Vimal And Sons, Pune V. Income-tax Officer, Ward - 3(1), Pune

ITA 2169/PUN/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9134 (ITAT-PUNE)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 15-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.2169/PUN/2017 / ASSESSMENT YEAR : 2010-11 VIMAL AND SONS, 6, ABHYUDAY APARTMENTS, BHANDARKAR ROAD, PUNE 411 004 PAN : AADFV7541E . /APPELLANT VS. INCOME-TAX OFFICER, WARD-3(1), PUNE . / RESPONDENT / APPELLANT BY : SMT. DEEPA KHARE / RESPONDENT BY : SHRI AJAY MODI, JCIT / DATE OF HEARING : 13.03.2018 / DATE OF PRONOUNCEMENT: 13.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDE R OF CIT(A)-3, PUNE, DATED 31-05-2017 FOR THE ASSESSMENT YEAR 2010 -11. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING DISALLOWANCE OF RS.5,44,540/- TOWARDS REMUNERATION TO PARTNERS U /S.40(B) IN RESPECT OF INTEREST INCOME ON FIXED DEPOSIT WITH BANK AND CRED ITED TO PROFIT AND LOSS ACCOUNT AS BUSINESS INCOME. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN NOT A PPRECIATING THAT THE INTEREST INCOME WAS EARNED FROM FIXED DEPOSIT WITH BANK KEPT FOR THE WORKING CAPITAL REQUIREMENTS OF THE BUSINESS AND WA S BUSINESS INCOME FORMING PART OF THE BOOK PROFIT FOR THE PURPOSE OF SECTION 40(B) OF THE ACT. 3. THE CORE ISSUE RAISED BY THE ASSESSEE IN THE ABOVE- MENTIONED GROUNDS REVOLVES AROUND THE CORRECTNESS OF EXCLUSION OF INTEREST INCOME EARNED FROM THE FIXED DEPOSITS WITH THE BANKS FROM THE SCOPE OF NET 2 PROFIT FOR THE PURPOSE OF COMPUTING THE ALLOWABLE REMUNERA TION PAID TO PARTNERS U/S.40(B) OF THE ACT. 4. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A FIRM AND FILED THE RETURN OF INCOME ORIGINALLY ON 26-09-2010 DECLARIN G TOTAL INCOME OF RS.22,49,680/-. IN THE PROCEEDINGS U/S.143(3) OF TH E ACT, THE ASSESSED INCOME IS DETERMINED AT RS.27,94,218/-. IN THE A SSESSMENT PROCEEDINGS, ON FINDING THAT ASSESSEE EARNED INTEREST INCO ME OF RS.22,40,578/- WHICH WAS CONSIDERED AS BUSINESS INCOME BOT H FOR SPECIFYING THE HEAD OF INCOME FOR TAXING IT AS WELL AS FOR TH E PURPOSE OF SECTION 40(B) OF THE ACT, AO RECOMPUTED THE ALLOWABLE REMUN ERATION TO PARTNERS BY REJECTING THE ASSESSEES CLAIM OF TREATING T HE INTEREST INCOME AS BUSINESS INCOME OF THE ASSESSEE. THE SAID INCOME WA S TREATED AS INCOME FROM OTHER SOURCES AND THE REMUNERATION PAID T O THE PARTNERS WAS RECOMPUTED AND RESTRICTED TO RS.10,55,460/- AS AGAIN ST THE CLAIM OF RS.16 LAKHS. 5. AGGRIEVED WITH THE SAME ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. THE CIT(A) CONFIR MED THE AOS FINDING TREATING THE INCOME AS INCOME FROM OTHER SOU RCES AND ALSO RESTRICTING THE ALLOWABLE REMUNERATION TO THE PARTNER S TO A SUM OF RS.10,55,460/- ONLY. 6. AGGRIEVED WITH THE SAME, ASSESSEE FILED THE PRESENT AP PEAL BEFORE THE TRIBUNAL WITH THE GROUNDS EXTRACTED ABOVE. 7. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A BROKER IN THE NATIONAL STOCK EXCHANGE (IN SHORT NSE) AND IS REQUIRED TO KEEP THE DEPOSIT OF RS.76 LAKHS WITH HD FC BANK AS PER THE REQUIREMENT OF NSE. FURTHER, ASSESSEE WAS ALSO TO MAINTAIN 3 OTHER DEPOSITS OF RS.2.07 CRORES (ROUNDED OFF) AS SECURITY FO R OBTAINING THE OVERDRAFT FACILITY. IN EFFECT, AS PER ASSESSEE, THE SAID DEPOSITS ARE MAINTAINED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AN D ALSO FOR MEETING THE WORKING CAPITAL OF THE FIRM. ASSESSEE CLAIMED THAT THE INTEREST EARNED ON THE SAID DEPOSITS CONSTITUTES BUSINE SS INCOME. THEREFORE, THE CLAIM OF THE ASSESSEE QUA THE DETERMINATION OF REMUNERATION PAYABLE TO THE PARTNERS U/S.40(B) OF THE ACT IS VALID. IN THIS REGARD, LD. COUNSEL FILED THE COPIES OF THE FOLLOWING JUDGMENTS/DECISIONS WHICH WERE RELIED UPON BY THE LD. CO UNSEL FOR THE ASSESSEE IN SUPPORT HIS CASE : 1. CIT VS. JAYPEE DSC VENTURES LTD. 335 ITR 132 2. CIT VS. DALMIA PROMOTERS DEVELOPERS PVT. LTD. 28 1 ITR 346 (DEL) 3. MD. SERAJUDDIN & BROTHERS VS. CIT 210 TAXMAN 008 4 4. CIT VS. J.J. INDUSTRIES 358 ITR 0531 (GUJ.) 5. M/S. P.G. BHAGWAT VS. ITO ITA NO.1562/PN/2007, ORDER DATED 15-04-2009 FOR THE A.Y. 2002-03 6. ACIT VS. WEST GUJARAT EXPRESSWAY LTD. 57 TAXMANN .COM 384 (MUMBAI-TRIB.) 7. CIT VS. GREEN INFRA LTD. 392 ITR 7 (BOMBAY) 8. LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 9. I HEARD BOTH THE PARTIES. I HAVE GONE THROUGH THE FACTS OF THE CASE, ORDERS OF THE REVENUE AND THE JUDGMENTS/DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. I FIND IN THE CASE OF MD. SERAJUDDIN & BROTHERS VS. CIT 210 TAXMAN 0084, THE HONBLE CALCUTTA HIGH COURT HELD THAT FOR THE PURPOSE OF SECTION 40(B)(V) THERE CANNOT BE SEPARATE METHOD OF ACCOUNTING FOR ASCERTAINING NET PROFIT AND/OR BO OK PROFIT. THE NET PROFIT IS SHOWN IN THE PROFIT AND LOSS ACCOUNT IS R ELEVANT. ACCORDING TO THE SAID JUDGMENT, IF THE SAID NET PROFIT INC LUDES THE INTEREST EARNED BY THE ASSESSEE FROM THE BANKS THE SA ME SHOULD NOT BE 4 EXCLUDED FOR COMPUTING THE ALLOWABLE REMUNERATION U/S.40(B) O F THE ACT. THE CONCLUSION FROM THE JUDGMENT IS EXTRACTED AS UNDER: CONCLUSION : FOR PURPOSE OF COMPUTATION OF ALLOWABLE REMUNERATIO N TO PARTNERS, BOOK PROFIT HAS TO BE ASCERTAINED NOT ONLY FROM INCOME F ROM BUSINESS ALONE BUT ALSO FROM INCOME FROM OTHER SOURCES. IN CALCULATIO N OF ALLOWABLE REMUNERATION PROFIT MEANS PROFIT AS PER PROFIT AND LOSS ACCOUNT. FURTHER, IN THE CASE OF CIT VS. J.J. INDUSTRIES 216 TAXMAN 0162 (GUJARAT), THE HONBLE GUJARAT HIGH COURT HELD THAT THE IN TEREST INCOME EARNED BY THE ASSESSEE FIRM FROM THE FIXED DEPOSIT RECEIP TS CANNOT BE IGNORED FOR THE PURPOSE OF WORKING THE BOOK PROFIT TO ASC ERTAIN THE CEILING OF THE PARTNERS REMUNERATION. FURTHER ALSO, IN THE CASE OF M/S. P.G. BHAGWAT VS. ITO ITA NO.1562/PN/2007, DATED 15-04-2009, THE COORDINATE BENCH OF THE TRIBUNAL ANSWERING A SIMILAR QUESTION HAS EXPLAINED THE BOOK PROFITS OCCURRED IN SECTION 40 (B) OF THE ACT HELD AND ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. WHILE HOLDING SO, THE TRIBUNAL RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHETH BROTHERS 99 TTJ 189. PARA NO. 6 OF THE ORDER OF TRIBUNAL IS RELEVANT AND THEREFORE THE SAME IS EXTRACTED BELOW FOR T HE SAKE OF COMPLETENESS : 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. THE BANK IN TEREST INCOME WAS ADMITTEDLY INCLUDED IN THE PROFIT AND LOSS ACCOUNT IN THE CASE BEFORE US. RESPECTFULLY FOLLOWING THE COORDINATE BENCH, WE HOL D THAT THE SAID INTEREST INCOME SHOULD HAVE BEEN TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTING ALLOWABLE REMUNERATION U/S.40(B) OF THE A CT. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE ALLOWABLE REMU NERATION U/S.40(B) ACCORDINGLY AND GRANT THE ASSESSEE ADMISSIBLE RELIE F ON THAT BASIS. FURTHER, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GREEN INFRA LTD., 78 TAXMANN.COM 340 (BOMBAY) HELD THAT THE INTEREST 5 INCOME EARNED BY THE ASSESSEE FROM THE SHORT TERM FIXE D DEPOSITS FOR COMMERCIAL CONSIDERATION CONSTITUTES BUSINESS INCOME OF T HE ASSESSEE. THUS, RELYING ON THE ABOVE DECISIONS, VARIOUS HIGH COURTS/TRIBUNAL, THE LD. COUNSEL FOR THE ASSESSEE DEMONST RATED THAT THE INTEREST INCOME IN THIS CASE IS EARNED BY THE ASSESS EE FROM BANKS FROM THE DEPOSITS MADE FOR THE PURPOSE OF BROKERAGE BUS INESS. THE ASSESSEE, WHO IS A BROKER IN NATIONAL STOCK EXCHANGE IS R EQUIRED TO COMPLY WITH THE GUIDELINES OF THE REGULATING BODY AND THE N THE INCOME CONSTITUTES BUSINESS INCOME. THE SAME BEING AN INTEGRAL PART OF THE NET PROFITS FOR TH E PURPOSE OF SECTION 40(B) OF THE ACT, THE REMUNERATION OF RS.16 LAKHS SHOULD BE ALLOWED IN FULL WITHOUT ANY RESTRICTIONS AS DONE BY THE AO A ND THE CIT(A). 10. IN VIEW OF THE SETTLED LEGAL PROPOSITION ON THE SOLITARY ISSUE IN THIS APPEAL, I FIND THE JUDGMENTS DISCUSSED ABOVE ARE SELF EXP LANATORY. IN THE INSTANT CASE, IT IS A FACT THAT THE FIXED DEPOSITS AR E KEPT WITH THE BANKS FOR THE PURPOSE OF BROKERAGE BUSINESS AND FOR COM MERCIAL CONSIDERATION. HENCE, THE SAME IS REQUIRED TO BE TAXED AS BUSINESS INCOME OF THE ASSESSEE. FURTHER, THE NET PROFIT AS DEFINE D BY VARIOUS DECISIONS ABOVE, FOR THE PURPOSE OF SECTION 40(B) OF THE ACT , THE EXCLUSION OF INTEREST INCOME FROM THE SAME AS DONE BY THE AO FOR THE PURPOSE OF RESTRICTING THE ALLOWABLE REMUNERATION, IS UNSUST AINABLE IN LAW. ACCORDINGLY, I AM OF THE OPINION THAT THE GROUNDS RA ISED BY THE ASSESSEE ARE REQUIRED TO BE ALLOWED AND IN FAVOUR OF THE ASSESSEE. 6 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 13 TH DAY OF MARCH, 2018. SD/- (D.KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; DATED : 13 TH MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-3, PUNE 4. / THE CIT-3, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE