K P SYNTHETICS, MUMBAI V. ITO WD 14(2)(1), MUMBAI

ITA 1837/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48569 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: I P RATHI
• Keywords: Reopening of assessment; Audit objection; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI V.DURGA RAO, JM ITA NO.1837/MUM/2010 : ASST.YEAR 2001-2002 M/S.K.P.SYNTHETICS 15/17, LAD WADI, 1 ST FLOOR ROOM NO.15, ANGADIA CHAWL MUMBAI 400 002. PAN :AADFK0193M. VS. THE INCOME TAX OFFICER WARD 14(2)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI I.P.RATHI RESPONDENT BY : SHRI SHRAVAN KUMAR O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 01.12.2009 IN RELATION TO ASSESSMENT YEAR 2001-2002 . 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY AND THE ASSESSMENT WAS CO MPLETED U/S.143(3) ON 25.11.2003. THEREAFTER THE CASE WAS REOPENED BY WAY OF NOTICE U/S.148 ISSUED ON 27.03.2008 GIVING THE FOLLOWING REASONS:- THE ASSESSEE FIRM WAS CARRYING ITS BUSINESS AS PER TERM AND CONDITIONS LAID DOWN IN THE PARTNERSHIP DEED DATED 18.03.1993 W.E.F. 01.04.2000. SMT.MAYADEVI VEDPRAKASH MITTAL RETIRED AS PER RETIREMENT DEED DATED 16.12.2002 FROM THE PARTNERSH IP, CONSEQUENT UPON WHICH THE CONTINUING PARTNER ENTER INTO FRESH PARTNERSHIP DEED DATED 16.10.2000. ON PERUSAL OF THE RETIREMENT / PA RTNERSHIP DEED, IT IS UNDERSTOOD THAT THE CONTINUED PARTNERS HAVE NOT BEEN AUTHORIZED TO TAKE REMUNERATION AS WELL AS INTEREST. HOWEVER, THE ASSESSEE FIRM PAID INTEREST OF RS.2,84,023/- AND REMUNERATION OF RS.1,28,000/- TO THE PARTNERS, WHICH VIOLATES THE PROVISION OF 40(B) (V) OF THE I.T.ACT. ITA NO.1837/MUM/2010 M/S.K.P.SYNTHETICS. 2 3. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS T HE ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO HOW DEDUCTION WAS CLAIMED IN RESP ECT OF REMUNERATION AND INTEREST TO PARTNERS INASMUCH AS THE ASSESSEE DID NOT FURNIS H ANY COPY OF PARTNERSHIP DEED ALONG WITH THE RETURN OF INCOME ORIGINALLY FILED AN D ONLY COPY OF RETIREMENT DEED WAS FURNISHED. IN THE OPINION OF THE A.O. NO REMUNE RATION AND INTEREST TO PARTNER WAS ADMISSIBLE. THE ASSESSEE MADE SOME SUBMISSION I N SUPPORT OF ITS CASE BUT WAS UNSUCCESSFUL BEFORE THE A.O. RESULTANTLY REMUNERATI ON AND INTEREST TO PARTNERS TOTALING TO RS.4,10,023 WAS ADDED TO THE INCOME OF THE ASSESSEE U/S.143(3). THE APPEAL OF THE ASSESSEE CAME TO BE DISMISSED BY THE LEARNED CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FIRST ISSUE RAISED BY THE ASSESSEE THRO UGH SOME OF ITS GROUND IS CHALLENGE TO THE REOPENING OF ASSESSMENT U/S.147, PRIMARILY FOR THE REASON THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) AND TH E PROVISO TO SECTION 147 IS APPLICABLE INASMUCH AS THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT. IT IS NOTICED FROM THE ORIGINAL ASSESSMENT ORDER PASSED U/S.143(3) ON 25.1 1.2003, COPY OF WHICH PLACED AT PAGES 6 AND 7 OF THE ASSESSMENT ORDER, THAT EXC EPT FOR MAKING CERTAIN DISALLOWANCES FOR EXPENSES TOTALING TO RS.15,000 T HERE IS NO DISCUSSION WHATSOEVER ABOUT THE ALLOWABILITY OR OTHERWISE OF REMUNERATION AND INTEREST TO PARTNERS. HERE IT IS IMPORTANT TO TAKE NOTE OF THE RELEVANT FACTS. T HE ASSESSEE-FIRM WAS CONSTITUTED BY WAY OF PARTNERSHIP DEED DATED 18.03.1993. ON 16.10. 2000 A RETIREMENT DEED WAS EXECUTED WITH EFFECT FROM 1 ST APRIL, 2000 TO THE EFFECT THAT SMT.MAYADEVI VEDPRAKASH MITTAL WAS RETIRING FROM THE PARTNERSHIP FIRM. COPY OF THIS RETIREMENT DEED WAS ATTACHED ALONG WITH THE ORIGINAL RETURN OF INCOME, IN WHICH THE ASSESSEE, INTER ALIA, CLAIMED DEDUCTION FOR SALARY AND INTER EST TO PARTNERS TOTALING RS.4,10,023. THE AUDIT PARTY OF THE INCOME-TAX DEPA RTMENT FOUND THAT ASSESSEE ITA NO.1837/MUM/2010 M/S.K.P.SYNTHETICS. 3 FIRM HAD CLAIMED DEDUCTION FOR SALARY AND INTEREST TO PARTNERS WITHOUT SUBMITTING ANY PARTNERSHIP DEED. ON 05.11.2007 (THAT IS, AFTE R MORE THAN THREE YEARS FROM THE PASSING OF THE ORIGINAL ASSESSMENT ORDER AND PURSUA NT TO THE AUDIT OBJECTION RAISED IN THIS REGARD), THE ASSESSEE FURNISHED A LETTER T O THE ASSESSING OFFICER, COPY OF WHICH IS PLACED AT PAGE 8 OF THE PAPER BOOK, SUBMIT TING COPY OF PARTNERSHIP DEED DATED 16.10.2000 EFFECTIVE FROM 1 ST APRIL, 2000. ACCORDING TO THE ASSESSEE THERE IS A PROVISION FOR REMUNERATION AND INTEREST TO PARTNE RS IN THIS PARTNERSHIP DEED. THE CASE OF THE ASSESSEE IS THAT THE REASSESSMENT WAS D ONE ON A WRONG PREMISE BECAUSE THE ASSESSEE HAD FURNISHED ALL THE NECESSARY FACTS MATERIAL TO ASSESSMENT. MAIN RELIANCE HAS PLACED ON PROVISO TO SECTION 147 AND C ERTAIN JUDGMENTS ON THIS PROVISION, AS PER WHICH NO ACTION CAN BE TAKEN U/S .147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, WHERE INTER ALIA ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) AND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR . ADMITTEDLY NOTICE U/S.148 WAS ISSUED BEYOND A PE RIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. HOWEVER, IT NEEDS TO BE SEEN WHETHER THE NOTICE IS VALID OR NOT. IN ORDER T O BE COVERED BY THE PROVISO IT IS NECESSARY THAT THERE SHOULD BE DISCLOSURE BY THE AS SESSEE FULLY AND TRULY OF ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. ADMITTEDLY THE ASSESSEE DID NOT FILE COPY OF PARTNERSHIP DEED ALON G WITH THE ORIGINAL RETURN OF INCOME, WHICH IS SINE QUA NON FOR CLAIMING DEDUCTION TOWARDS REMUNERATION AND INTEREST TO PARTNERS. AS PER SECTION 40(B) IT IS IM PERATIVE THAT THE COPY OF PARTNERSHIP DEED MUST BE FILED ALONG WITH THE RETUR N OF INCOME FOR THE FIRST YEAR IN WHICH SUCH DEED IS EXECUTED SO AS TO ENABLE THE ASS ESSING OFFICER TO ALLOW DEDUCTION TOWARDS SALARY AND INTEREST TO PARTNERS. BY NOT FILING THIS PARTNERSHIP DEED, AS WOULD BE SEEN INFRA THAT, IN FACT, NO VALID PARTNERSHIP DEED WAS EXE CUTED ON 16.10.2000, IT CAN BE SAFELY CONCLUDED THAT THE RE WAS NO FULL AND TRUE DISCLOSURE BY THE ASSESSEE OF ALL MATERIAL FACTS NECESSARY FO R HIS ASSESSMENT IN SUPPORT OF THE DEDUCTION CLAIMED. THE ASSESSEE HAS ALSO ASSAILED T HE REOPENING OF THE ASSESSMENT ITA NO.1837/MUM/2010 M/S.K.P.SYNTHETICS. 4 ON THE GROUND THAT THERE WAS NO REASON TO BELIEVE I N EXISTENCE AS ON THE DATE OF REASSESSMENT AND FURTHER THE REOPENING OF THE ASSES SMENT U/S.147 WAS BASED ON AUDIT OBJECTION AND CHANGE OF OPINION. WE DO NOT FI ND ANY MERIT IN THE SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE ON THIS COUNT AS WELL FOR THE OBVIOUS REASON THAT THE AUDIT PARTY POINTED OUT DISCREPANCY IN THE ASSE SSMENT, WHICH IS PART OF THEIR DUTY AND THE OBJECTION SO RAISED BY THE AUDIT PARTY POINTED OUT THAT THERE WAS ESCAPEMENT OF INCOME ON THE VERY DATE WHEN RETURN W AS FILED CLAIMING DEDUCTION FOR INTEREST AND SALARY TO PARTNERS WITHOUT FURNISH ING COPY OF PARTNERSHIP DEED. WE, ARE, THEREFORE, NOT CONVINCED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE ON THE ISSUE OF INITIATION OF REASSESSMENT PROCEEDINGS. THE IMPUGNED ORDER IS UPHELD AND GROUND NOS.1 TO 3 ARE DISMISSED . 5. COMING TO THE MERITS OF DISALLOWANCE THE LEARNED CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THE ASSESSEE DID NOT FILE COPY OF PARTNERSHIP DEED AT ALL ALONG WITH THE ORIGINAL RETURN OF INCOME, WHICH FAC T HAS ALSO BEEN ADMITTED BY THE LEARNED A.R. AS IS ALSO EVIDENT FROM THE LIST OF DO CUMENTS FILED ALONG WITH THE ORIGINAL RETURN OF INCOME ON PAGE 2 OF THE ASSESSME NT ORDER. THE LEARNED CIT(A) PERUSED THE ALLEGED PARTNERSHIP DEED CLAIMED TO HAV E BEEN ENTERED INTO ON THE RETIREMENT OF THE PARTNER WITH EFFECT FROM 1.4.2000 AND OBSERVED THAT THE SIGNATURE OF SHRI MUNSHIRAM BAIDNATH AGARWAL IN THE ALLEGED P ARTNERSHIP DEED DID NOT TALLY WITH THE RETIREMENT DEED EXECUTED ON THE SAME DAY. HE NOTED THAT SHRI MUNSHIRAM BAIDNATH AGARWAL DIED ON 7.9.2005 AND THE ASSESSEE FABRICATED THE DEED OF PARTNERSHIP ALLEGING TO BE DATED 16.10.2000 WITH TH E SIGNATURE OF SHRI MUNSHIRAM BAIDNATH AGARWAL IN 2007 AND AT THAT TIME HE WAS NO MORE. WE HAVE CAREFULLY PERUSED THE COPY OF ORIGINAL PARTNERSHIP DEED DATED 18.03.1993 ON ONE HAND AND THE RETIREMENT DEED DATED 16.10.2000 ON THE OTHER A LONG WITH THE ALLEGED PARTNERSHIP DEED ALSO DATED 16.10.2000. WHEN SIGNAT URES OF SHRI MUNSHIRAM BAIDNATH AGARWAL ON THE RETIREMENT DEED ARE COMPARE D WITH THOSE ON THE ORIGINAL ITA NO.1837/MUM/2010 M/S.K.P.SYNTHETICS. 5 PARTNERSHIP DEED DATED 18.03.1993 AND THAT WITH THE ALLEGED PARTNERSHIP DEED DATED 16.10.2000, WHICH WAS ALLEGEDLY EXECUTED ON THE DAY ON WHICH THE RETIREMENT DEED WAS EXECUTED, IT BECOMES APPARENT THAT THE SIGNATUR E OF SHRI MUNSHIRAM BAIDNATH AGARWAL ON THE PARTNERSHIP DEED DATED 1993 ARE TALL YING WITH THOSE ON RETIREMENT DEED DATED 16.10.2000, BUT THE ALLEGED PARTNERSHIP DEED DATED 16.10.2000 CONTAINS THE SIGNATURE OF SHRI MUNSHIRAM BAIDNATH AGARWAL WH ICH ARE ABSOLUTELY NOT MATCHING WITH THE ORIGINAL PARTNERSHIP DEED AND RET IREMENT DEED. THE LD. CIT(A) HAS CATEGORICALLY GIVEN FINDING ON THE FALSITY OF T HIS PARTNERSHIP DEED ALONGWITH THE FAKE SIGNATURE OF SH. MUNSHIRAM BAIDNATH AGARWAL. N O EVIDENCE HAS BEEN BY THE ASSESSEE TO CHALLENGE THIS FINDING OF THE LD. FIRS T APPELLATE AUTHORITY. IT IS FURTHER IMPORTANT TO NOTE THAT BOTH THE RETIREMENT DEED AN D THE ALLEGED PARTNERSHIP DEED ARE CLAIMED TO HAVE BEEN EXECUTED ON 16.10.2000. WH EN WE PERUSE THE RETIREMENT DEED IT IS SEEN THAT THE SIGNATURE OF SHRI MUNSHIRA M BAIDNATH AGARWAL ARE WITNESSED BY SOME CHARTERED ACCOUNTANT WHEREAS THER E IS NO WITNESS TO THE SIGNATURE OF SHRI MUNSHIRAM BAIDNATH AGARWAL OR FOR THAT PURPOSE OTHER TWO PARTNERS ON THE ALLEGED PARTNERSHIP DEED. IT, THERE FORE, BECOMES CLEAR THAT WHEN AUDIT OBJECTION WAS RAISED BY THE DEPARTMENT THE AS SESSEE WHO HAD NOT EXECUTED ANY PARTNERSHIP DEED AT ALL ON 16.10.2000 FABRICATE D THE SIGNATURE OF SHRI MUNSHIRAM BAIDNATH AGARWAL AT THAT STAGE AND CREATE D A BACK-DATED PARTNERSHIP DEED TO COVER UP ITS LAPSE. APART FROM THE FACT TH AT THERE IS DIFFERENCE IN THE SIGNATURES OF SH. MUNSHIRAM BAIDNATH AS DISCUSSED A BOVE IN THIS ALLEGED PARTNERSHIP DEED, IT IS FOUND NOT TO HAVE BEEN WIT NESSED. HENCE SUCH A DOCUMENT DOES NOT QUALIFY TO BE A VALID PARTNERSHIP DEED. IT , THEREFORE, BECOMES CLEAR THAT THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION TOWARDS SALARY AND INTEREST TO PARTNERS AS NO PARTNERSHIP DEED ALLOWING SUCH SALARY AND INTERE ST TO PARTNERS WAS IN PLACE. THE IMPUGNED ORDER IS, THEREFORE, UPHELD. ITA NO.1837/MUM/2010 M/S.K.P.SYNTHETICS. 6 6. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF APRIL, 2011 . SD/- SD/- (V.DURGA RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 29 TH APRIL, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XXV, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.