Asstt. Commissioner of Income Tax, Navsari V. M/s. Disti Chemi Metal Works, Bilimora

ITA 2633/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2140 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 26-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIDILEEP KUMAR
• Keywords: Business income; Tax effect
• Section: 40(b); 40(a)(ia)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL,SURAT BENCH,SURAT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.2633/AHD/2014/SRT & C.O. NO.296/AHD/2014/SRT [ [ / ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME TAX, NAVSASRI CIRCLE, NAVSARI. VS. M/S. DISTI CHEMI METAL WORKS, SADANAND MILL COMPOUND, GANDEVI ROAD, BILIMORA 396 321. [PAN:AABFD 7980P] ( / APPELLANT) ( /RESPONDENT/CROSS OBJECTOR) / ASSESSEE BY : SHRI HIREN R. VEPARI, C.A /REVENUE BY : SHRIDILEEP KUMAR, SR. D.R /DATE OF HEARING : 06-07-2018 / DATE OF PRONOUNCEMENT : 12-07-2018 / ORDER PERC.M.GARG, JUDICIAL MEMBER : THISAPPEAL HAS BEEN FILED BY THE REVENUE AND THE CROSS OBJECTION (C.O) FILED BY THE ASSESSEE DIRECTED AGAINST THEORDER OF COMMISSIONER OF INCOME TAX (APPEALS), VALSAD (CIT(A) FOR SHORT) DATED 31.07.2014 FOR THE ASSESSMENT YEAR (A.Y) 2010-11. 2 ITA NO.2633/AHD/2014/SRT & C.O NO.296/AHD/2014/SRT (A.Y: 2010-11) M/S. DISTI CHEMI METAL WORKS 2. THE GROUNDS RAISED BY THE REVENUE IN ITA NO. 2633/AHD/2014/SRT READ AS FOLLOWS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING DISALLOWANCE OF RS. 28,79,978/- MADE U/S. 40(A)(IA) OF THE ACT BEING INSTALLATION EXPENSES PAID TO KINGSTON INDUSTRIAL CORPORATION, A NON-RESIDENT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER THE OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE GROUNDS RAISED BY THE ASSESSEE IN C.O NO.296/AHD/2014/SRT READ AS FOLLOWS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT CONSIDERING INTEREST RECEIVED OF RS. 60,52,294/- (INCLUDING RS. 54,21,980/- FROM DEBTOR) AS BUSINESS INCOME FOR THE PURPOSE OF DETERMINING BOOK PROFIT U/S. 40(B) OF THE ACT TO WORK OUT ALLOWABILITY OF REMUNERATION TO PARTNERS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONSIDERING DIRECT JUDGEMENTS CITED BY THE ASSESSEE AND RELYING ON JUDGEMENTS WHICH ARE NOT RELEVANT. GROUNDS OF REVENUE IN ITA NO. 2633/AHD/2014/SRT FOR AY 2010-11 : 4. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THATTHE FIRST APPELLATE AUTHORITY HAS ERRED IN LAW AND ON FACTS BY DELETING DISALLOWANCE OF RS. 28,79,978/- MADE U/S. 40(A)(IA) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) BEING INSTALLATION EXPENSES PAID TO KINGSTON INDUSTRIAL CORPORATION, A NON- RESIDENT. THE LD. DR FURTHER SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER THE OF THE ASSESSING OFFICER. THEREFORE, IMPUGNED ORDER MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE AO. 5. REPLYING TO THE ABOVE, THE LD. ASSESSEES REPRESENTATIVE (AR) DREW OUR ATTENTION TOWARDSPARA 4.1 AND 4.2 OF THE IMPUGNED ORDER AND SUBMITTED THAT THE 3 ITA NO.2633/AHD/2014/SRT & C.O NO.296/AHD/2014/SRT (A.Y: 2010-11) M/S. DISTI CHEMI METAL WORKS LD. FIRST APPELLATE AUTHORITY RELYING ON THE DECISION OF HIS PREDECESSOR FOR AY 2009-10 ALLOWED THE GROUND OF THE ASSESSEE BY DELETING THE ADDITION AND THE REASONS RECORDED BY THE PREDECESSOR FOR AY 2009-10 ARE QUITE CORRECT AND JUSTIFIED WHICH HAVE BEEN IMPLIEDLY ACCEPTED BY THE DEPARTMENT AS THERE IS NO APPEAL AGAINST THE ORDER OF LD. CIT(A) FOR AY 2009-10. THE LD. AR ALSO SUBMITTED THAT THE APPEAL IS NOT MAINTAINABLE IN VIEW OF CBDT CIRCULAR NO.21/2015 DATED 10.12.2015 AS THE TAX EFFECT IN THE ISSUE INVOLVED IN THE REVENUE APPEAL IS LESS THAN RS. 10,00,000/-. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSIONS, ON BEING ASKED BY THE BENCH, THE LD. DR IN ALL FAIRNESS, SUBMITTED THAT THE TAX EFFECT IN THIS APPEAL IS LESS THAN RS. 10,00,000/- AND HENCE, THE SAME IS NOT MAINTAINABLE IN VIEW OF THE CBDT CIRCULAR DATED 10.12.2015.CONSEQUENTLY, APPEAL OF THE REVENUE IS DISMISSED ON ACCOUNT OF LOW TAX EFFECT BY FOLLOWING THE CBDT CIRCULAR (SUPRA). CROSS OBJECTION OF THE ASSESSEE IN CO NO.296/AHD/2014/SRT : 7. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE TRIBUNAL. THE LD. AR SUBMITTED THAT AS PER SUBMISSIONS OF THE ASSESSEE VIDE DATED 20.01.2013 PLACED BEFORE LD. CIT(A) PARA 5 (ASSESSEE PAPER BOOK PGS. 13-18), THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 6,00,000/- IN ACCORDANCE WITH S. 40(B)(V) OF THE ACT ON THE GROUND THAT THE INTEREST RECEIVED BY THE ASSESSEE OF RS. 54,51,980/- WAS INCOME FROM OTHER SOURCES AND NOT INCOME FROM BUSINESS. DRAWING OUR ATTENTION TOWARDS PARAS 5, 6 &7 OF SUBMISSIONS BEFORE LD. CIT(A) VIDE DATED 21.05.2013, THE LD. AR 4 ITA NO.2633/AHD/2014/SRT & C.O NO.296/AHD/2014/SRT (A.Y: 2010-11) M/S. DISTI CHEMI METAL WORKS SUBMITTED THAT THE SAID INTEREST WAS RECEIVED FROM PADMASHRI DR. V.V.P.S.S.K TO WHOM THE ASSESSEE HAD EARLIER SOLD PLANT AND THE AMOUNT WAS RECEIVABLE AND WAS NOT COMING FORTH. HE FURTHER SUBMITTED THAT THE ASSESSEE GAVE TIME TO THE SAID PURCHASER TO MAKE PAYMENT AND THUS CHARGED INTEREST AND THE INTEREST RECEIVED WOULD THUS QUALITY FOR INTEREST AGAINST BUSINESS TRANSACTION WHICH WAS INEXTRICABLY RELATED TO THE BUSINESS OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT ADMITTEDLY THE BUSINESS OF THE ASSESSEE IS TO SALE PLANT AND DISTILLERIES AND THEREFORE, THE AMOUNT OUTSTANDING TOWARDS PURCHASE OF PLANT WAS TRADING RECEIVABLES AND HENCE, INTEREST CHARGED THEREON HAS TO BE TREATED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. THEREFORE, THE PARTNERS REMUNERATION OF RS. 6,00,000/- IS ALLOWABLE. HE ALSO DREW OUR ATTENTION TOWARDS DECISION OF HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF MD. SERAJUDDIN & BROTHERS VS. CIT REPORTED AS [2012] 80 DTR (CAL) 46, WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF S. 40(B)(V) R/W. EXPLANATION THERE CANNOT BE SEPARATE METHOD OF ACCOUNTING FOR ASCERTAINING NET PROFIT AND/OR BOOK PROFIT EVEN IF THE INCOME FROM OTHER SOURCES IS INCLUDED IN THE P&L A/C. TO ASCERTAIN THE NET PROFIT QUA BOOK PROFIT FOR COMPUTATION OF THE REMUNERATION OF THE PARTNERS THE SAME CANNOT BE DISCARDED. 8. REPLYING TO THE ABOVE, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, HE COULD NOT CONTROVERT THE FACT THAT THE INTEREST RECEIVED BY THE FIRM WAS ON THE AMOUNT DUE TO THE PURCHASER OF 5 ITA NO.2633/AHD/2014/SRT & C.O NO.296/AHD/2014/SRT (A.Y: 2010-11) M/S. DISTI CHEMI METAL WORKS PLANT FROM THE ASSESSEE WHO MADE DELAYED PAYMENT ASSESSEE ALLOWED TIME ON THE CONDITION OF PAYMENT OF INTEREST. UNDISPUTEDLY, ADMITTEDLY ASSESSEE IS IN THE BUSINESS OF SELLING PLANT AND DISTILLERIES AND THE AMOUNT OF INTEREST RECEIVED FROM THE TRADE CREDITORS ON THE OUTSTANDING SALE PROCEED IS DEFINITELY A BUSINESS INCOME WHICH CANNOT BE IGNORED FOR THE PURPOSE OF S. 40(B)(V) OF THE ACT. EVEN AS PER RATIO OF THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF MD. SERAJUDDIN (SUPRA) THE INCOME FROM OTHER SOURCES IS TO BE INCLUDED IN THE P&L A/C. TO ASCERTAIN THE NET PROFIT QUA BOOK PROFIT FOR COMPUTATION OF REMUNERATION OF PARTNERS. THEREFORE, WE HOLD THAT THE DISALLOWANCE MADE BY THE AO AND UPHELD BY THE LD. CIT(A) IS NOT CORRECT AND SUSTAINABLE AND HENCE, WE DISMISS THE SAME. ACCORDINGLY, SOLE GROUND OF ASSESSEE IS ALLOWED. 9. IN THE RESULT,APPEAL OF THE REVENUE IS DISMISSED ON ACCOUNT OF LOW TAX EFFECT AND THAT OF THE ASSESSEES C.O IS ALLOWED ON THE FINDINGS AS RECORDED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF12 TH JULY, 2018. / SURAT ; DATED : 12 TH JULY, 2018 EDN / COPY OF THE ORDER IS FORWARDED TO : SD/ - SD/ - ( ) ( O.P.MEENA ) / ACCOUNTANT MEMBER ( ) (C.M.GARG) / JUDICIAL MEMBER 6 ITA NO.2633/AHD/2014/SRT & C.O NO.296/AHD/2014/SRT (A.Y: 2010-11) M/S. DISTI CHEMI METAL WORKS 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. ( ) / THE CIT(A), VALSAD; 4. CCIT, SURAT; 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE .