Mona Developers, Bharuch V. The Income tax Officer,Ward-2, Bharuch

ITA 270/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9905 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA AR MR LALA PHILIPS
• Keywords: Business income; Income from undisclosed sources; Deemed to accrue or arise in india
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM. ITA NO.270/AHD/2013 ASST. YEAR: 2007-08 MONA DEVELOPERS, DAHEJ BYE PASS ROAD, JAMBUSAR ROAD, BHARUCH. VS. INCOME-TAX OFFICER-2, BARUCH APPELLANT RESPONDENT AIEPM8550B APPELLANT BY SHRI S. N. DIVETIA, AR RESPONDENT BY MR. LALA PHILIPS, SR.DR DATE OF HEARING: 17/11/2015 DATE OF PRONOUNCEMENT: 04/01/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A) IV, BARODA DATED 6.11.2012 FOR ASST. YEAR 20 07-08. ASSESSMENT ORDER WAS FRAMED U/S 143(3) OF THE I.T. ACT, 1961 (IN SHORT THE ACT) BY ITO WARD -2, BHARUCH ON 29/12/200 9. GROUNDS OF APPEAL RAISED ARE FROM GROUND NO.1.1 TO 1.4. BUT TH E EFFECTIVE GROUND IS THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE O RDER OF ASSESSING OFFICER WITH REGARD TO THE AMOUNT OF ADDITION OF RS .1,30,138/- ON ACCOUNT OF INTEREST PAID TO PARTNERS AND RS.1,43,16 0/- ON ACCOUNT OF REMUNERATION PAID TO PARTNERS. ITA NO. 270/AHD/2013 ASST. YEAR2007-08 2 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENT IAL HOUSES AND COMMERCIAL SHOPS. ASSESSEE FILED ITS RETURN OF INCO ME ON 31.3.2009 DECLARING TOTAL INCOME OF RS.83,493/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ASSESSMENT PROCEEDINGS WERE INITIATED BY ASSESSING OFFICER BY ISSUING NOTICE U/S 143(2) OF T HE ACT ON 20.8.2009. IN THE CASE OF ASSESSEE SURVEY UNDER SEC TION 133 A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE FIRM ON 22.2.2007 AND RS.1,91,000/- WAS DECLARED AS UNACCOUNTED BUSI NESS INCOME BY THE ASSESSEE. THIS UNACCOUNTED INCOME WAS DISCLOSED BY THE ASSESSEE IN PROFIT AND LOSS ACCOUNT. HOWEVER, DURIN G THE YEAR UNDER APPEAL ASSESSEE CLAIMED RS.1,30,138/- TOWARDS INTER EST PAID TO PARTNERS AND RS.1,43,160/- TOWARDS REMUNERATION TO PARTNER. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW THE CL AIM OF ASSESSEE FOR INTEREST AND REMUNERATION PAID TO PARTNER BY TREATI NG THAT RS.1,91,000/- BEING UNACCOUNTED CASH WAS NOT PART O F THE BOOK PROFIT. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE THE CI T(A) WHO UPHELD THE ORDER OF ASSESSING OFFICER. AGGRIEVED, T HE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 4. THE LD. AR SUBMITTED THAT THE ASSESSEE FIRM HAS SURRENDERED BUSINESS INCOME AND A PARTNER IS ENTITLED TO INTERE ST AND REMUNERATION FROM BUSINESS INCOME AND TO SUPPORT HI S SUBMISSIONS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S OM TERRACE IN ITA NO.440/AHD/2012 PRONOUNCED ON 11.5.2 012. ITA NO. 270/AHD/2013 ASST. YEAR2007-08 3 5. THE LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORI TIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE FOR ADJUDICATION IS WHETH ER THE ASSESSEE FIRM IS ELIGIBLE TO CLAIM DEDUCTION OF INTEREST PAI D TO PARTNER IN A SITUATION WHEN IT HAS SURRENDERED REMAINING UNDISCL OSED BUSINESS INCOME DURING THE SURVEY PROCEEDINGS U/S 133A OF TH E ACT. FROM GOING THROUGH THE ORDER OF THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. M/S OM TERRACE IN ITA NO.440/AHD/2012 WE FIND T HAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF ASSESSEE IN GRANTING DEDUCTION IN RESPECT OF SALARY WORKED OUT AS PER PROVISIONS U/S 40(B) OF THE ACT IN ACCORDANCE WITH THE PARTNER SHIP DEED FROM THE UNDISCLOSED INCOME DISCLOSED DURING SURVEY PROCEEDI NGS, VIDE ORDER DATED 11.5.2012, BY OBSERVING AS UNDER :- 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE FACTS OF THE CASE ARE THAT ONE OF TH E PARTNERS OF THE APPELLANT HAD AGREED DURING THE COURSE OF SURVEY TH AT THE FIRM WAS IN RECEIPT OF INCOME TO THE EXTENT OF RS.65 LACKS W HICH WERE NOT ACCOUNTED. SUBSEQUENTLY, THE FIRM HAD DISCLOSED THI S AMOUNT IN ITS PROFIT & LOSS ACCOUNT, BUT HAD DEBITED THE PROFIT & LOSS ACCOUNT WITH SALARY PAID TO THE PARTNERS TO THE EXTENT OF RS.52, 25,613/- WORKED OUT AS PER THE PARTNERSHIP DEED OF THE FIRM AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(B) OF THE ACT. THE LEARNED AO DISALLOWED AN AMOUNT OF RS.23,98,795/- BY HOLDING THAT THE AMO UNT OF RS.65,00,000/- DISCLOSED DURING THE COURSE OF THE S URVEY TO BE TREATED SEPARATELY AS ' DEEMED INCOME' AND THE ALLO WABLE SALARY TO BE WORKED OUT ON THE BALANCE PROFIT IN ACCORDANCE W ITH THE PARTNERSHIP DEED AND PROVISIONS OF 40(B) OF THE ACT . AT THE OUTSET, WE MUST SAY THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISIONS RENDERED BY ITAT AHMEDABAD BENCHES IN THE FOLLOWING TWO CASES-(I) ITA NO.556/AHD/2008 DATED 05-06-2009 - M/S.ARIHANT ENTERPRISE VS ITA NO. 270/AHD/2013 ASST. YEAR2007-08 4 DCIT, CIR-3, SURAT WHEREIN IT WAS HELD BY THE ITAT AHMEDABAD 'D' BENCH AS UNDER: '7.3 THE ID. CIT(A) IN THE IMPUGNED ORDER HAS ALSO DRAWN SUPPORT FROM A DECISION OF THE ITAT IN THE CASE OF WHITELINE CHEMI CALS (SUPRA) HOLDING THAT INCOME WHICH IS DISCLOSED IN COURSE OF THE SUR VEY WOULD HAVE TO BE SHOWN IN THE RETURN IN ADDITION TO NORMAL CURRENT Y EAR'S PROFIT AND CONCLUDED THAT THE ASSESSEE COULD NOT HAVE CREDITED THE SUM TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED DEDUCTION BY WAY OF RE MUNERATION TO PARTNERS. WE ARE NOT INCLINED TO ACCEPT THIS CONCLU SION OF THE ID. CIT(A) SINCE THE PARTNER OF THB FIRM CLEARLY STATED IN HIS STATEMENT DURING THE COURSE OF SURVEY THAT THE AMOUNT OF UNDISCLOSED INC OME OF RS.65 LACS HAS BEEN GENERATED ON ACCOUNT OF EXTRA WORK DONE BY THE FIRM, OVER AND ABOVE THE SPECIFICATION GIVEN FOR THE CONSTRUCTION OF ROW HOUSES AND ON- MONEY RECEIVED ON SALE OF PLOTS WHILE BOOKING THE R OW HOUSE AND SALE OF LAND ON BEHALF OF THE LANDLORD. THERE IS NO MATERIA L BEFORE US CONTROVERTING THE AVERMENTS IN THE SAID STATEMENT. ONCE THE AMOUN T HAS BEEN ASSESSED AS BUSINESS INCOME, REMUNERATION ADMISSIBLE TO PART NERS IN TERMS OF THE PARTNERSHIP DEED HAS TO BE ALLOWED IN ACCORDANCE WI TH AND WITHIN THE LIMITS STIPULATED UNDER THE PROVISIONS OF SEC. 40(B ) OF THE ACT. 7.4 HOWEVER, WE FIND THAT THE AO DISALLOWED REMUNER ATION PAID TO SMT. JIGNABEN M. SHAH, INTER ALIA ON THE GROUND THAT SHE IS NOT A 'WORKING PARTNER'. THE ID. CIT(A) HAS NOT RECORDED ANY FINDI NGS ON THIS ASPECT NOR THE ID. AR ON BEHALF OF THE ASSESSEE PLACED BEFORE US ANY MATERIAL SUGGESTING THAT SMT. JIGNABEN M SHAH IS ACTIVELY EN GAGED IN CONDUCTING THE AFFAIRS OF THE BUSINESS OF THE FIRM. EVEN A COP Y OF PARTNERSHIP DEED HAS NOT BEEN PLACED BEFORE US. SINCE, IN TERMS OF THE P ROVISIONS OF SEC. 40 (B) OF THE ACT, DEDUCTION ON ACCOUNT OF REMUNERATION TO A WORKING PARTNER ALONE IS ADMISSIBLE IN TERMS OF THE STIPULATIONS IN PARTNERSHIP DEED SUBJECT TO THE LIMITS PRESCRIBED IN THE AFORESAID PROVISION S, WE HAVE NO ALTERNATIVE BUT TO RESTORE THE ISSUE OF DEDUCTION OF REMUNERATI ON TO SMT. JIGNABEN M SHAH TO THE FILE OF THE AO WITH THE DIRECTIONS TO A LLOW SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THAT SMT. JIGNABEN M S HAH IS A WORKING PARTNER WITHIN THE MEANING OF EXPLANATION 4 TO SEC. 40(B) OF THE ACT AND THEREAFTER DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW. 7.5 IN VIEW OF THE FOREGOING AND SUBJECT TO OUR DIR ECTIONS IN PARA 7.4 ABOVE, WE SET ASIDE THE IMPUGNED ORDERS OF REVENUE AUTHORITIES AND DIRECT THE ASSESSING OFFICE TO ALLOW DEDUCTION OF R EMUNERATION TO PARTNERS IN TERMS OF PROVISIONS OF SECT. 40(B) OF THE ACT WI THOUT HAVING RECOURSE TO PROVISIONS OF SEC. 40(2) (A) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1 IS DISPOSED OF.' ITA NO. 270/AHD/2013 ASST. YEAR2007-08 5 (II) ITA NO. 1901/AHD/2009 DATED 25-09-2009 - SHREE KHODIYAR CORPORATION VS ACIT, CIR-3, SURAT ITAT AHMEDABAD 'D ' BENCH ON AN IDENTICAL ISSUE HELD AS UNDER: '3. IN FURTHER APPEAL BEFORE US, THE ASSESSEE HAS P LACED RELIANCE ON THE ORDER OF THE AHMEDABAD 'D' BENCH IN ITA N0.556/ AHD/2008 (AY2004-05), DATED 5-6-2009 IN THE CASE OF M/S. ARI HANT ENTERPRISE, SURAT VS DCIT TO CONTEND THAT THE VIEW TAKEN BY THE INCOME-TAX AUTHORITIES IS WRONG. FROM THE COPY OF THE ORDER PL ACED BEFORE US, WE FIND THAT IN PARAGRAPH 7.2 OF THE ORDER THE TRIB UNAL HAS CONSIDERED THE ISSUE. THE TRIBUNAL HAS REFERRED TO THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN YOGANAND TEXTILES (2002 ITR 869) AND THE EARLIER ORDER OF THE AHMEDABAD BENCH I N THE CASE OF CHHAJED STEEL CORPORATION (69 TTJ 232) AND HELD THA T 'WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSING OFFICER DO ES NOT HAVE ANY POWER TO GO INTO THE QUESTION OF REASONABLENESS OF REMUNERATION PAID TO A WORKING PARTNER WHILE EXAMIN ING AS TO WHETHER OR NOT THE REMUNERATION PAID EXCEEDS THE LI MITS PRESCRIBED IN SEC. 40(B) OF THE ACT THIS VIEW OF OU RS IS SUPPORTED BY THE DECISION OF A CO-ORDINATE BENCH IN THE CASE OF CHHAJED STEEL CORPORATION (SUPRA)'. IN THIS VIEW OF THE MATTER, THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSE E, WHICH IS THE SAME AS IN THE PRESENT CASE, AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE.' 6. SINCE OUR COORDINATE BENCHES HAD DECIDED THE ISS UE OF GRANTING DEDUCTION IN RESPECT OF SALARY WORKED OUT AS PER TH E PROVISIONS OF SECTION 40(B) OF THE ACT AND IN ACCORDANCE WITH THE PARTNERSHIP DEED FROM THE UNDISCLOSED INCOME DISCLOSED DURING THE CO URSE OF SURVEY CONSIDERING THE SAME AS BUSINESS INCOME AS CITED IN THE DECISIONS SUPRA, WE DO NOT HAVE ANY HESITATION TO UPHOLD THE DECISION OF THE LEARNED CIT(A) IN THIS CASE BEFORE US BECAUSE THE F ACTS ARE IDENTICAL. IT IS ORDERED ACCORDINGLY. AS THE FACTS OF THE PRESENT APPEAL ARE SIMILAR TO T HE FACTS DECIDED IN THE ABOVE REFERRED DECISION OF THE CO-ORDINATE BENC H AND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, THEREFORE, WE DO NOT HAVE ANY HESITATION TO DELETE THE ADDITION MADE BY ASSESSING OFFICER AND QUASH THE ORDERS OF LOWER AUTHORITIES. THE GROUND R AISED BY THE ASSESSEE IS ALLOWED. ITA NO. 270/AHD/2013 ASST. YEAR2007-08 6 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JANUARY, 2016 SD/- (RAJPAL YADAV) JUDICIAL MEMBER SD/- (MANISH BORAD) ACCOUNTANT MEMBER DATED 04/01/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 11/12/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 14/12/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 4/1/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: