The DCIT, Circle-2(1), Baroda V. Jas Construction, Baroda

ITA 1666/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9735 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BHUBNESH KULSHRESTHA
• Keywords: Non-deduction of tax; TDS
• Section: 40(a)(ia); 28

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M DY. CIT, CIR-2(1), BARODA. VS. M/S JAS CONSTRUCTION , A-18, VATPRAD DUPLEX, ATLADRA-TANDALJA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI BHUBNESH KULSHRESTHA, DR RESPONDENT BY:- NONE O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUND:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,91,88 0/- MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS REMUNERATION TO P ARTNERS. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT FOR THE WORKING OF BOOK PROFIT FOR REMUNERATION TO PARTNERS, THE ADDIT ION OF AMOUNT OF DISALLOWABLE U/S 40(I)(IA) OF THE ACT OF RS.18,68,7 94/- TOWARDS PAYMENT MADE TO VARIOUS PARTIES ON WHICH THE ASSESS EE HAS NOT DEDUCTED, IS NOT ALLOWED ON THE GROUND THAT THE DIS ALLOWANCE U/S 40(1)(IA) IS NOT AN EXPENDITURE, BUT FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AND INFRINGEMENT OF LAW WHIC H DOES NOT MAKE ANY INCREASE IN THE BUSINESS PROFIT AND SUBSEQ UENT BENEFIT TO THE PARTNERS OF THE FIRM. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF CIVIL CONSTRUCTION. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE AO FOUND ITA NO.1666/AHD/2010 ASST. YEAR :2007-08 ITA NO.1666/AHD/2010 ASST. YEAR 2007-08 2 THAT ASSESSEE HAS PAID REMUNERATION TO PARTNERS AMO UNTING TO RS.17,57,700/- ON BOOK PROFIT. IT CALCULATED REMUNE RATION PAYABLE TO PARTNERS AS UNDER :- NET PROFIT AS PER P & L A/C RS.6,09,754/- ADD: FRINGE BENEFIT TAX RS.26,633/- SUNDRIES RS.316/- INTEREST ON TDS RS.256/- INTEREST ON FBT RS.2770/- AMOUNT DISALLOWABLE U/S 40(A)(IA) RS.18,68,794/- SALARY TO PARTNERS RS.17,57,700/- BOOK PROFIT RS.42,66,223/- 75,000 @ 90% RS.67,500/- 75,000 @ 60% RS.45,000/- 41,16,223 @ 40% RS.16,46,489/- RS.17,58,989/- RS.17,57,700/- REMUNERATION TO DEBITED TO P & L A/C ADMISSIBLE REMUNERATION RS.17,57,700/- THE AO ASKED THE ASSESSEE THE JUSTIFICATION FOR MAK ING ADDITION OF RS.18,68,794/- BEING THE AMOUNT DISALLOWABLE UNDER SECTION 40(A)(IA). THE ASSESSEE RELIED ON EXPLANATION 3 TO SECTION 40( B) WHICH READS AS UNDER :- EXPLANATION-3 FOR THE PURPOSE OF THIS CLAUSE, BO OK PROFIT MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMUNERATI ON PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. THE JUSTIFICATION GIVEN FOR THE CLAIM WAS THAT SI NCE SECTION 40(A)(IA) FALLS WITHIN SECTIONS 28 TO 44DB OF CHAPTER IV-D OF THE A CT, THE ASSESSEE IS ELIGIBLE FOR HIGHER REMUNERATION BY INCLUDING THIS AMOUNT WHILE ITA NO.1666/AHD/2010 ASST. YEAR 2007-08 3 CALCULATING BOOK PROFIT. THE AO ON THE OTHER HAND N OTED THAT THE ASSESSEE HAS CLAIMED THIS SUM IN THE P/L ACCOUNT ON THE BASI S OF CASH PAYMENT. HE THEREFORE DISALLOWED THE ADDITION IN COMPUTATION O F BOOK PROFIT BY HOLDING THAT IF EXPENDITURE IS CLAIMED ON THE BASIS OF PAYMENT THEN QUESTION OF TREATING IT AS DISALLOWABLE FOR THE PUR POSE OF CALCULATING ELIGIBLE REMUNERATION WILL NOT BE CORRECT. HE ACCOR DINGLY MADE THE ADDITION OF RS.6,91,880/- BEING EXCESSIVE CLAIM O F REMUNERATION WORKED OUT ON THE BASIS OF BOOK PROFIT CALCULATED AFTER EX CLUDING THE SUM OF RS.18,68,794/- 3. THE LD. CIT(A), HOWEVER, FOLLOWING THE DECISION OF THE TRIBUNAL IN CHANDRA ENTERPRISE VS. ITO (2005) 279 ITR (AT) 20 ( MUM) HELD THAT ONCE IN THE TAX AUDIT REPORT AMOUNT WAS IDENTIFIED AS DISALLOWABLE THEN COMPUTING BOOK PROFIT AFTER DISALLOWING THIS ITEM W OULD BE JUSTIFIED. 4. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT DIS ALLOWANCE UNDER SECTION 40(A)(IA) IS NOT AN EXPENDITURE AND, THEREF ORE, FAILURE TO DEDUCT TAX SHOULD NOT GO TO BENEFIT THE ASSESSEE BY WAY OF ALL OWING HIGHER REMUNERATION TO THE PARTNERS. 5. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE IN SP ITE OF SERVICE OF NOTICE. 6. AFTER HEARING THE LD. DR AND PERUSING THE MATERI AL ON RECORD AND ALSO THE DECISION OF THE TRIBUNAL IN CHANDRA ENTERP RISE VS. ITO (SUPRA), WE RESTORE THE MATTER TO THE FILE OF AO. IF WHILE C OMPUTING INCOME FOR RELEVANT ASST. YEAR ASSESSEE INCREASES THE TAXABLE INCOME BY MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) THEN CORRESPON DING INCREASE IN REMUNERATION SHOULD BE ALLOWED AS CLAIMED; BUT WHER E THERE IS NO DISALLOWANCE WHILE COMPUTING INCOME FOR THE PURPOSE OF TAX AND ITA NO.1666/AHD/2010 ASST. YEAR 2007-08 4 DISALLOWANCE IS MADE ONLY FOR THE PURPOSE OF CLAIMI NG HIGHER REMUNERATION THEN SUCH COMPUTATION IS NOT APPROVED. HIGHER REMUNERATION WILL GO ALONG WITH HIGHER ASSESSED INC OME, IF ADDITION ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40(A)(IA) IS MADE AND SUSTAINED. ACCORDINGLY, WE RESTORE THE MATTER TO THE FILE OF A O. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17/9/10 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITA NO.1666/AHD/2010 ASST. YEAR 2007-08 5 1.DATE OF DICTATION 27/8/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16/9/2010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..