M/s. Almac Corporation, Ahmedabad V. The Dy.CIT.,Circle-10, Ahmedabad

ITA 2115/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89263 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Keywords: Business income
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA KR. YADAV, J.M & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 2115/AHD/2011 (ASSESS MENT YEAR: 2008-09) M/S. ALMAC CORPORATION 10, SUFLAM FLATS, NR. JAIHIND PRESS, ASHRAM ROAD, AHMEDABAD -380009 V/S DCIT, CIRCLE-10, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAHFA 1695E APPELLANT BY : SHRI SMT. URVASHI SHODHAN, A.R. RESPONDENT BY : SHRI ROOP CHAND, SR. D.R. ( )/ ORDER DATE OF HEARING : 25-03-20 15 DATE OF PRONOUNCEMENT : 10 -04-2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-XVI, AHMEDABAD DATED 04.07.2011 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF COMMISSION AGENT. ASSESSEE FILED ITS RETURN OF INCO ME FOR A.Y. 2008-09 ON 25.09.2008 DECLARING TOTAL INCOME OF RS. 28,48,230/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAM ED UNDER SECTION 143(3) ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 2 VIDE ORDER DATED 28.04.2010 AND THE TOTAL INCOME WA S DETERMINED AT RS.31,82,150/-. AGGRIEVED BY THE ORDER OF A.O., AS SESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 04.07.2011 D ISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWIN G EFFECTIVE GROUND;- 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE BY AO OF RS. 3,28,920/- TREATING REMUNERATION PAID TO THE PARTNE RS UNDER THE PROVISIONS OF SECTION 40(B)(V) OF THE ACT AS EXCESSIVE. BOTH THE LOWER AU THORITIES ERRED IN NOT APPRECIATING THE LANGUAGE OF THE EXPLANATION 3 TO SECTION 40(B)( V) THAT BOOK PROFIT MEANS NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT FOR THE PURPOSE OF COMPUTING REMUNERATION PAYABLE TO THE PARTNERS. THE ID. CIT (A) OUGHT TO HAVE DELE TED THE DISALLOWANCE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD EARNED INTEREST INCOME OF RS. 9,83,256/- WHICH INCL UDED INTEREST OF RS. 1,52,277/- EARNED FROM NEO PLAST ENGG. PVT. LTD. HE WAS OF THE VIEW THAT THE REMAINING INTEREST OF RS. 8,30,979/- WAS IN THE NA TURE OF NON BUSINESS INCOME AND TAXABLE UNDER THE HEAD INCOME FROM OTH ER SOURCES AND WAS TO BE EXCLUDED FOR THE PURPOSE OF CALCULATION OF REMUN ERATION PAYABLE TO PARTNERS. HE THEREFORE, AFTER EXCLUDING THE AFORESA ID INTEREST OF RS.8,30,979/-, WORKED OUT THE REMUNERATION PAYABLE TO THE PARTNERS AS PER THE PROVISIONS OF SECTION 40(B)(V) OF THE ACT AT RS. 16,54,280/- AS A GAINST THE REMUNERATION OF RS. 19,83,200/- CLAIMED BY THE ASSESSEE AND THE EXC ESS REMUNERATION OF RS. 3,28,920/- (RS. 19,83,200 LESS RS. 16,54,280) WAS D ISALLOWED. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE UPHELD THE ORDER OF A.O AND DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER:- 2.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. COUNSEL AS WELL AS THE FINDING OF THE ASSESSING OFFICER RECORDED IN THE ASSESSMENT OR DER. I HAVE ALSO CONSIDERED THE DECISIONS RELIED UPON BY THE LD. COUNSEL. IT CAN BE SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED THE REMUNERATION TO PARTNE RS FROM THE NET PROFIT SHOWN IN THE ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 3 PROFIT AND LOSS ACCOUNT WHEREAS THE REMUNERATION TO PARTNERS IS ALLOWABLE TO THE WORKING PARTNERS FROM THE BOOK PROFIT WHICH IS AUTHORIZED B Y AND IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. THE 'BOOK PROFIT' HAS BEEN DEFINED IN EXPLANATION-3- BELOW SEC. 40(B) OF THE ACT 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 RELEVA NT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY TH E AGGREGATE AMOUNT OF REMUNERATION PAID OR PAYABLE TO ALL THE PARTMERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT.' ONLY FROM THE BUSINESS INCOME OF THE FIRM. 2.3 IT IS EVIDENT FROM THE DEFINITION OF BOOK PROFIT AS GIVEN IN THE AFORESAID EXPLANATION-3 THAT THE PROFIT AND LOSS ACCOUNT FO R THE PURPOSES OF BOOK PROFIT WILL BE COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D OF THE ACT. AS PER CHAPTER IV-D OF THE ACT, THE INCOME AND EXPENDITURE AS MENTIONED IN SEC. 28 TO 44DB WILL ONLY BE CONSIDERED FOR ARRIVING AT THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE ASSESSING OFFICER HAD NOTICED THAT THE ASSESSEE HAD SHOWN INT EREST INCOME OF RS. 9,83,256/- AS BUSINESS INCOME IN THE PROFIT AND LOSS ACCOUNT AND CLAIMED THE PARTNER'S REMUNERATION ON THE SAID INCOME. HE HAD CONSIDERED THE INTEREST INC OME OF RS. 1,52,277/- RECEIVED FROM DEPOSITS WITH NEO PLAST ENGG. PVT. LTD. AS BUSINESS INCOME AS PER THE AGREEMENT. HOWEVER, THE REMAINING INTEREST INCOME WAS , TREATE D AS NON-BUSINESS INCOME AS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSES SEE WAS ENJOYING THE INTEREST INCOME OF RS. 9,83,256/- OUT OF WHICH RS. 8,30,979/- THE A S INTEREST FROM DEPOSITS AND INTEREST ON FDS CANNOT BE CONSIDERED AS PART OF BUSINESS IN COME. THE LD. COUNSEL COULD NOT ESTABLISH AS TO HOW THE INTEREST FROM DEPOSITS AND INTEREST ON FDS IS THE BUSINESS INCOME. IT IS AN ADMITTED FACT THAT THE APPELLANT FIRM IS N OT ENGAGED IN THE BUSINESS OF MONEY- LENDING BUSINESS. THEREFORE, THE INTEREST INCOME EA RNED FROM DEPLOYMENT OF SURPLUS FUNDS OF THE FIRM IN DEPOSITS WITH OTHERS AND IN FDS WILL BE INCOME FROM OTHER SOURCES AND NOT THE BUSINESS INCOME BECAUSE EARNING OF INTEREST IS NOT THE BUSINESS OF THE APPELLANT FIRM. THE HON'BLE RAJASTHAN HIGH COURT HAD HELD IN THE OF MURLI INVESTMENT CO VS. CIT 167 ITR 368 (RAJ.) THAT MERELY INVESTING SURPLUS FUNDS INSTEAD OF KEEPING THEM IDLE AND OBTAINING INTEREST THEREON WOULD NOT CONSTITUTE BUSINESS AND THEREFORE, THE INTEREST BY THE ASSESSEE WOULD NOT BE ASSESSABLE AS BUSINESS INCOME BUT A SSESSABLE AS ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 4 INCOME UNDER OTHER SOURCES. THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. VENAD CONDUCTORS (P) LTD. 326 ITR 513 (KER.) HAD HE LD THAT INCOME FROM SHORT TERM DEPOSIT CANNOT BE TREATED AS INCOME FROM BUSINESS B UT IT IS INCOME FROM OTHER SOURCES. LIKEWISE, IN THE CASE OF T.O. ABRAHAM & COMPANY VS. DY.CIT 325 ITR 201 (KER,) IT WAS HELD THAT INTEREST INCOME FROM BANK DEPOSITS IS ASS ESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WHERE THE ASSESSEE IS NOT ENGAG ED IN MONEY LENDING BUSINESS. THE HIMACHAL PRADESH HIGH COURT IN THE CASE OF SHANTA L AT CHOPRA VS. CIT 214 CTR (HP) 420 HAD HELD THAT THE INTEREST ON FOR PLEDGE D WITH BANK FOR OBTAINING LOAN WAS ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT BUS INESS INCOME. SIMILAR VIEW WAS TAKEN BY THE HON'BLE M.P HIGH COURT AND HON'BLE M ADRAS HIGH COURT RESPECTIVELY IN THE CASES OF FERRO CONCRETE CONSTRUCTION (LNDIA )(P) LTD. VS CIT 290 ITR 713 (MP) AND CIT VS. MONARK TOOLS (P) LTD. 260 ITR 258 (MAD. ). THE HON'BLE DELHI HIGH COURT IN THEIR LATER ON DECISIONS HAD ALSO TAKEN TH E VIEW THAT, INTEREST INCOME IS ASSESSABLE AS INCOME FROM OTHER SOURCES. IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP. (DELHI) 289 ITR 475 (DELHI), THE HON'BLE DELHI HIGH COURT HAD HELD THAT WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THERE ON IT CA N ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. THE OT HER CATEGORY IS WHERE THE EXPORTER IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSITS IN ORDER TO AVAIL OF CREDIT FACILITY FOR THE EXPORT BUSINESS. INTEREST E ARNED ON FIXED DEPOSITS FOR THE PURPOSE OF AVAILING OF CREDIT FACILITY FROM THE BANK, DOE S NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. 2.4 IN VIEW OF THE LAW LAID DOWN BY THE VARIOUS HIG H COURTS AS REFERRED TO ABOVE, THE INTEREST INCOME IS CONSIDERED AS 'INCOME FROM OTHER SOURCES' AND THEREFORE, NO REMUNERATION TO PARTNERS WILL BE ALLOWABLE ON THIS INTEREST INCOME. THE LD. COUNSEL HAS NEITHER FURNISHED THE COPY OF THE PARTNERSHIP DEED NOR ESTABLISHED AS TO HOW THE DECISIONS RELIED UPON BY HIM ARE APPLICABLE IN THE FACTS OF A PPELLANT'S CASE. THE-HON'BLE AMRITSAR TRIBUNAL HAD HELD IN THE CASE OF SHREE BALAJI ALLOY S VS. ITO [2010] 127 TTJ 129 (ASR) THAT A DECISION OF THE COURT IS APPLICABLE TO THE C ASE UNLESS IT IS CLEARLY DEMONSTRATED THAT THERE IS SIMILARITY OF THE FACTS. THUS, THE LD. COU NSEL CANNOT DERIVE SUPPORT FROM THE DECISIONS SO RELIED UPON. ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 5 2.5 CONSIDERING THE ABOVE DISCUSSION, I AM OF THE O PINION THAT THE ASSESSING OFFICER HAS CORRECTLY DISALLOWED THE CLAIM OF THE REMUNERATION TO PARTNERS ON THE INTEREST INCOME RS. 8,30,979/-. THE REMUNERATION PAYABLE TO THE PARTNER S HAD BEEN CORRECTLY WORKED OUT BY HIM FOR RS. 16,64,280/-. THE ASSESSING OFFICER WAS THUS JUSTIFIED IN DISALLOWING THE EXCESS REMUNERATION OF RS. 3,28,920/- (RS. 19,83,200/- - R S. 16,54,280/-) AND HIS ACTION TO THIS EXTENT IS CONFIRMED. THE ADDITION SO MADE IS SUSTAI NED. ALL THE GROUNDS OF APPEAL ARE ACCORDINGLY DISMISSED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT INTEREST INCOME HAS TO B E CONSIDERED FOR THE PURPOSE OF WORKING OUT REMUNERATION TO THE PARTNERS BECAUSE IT IS PART OF BUSINESS INCOME. SHE SUBMITTED THAT THOUGH THE A.O IN THE ORDER HAS NOTED THAT THE INCOME HAS TO BE CONSIDERED AS NON BUSINES S INCOME BUT FINALLY HE HAS CONSIDERED THE TOTAL INCOME AS PER THE COMPUTAT ION FILED BY THE ASSESSEE AND HAS NOT TREATED THE SAME AS OTHER INCOME MEANIN G THEREBY THAT INTEREST INCOME HAS INDEED BEEN ACCEPTED BY HIM AS BUSINESS INCOME. SHE FURTHER SUBMITTED THAT ON IDENTICAL FACTS, SIMILAR ADDITION WAS MADE BY A.O WITH RESPECT TO THE INTEREST INCOME IN A.Y. 2007-08 & 20 09-10 BUT THE ADDITION MADE BY A.O WERE DELETED BY LD. CIT(A) AND THE ORDE R OF LD. CIT(A) HAS NOT BEEN CHALLENGED BY THE REVENUE. SHE PLACED ON RECOR D AT PAGE 6 TO 17 THE COPY OF THE ORDER OF CIT(A) FOR A.Y. 07-08 & A.Y. 0 9-10. SHE FURTHER PLACED RELIANCE ON THE DECISION OF AHMEDABAD TRIBUN AL IN THE CASE OF DCIT VS. AJAY ENGINEERS (ITA NO. 2772/A/2012 ORDER DATED 07.06.2013). SHE THEREFORE SUBMITTED THAT WHEN FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR AND SUBSEQUENT YE AR AND WHEN THE ORDER OF LD. ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 6 CIT(A) HAS BEEN ACCEPTED BY REVENUE, THERE WAS NO R EASON FOR THE REVENUE TO TAKE A DIFFERENT VIEW IN THE YEAR UNDER CONSIDER ATION. SHE THEREFORE SUBMITTED THAT THE ADDITION NEEDS TO BE DELETED. LD . D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND LD.CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WHETHER THE INTEREST INCOME IS TO BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF REMUNERATION TO T HE PARTNERS. ON PERUSING THE ASSESSMENT ORDER, WE FIND THAT THOUGH THE A.O H AS STATED THAT THE INTEREST OF RS. 8,30,979/- IS IN THE NATURE OF NON BUSINESS INCOME AND TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES BUT NO SUCH AD JUSTMENT HAS BEEN MADE BY HIM WHILE COMPUTING THE INCOME FROM BUSINESS MEA NING THEREBY THAT HE HAS ACCEPTED INTEREST INCOME AS BUSINESS INCOME. WE FURTHER FIND THAT INTEREST RECEIPTS IN A.Y. 07-08 & 09-10 WERE CONSID ERED AS NON BUSINESS INCOME BY THE A.O. AND THEREAFTER AFTER EXCLUDING I T, THE REMUNERATION WAS WORKED U/S. 40(B)(V) BUT THE ADDITION MADE BY THE A .O WAS DELETED BY LD. CIT(A) . BEFORE US, NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THE DECISION OF THE LD. CIT(A) FOR A.Y.20 07-08 & 2009-10 HAS NOT BEEN ACCEPTED BY THE REVENUE. WE FURTHER FI ND THAT ON IDENTICAL ISSUE HONBLE CALCUTTA HIGH COURT IN THE CASE OF MD . SERAJUDDIN & BROTHERS (2012) 24 TAXMAN.COM 46 (CALCUTTA) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- THE SAID CHAPTER NOWHERE PROVIDES THAT METHOD OF A CCOUNTING FOR THE PURPOSE OF ASCERTAINING NET PROFIT SHOULD BE THE ONLY INCOME F ROM BUSINESS ALONE AND NOT FROM OTHER SOURCES. SECTION 29 PROVIDES HOW THE INCOME FROM PR OFITS AND GAINS OF BUSINESS OR PROFESSION SHOULD BE COMPUTED AND THIS HAS TO BE DO NE AS PROVIDED UNDER SECTION 30 TO 43D. BY VIRTUE OF SECTION 5 OF THE SAID ACT THAT TO TAL INCOMES OF ANY PREVIOUS YEARS INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED. T HUS FOR THE PURPOSE OF SECTION 40(B)(V) READ WITH EXPLANATION THERE CANNOT BE SEPA RATE METHOD OF ACCOUNTING FOR ASCERTAINING NET PROFIT AND/OR BOOK-PROFIT. THE SAI D SECTION NOWHERE PROVIDES AS RIGHTLY ITA NO 2115/ AHD/2011 . A.Y. 2008-0 9 7 POINTED BY MR. KHAITAN, LEARNED SENIOR ADVOCATE THA T THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT NOT THE PROFIT COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. 8. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BIN DING DECISION IN ITS SUPPORT NOR COULD DEMONSTRATE AS TO HOW THE RATIO O F AFORESAID DECISION OF HONBLE CALCUTTA HIGH COURT WAS NOT APPLICABLE TO T HE PRESENT CASE. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT A.O WAS NOT JUSTIFIED IN WORKING OUT THE CLAIM OF REMUNERATION AFTER EXCLUDI NG THE INTEREST INCOME. WE THUS DIRECT THE A.O TO INCLUDE THE INTEREST INCO ME WHILE CALCULATING THE REMUNERATION PAYABLE TO PARTNER U/S. 40(B)(V) OF TH E ACT. IN THE RESULT THIS GROUND OF ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 04 - 2015. SD/- SD/- (SHAILENDRA KR. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY 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,A HMEDABAD