRM FOR THE PURPOSE OF COMPUTATION OF ALLOWABL E SALARY, INTEREST PAYABLE TO THE PARTNERS ETC. HE THEREFORE PRAYED F OR AFFIRMING THE ORDER OF LD.CIT(A). 7. WE HEARD BOTH THE PARTIES ON THIS ISSUE OF TREAT ING THE INTEREST INCOME AS BUSINESS INCOME OF THE ASSESSEE AND CONSE QUENTLY THE INCLUSION OF THE SAME IN THE BUSINESS PROFITS FOR T HE PURPOSE OF COMPUTING DEDUCTION U/S.40(B) OF THE ACT. UNDISPUT EDLY, THE FACTS ITA NO.164/PUN/2017 M/S. AGRAWAL BUSINESS CORPORATION 4 INCLUDE THAT THE INTEREST INCOME IS REFLECTED BY THE ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE OVER THE YEARS. IT IS THE C LAIM OF THE ASSESSEE THAT THE SAID ENTRIES ARE UNDISPUTED BY THE AO IN TH E PAST AS WELL AS IN THE CURRENT ASSESSMENT YEAR. FURTHER, IT IS THE CL AIM OF THE ASSESSEE THAT THE ASSESSEE-FIRM IS INTO MONEY LENDING ACTIVIT Y AND THE SAME IS IN ACCORDANCE WITH THE AMENDED OBJECTS OF THE SUPPLEME NTARY PARTNERSHIP DEED OF THE ASSESSEE. ASSESSEE RELIES ON THE SUPPLE MENTARY DEED DATED 01-04-2010 (PAGE 3 OF THE PAPER BOOK) TO SUBSTANTIA TE THE CLAIM AND STATED THAT THIS DOCUMENT WAS NOT AVAILABLE ON 05-0 2-2016 WHEN THE ASSESSMENT IS MADE. THEREFORE, WE ARE OF THE OPINI ON THAT THERE IS A REQUIREMENT OF EXAMINING THE GENUINENESS OF THE SUP PLEMENTARY DEED OF PARTNERSHIP. THE AVAILABILITY OF SURPLUS FUNDS I S THE ANOTHER ISSUE WHICH REQUIRES EXAMINATION AT THE END OF THE AO. F URTHER, THE EXCLUSION OF SUCH INTEREST RECEIPTS FOR THE PURPOSE OF SECTION 40(B) OF THE ACT WAS AFFIRMED BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ALLEN CAREER INSTITUTE REPORTED IN 403 ITR 375 (RAJASTHAN). THEREFORE, WE ARE OF THE VIEW THAT THIS ISSUE SHOUL D BE REMANDED TO THE FILE OF AO FOR FRESH ADJUDICATION ON THE COR RECTNESS OF THE RETURNED INCOME FOR TAXING THE INTEREST RECEIPTS AF TER DETERMINING THE FACTS RELATING TO THE AVAILABILITY OF EXCESS FUNDS AND THE SCOPE OF THE OBJECTS OF THE ASSESSEE IF THE MONEY LENDING ACTIVI TY IS AUTHORISED BY THE PARTNERSHIP DEED. AO IS ALSO REQUIRED TO EXAMINE T HE NUMBER OF TRANSACTIONS IF THEY CONSTITUTE SUBSTANTIAL BUSINESS OF THE ASSESSEE OR OTHERWISE. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIPLES OF N ATURAL JUSTICE. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.164/PUN/2017 M/S. AGRAWAL BUSINESS CORPORATION 5 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 03 RD DAY OF AUGUST, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 03 RD AUGUST, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-1, NASHIK 4. THE PR.CIT-1, NASHIK 5. , , SMC BENCH PUNE; 6. / GUARD FILE.