Parag Yashwant Gadgil, Pune V. Deputy Commissioner of Income-tax, Circle - 4, Pune

ITA 1886/PUN/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4442 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 10-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1886/PUN/2018 िनधाᭅरण वषᭅ / Assessment Year: 2015-16 Parag Yashwant Gadgil, 4, Sarthak Apartments, 1901 Sadashiv Peth, Pune- 411030. PAN : ACWPG2456J Vs. DCIT, Circle-4, Pune. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-3, Pune [‘the CIT(A)’] dated 24.09.2018 for the assessment year 2015-16. 2. The appellant raised the following grounds of appeal :- “1. Addition of salary from firm M/s. P.N. Gadgil Jewellers Rs.3,00,000/-. 2. Interest on Capital from firm M/s. P.N. Gadgil Jewellers Rs.1,77,88,061/-. 3. Disallowance of donation of Rs.1,00,000/-.” Assessee by : Shri M.R. Bhagwat Revenue by : Shri S. P. Walimbe Date of hearing : 14.07.2022 Date of pronouncement : 22.07.2022 ITA No.1886/PUN/2018 2 3. Briefly, the facts of the care are as under : The appellant is an individual deriving income from share of the partnership firm, namely, M/s. P.N. Gadgil Jewellers. The return of income for the assessment year 2015-16 was filed on 31.08.2015 declaring total income of Rs.4,40,47,940/-. The same was revised on 30.03.2016 at total income of Rs.2,52,63,690/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-4, Pune (‘the Assessing Officer’) vide order dated 21.12.2017 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.4,34,60,496/-. While doing so, the Assessing Officer brought to tax the interest on capital contribution of the partnership firm M/s. P.N. Gadgil Jewellers of Rs.1,77,88,061/- and Remuneration of Rs.3,00,000/-. While doing so, the Assessing Officer rejected the contention of the appellant that in view of losses incurred by the partnership firm and in the absence of business income in the hands of the partnership firm, the question of payment of interest on capital contribution made by the partnership firm does not arise. Similarly, as regards to the Remuneration received from the ITA No.1886/PUN/2018 3 partnership firm, the Assessing Officer brought to tax sum of Rs.3,00,000/-. 4. Being aggrieved by the order of assessment, an appeal was filed before the ld. CIT(A) who vide impugned order confirmed the order of the Assessing Officer. 5. Being aggrieved by the order of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 6. It is contended before us that in the absence of any business income in the hands of the partnership firm, the question of payment of interest on capital contribution or remuneration does not arise and, therefore, no amount can be taxed on account of remuneration from the partnership firm and interest on capital contribution made by the partnership firm. 7. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 8. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the taxability of the remuneration received from the partnership firm and interest on capital contribution made by the partner of the firm in the absence of any business income in the hands of the firm. Admittedly, in the ITA No.1886/PUN/2018 4 present case, in the books of partnership firm, the account of appellant credited with remuneration and interest on capital contribution, even though, there is no business profits in the hands of the partnership firm. The claim of the appellant is that in the absence of any business income in the hands of the firm, the question of payment of remuneration as well as interest on capital contribution does not arise and, therefore, the same cannot be taxed in the hands of the partner of the firm. The allowability of deduction of remuneration paid to the partners and interest paid on the capital contribution is subject to the provision u/s 40B of the Act. It is not the case of the appellant that the payment of interest on capital contribution made by the appellant to the firm is in contravention of the provisions of section 40B of the Act. The interest on capital contribution made by partner of the firm is charge against the profits of the firm and is taxable as business income in the hands of the partnership firm under the provisions section 28(v) of the Act. The proviso inserted to section 28(v) carves out an exception to the effect that where any interest, salary, bonus, commission or remuneration, by whatever name called had not been allowed, as deduction under the provisions of section 40B in the ITA No.1886/PUN/2018 5 hands of the firm, the amount of income chargeable under section 28(v) shall be adjusted to the amount not so allowed as deduction. The contention of the appellant is that in the absence of any business income in the hands of the firm, the question of allowance of any deduction under the provisions of section 40B does not arise. The reasoning of the ld. CIT(A) that there was no disallowance made by the Assessing Officer u/s 40B and, therefore, the question of applicability of proviso does not arise, in our considered opinion, is unreasonable. The question of disallowance by the Assessing Officer arises only in the event of claim for allowance by the firm. When there was no claim made by the assessee firm u/s 40B, the question of disallowance does not arise. Therefore, in the above circumstances, we are of the considered opinion that the matter requires a remission to the file of the Assessing Officer to decide the issue on hand with reference to the assessment record of the assessee firm in accordance with law as enunciated by us (supra) after affording a reasonable opportunity of being heard to the assessee firm. Thus, the grounds raised by the assessee stand partly allowed for statistical purposes. ITA No.1886/PUN/2018 6 9. In the result, the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced on this 22 nd day of July, 2022. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 22 nd July, 2022. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)- 3, Pune. 4. The Pr. CIT-2, Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.