M/s. Uma Builders, Ahmedabad V. The Income Tax Officers, Ward-9(1), Ahmedabad

ITA 1976/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5835 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 1976/AHD/2014 (ASSESSMENT YEAR: 2006-07) M/S. UMA BUILDERS C/O. RAJENDRA M. PATEL 1, TAKSHASHILA HOMES, OPP. SHILP BUNGLOWS, MANGALDEEP PARTY PLOT ROAD, SOLA, AHMEDABAD V/S INCOME TAX OFFICER, WARD- 9 (1), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABFU6388C APPELLANT BY : SHRI S. N. DIVATIA, AR RESPONDENT BY : SHRI JAMES KURIAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 12 -05-201 7 DATE OF PRONOUNCEMENT : 16 -05-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)- XXI, AHMEDABAD DATED 29.04.2014 PERTAINING TO A.Y. 2006-07. ITA NO. 1976 /AHD/2014 . A.Y. 2006-0 7 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSES SEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ASSESSMENT ORDER MADE BY THE A.O. U/S. 143(3) OF THE ACT R.W.S. 147. IT IS THE CLAIM OF TH E ASSESSEE THAT THE A.O. HAS ERRED IN COMPUTING THE BOOK PROFIT FOR THE PURPOSE OF REMUNERATION TO PARTNERS BY SETTING OFF THE BROUGHT FORWARD LOSSES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT ASSES SEE IS IN THE BUSINESS OF CONSTRUCTION AND IS ALSO A DEVELOPER. WHILE SCRUTIN IZING THE RETURN OF INCOME, THE A.O. NOTICED THAT THE ASSESSEE HAD SOME BROUGHT FORWARD LOSSES AND, THEREFORE, WAS OF THE OPINION THAT FOR THE COMPUTATION OF BOOK PROFIT FOR THE ALLOWANCE OF PARTNERS REMUNERATION BROUGHT FORWARD LOSSES OUGHT TO HAVE BEEN SET OFF FOR THE PURPOSES OF DETE RMINING THE BOOK PROFIT. 4. THE A.O. ACCORDINGLY SET OFF BUSINESS LOSS OF RS. 3 ,23,452/- AND UNABSORBED DEPRECIATION OF RS. 22,546/- AND COMPUTED THE BOOK PROFIT FOR THE PURPOSES OF REMUNERATION PAID TO PARTNERS AND MADE AN ADDITI ON OF RS. 1,38,270/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT FOR THE PURPOSES OF THE COMPUTATION OF BOOK PROFIT, NET PRO FIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT SHOULD BE CONSIDERED AS THE BASIS FOR DETERMINING THE ALLOWABILITY OF PARTNERS REMUNERATION AS PER S ECTION 40(B) OF THE ACT. ITA NO. 1976 /AHD/2014 . A.Y. 2006-0 7 3 7. THE LD. COUNSEL CONCLUDED BY SAYING THAT THE MANNER FOR WHICH THE BOOK PROFIT HAS BEEN COMPUTED IS ERRONEOUS AND AGAINST T HE PROVISIONS OF THE LAW. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED TH E FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW QUA THE ISSUE. THE BOOK PROFIT HAS BEEN DEFIN ED IN EXPLANATION 3 BELOW SECTION 40(B) OF THE ACT AND THE SAME READS A S 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 REMUNERATION PAID OR PAYABLE TO ALL THE P ARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PR OFIT' ONLY FROM THE BUSINESS INCOME OF THE FIRM. 9. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE BOOK PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT HAS TO BE COMPUTED IN THE M ANNER LAID DOWN IN CHAPTER IV-D. THEREFORE, IN OUR CONSIDERED OPINION, BOTH THE LOWER AUTHORITIES HAVE ERRED IN SETTING OFF BROUGHT FORWA RD LOSSES FIRST IN COMPUTING THE BOOK PROFIT FOR THE ALLOWABILITY OF R EMUNERATION TO PARTNERS. IN OUR UNDERSTANDING OF THE LAW, THE REMUNERATION T O PARTNERS SHOULD BE FIRST ALLOWED AND THEREAFTER BROUGHT FORWARD BUSINE SS LOSSES SHOULD BE SET OFF. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE L D. CIT(A) AND DIRECT THE A. O. TO DELETE THE DISALLOWANCE OF RS. 1,38,270/-. ITA NO. 1976 /AHD/2014 . A.Y. 2006-0 7 4 10. BEFORE PARTING, THE RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF MONOGRAM MILLS CO. LTD. 135 ITR 122 APPEARS TO BE MISPLACED INASMUCH AS IN THAT CASE, THE HONBLE HIG H COURT HAS DECIDED THE ISSUE ON THE PRIORITY AS BETWEEN CARRIED FORWARD LO SS, DEPRECIATION AND DEVELOPMENT REBATE FOR THE PURPOSES OF THE COMPUTAT ION OF TOTAL INCOME WHEREAS THE CASE IN HAND RELATES TO THE COMPUTATION OF BOOK PROFIT AS PER THE PROVISIONS OF THE LAW MENTIONED HEREINABOVE. 11. APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16 - 05- 201 7 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 16/05/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD