The ACIT, Central Circle-1, Baroda V. Shri Anilbhai Bholabhai Patel, Baroda

ITA 2722/AHD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67682 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-09-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 04-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J P JANGID
• Section: 143(3); 80IB; 147; 148; 28

Judgement Text

ITA NO 2722/AHD/2012 . A.Y. 2003-04 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH , AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL CH ATURVEDI, A.M.) I.T. A. NO. 2722/AHD/2012 (ASSESSMENT YEAR:2003-04) THE ACIT, CENTRAL CIRCLE-1, BARODA (APPELLANT) VS. SHRI ANIL BHOLABHAI PATEL, 1, DARSHAN PARK SOCIETY, VIP ROAD, KARELIBAUG, BARODA-390018 (RESPONDENT) PAN: ACTPP 2509 G APPELLANT BY : SHRI J.P. JANGID. SR. D.R. RESPONDENT BY : SMT. ARTI. N. SHAH. A.R. ( )/ ORDER DATE OF HEARING : 04-09-2013 DATE OF PRONOUNCEMENT : 20 -09-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-V, BARODA DATED 24.09.2012 FOR A.Y. 2003-04. 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER. 3. ASSESSEE IS AN INDIVIDUAL HAVING INCOME FROM HOUSE PROPERTY, SHARE IN PROFIT OF FIRMS AND INCOME FROM OTHER SOURCES. ASS ESSEE FILED RETURN OF INCOME FOR A.Y. 2003-04 ON 26.02.2004 DECLARING TOT AL INCOME AT RS. ITA NO 2722/AHD/2012 . A.Y. 2003-04 2 20,80,010/-. THE ASSESSMENT WAS FINALIZED UNDER SEC TION 143(3) ON 24.03.2006 AND THE TOTAL INCOME WAS ASSESSED AT RS. 30,53,068/- AND AGRICULTURE INCOME AT RS. 3,03,237/-. THEREAFTER T HE CASE WAS RE-OPENED AND THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT VIDE ORDER DATED 15.10.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 40,53,548/-. AGGRIEVED BY THE OR DER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 24.09.2012 ALLOWED THE APPEAL OF THE ASSESSEE . AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFOR E US AND HAS RAISED THE FOLLOWING GROUND:- 1 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 10,00,840/- MADE ON ACCOUNT OF REMUNERATION FROM TH E FIRM . 4. ASSESSING OFFICER NOTICED THAT ASSESSEE WAS A PARTN ER IN SAI DEVELOPERS. HE FURTHER NOTICED THAT THOUGH AS PER THE PARTNERSH IP DEED OF THE FIRM, THERE WAS PROVISION TO PAY REMUNERATION TO THE PART NERS OF THE FIRM, THE FIRM HAS NOT PAID REMUNERATION TO ITS PARTNERS. HE ALSO NOTICED THAT THE FIRM HAD CLAIMED DEDUCTION UNDER 80IB(10) AND THERE FORE DID NOT OFFER THE PROFIT FOR TAX. HE FURTHER NOTICED THAT IN CAS E OF THE FIRM, ASSESSMENT WAS RE-OPENED U/S 147, 148 OF THE ACT AND REMUNERAT ION TO THE EXTENT OF RS. 25,01,236/- TO THE PARTNERS WAS ALLOWED AS AN E XPENDITURE. HE WAS THEREFORE OF THE VIEW THAT CONSEQUENT UPON THE RE-A SSESSMENT IN THE CASE OF FIRM, THE ASSESSEE WAS ENTITLED TO REMUNERATION AND SINCE ASSESSEE WAS PARTNER WITH 40% SHARE IN PROFITS OF THE FIRM, THE REMUNERATION RECEIVABLE BY THE ASSESSEE TO THE EXTENT OF RS. 10, 00,480/- WAS CONSIDERED AS REMUNERATION AND ADDED TO THE INCOME IN THE HANDS OF ASSESSEE. HE ACCORDINGLY MADE ADDITION OF REMUNERA TION IN THE HANDS OF ITA NO 2722/AHD/2012 . A.Y. 2003-04 3 THE ASSESSEE. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE SUBMISSIONS MADE BY THE ASSESSEE DELETED THE ADDITI ON BY HOLDING AS UNDER:- 4.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND REASONS RECORDED BY THE AO. NOTICE FOR REASSESSMENT U/S 147 OF THE IT ACT, IN THIS CASE, WAS ISSUED BY THE AO FOR THE REASON THAT REMUNERATION OF RS.10,00,480/- WAS DUE TO THE APPELLANT FROM THE FIRM. THE APPELLANT HAD NEITHER OFFERED THIS AMOUNT FOR TAXATION ON DUE BASIS NOR GIVEN ANY NOTE IN HIS RETURN OF INCOME TO DISCLOSE THE FACT THAT REMUNERATION OF RS. 10,00,480/- WAS DUE FROM THE FIRM WHICH WAS NOT PAI D BY THE FIRM/RECEIVED BY THE APPELLANT. THOUGH THE AO WAS JUSTIFIED IN REOPENING THE ASSESSMENT OF THE APPELLANT U/S 147 OF THE IT ACT FOR THE ABOVE MENTIONED REASO NS, THE ADDITION OF RS. 10,00,480/- MADE BY THE AO IN THE HANDS OF THE APPELLANT ON THE GROUND THAT THE SUM REPRESENTED REMUNERATION DUE FROM THE FIRM IS NOT CORRECT. FROM CLAUSE 8 OF THE PARTNERSHIP DEED OF M/S SAI DEVELOPERS, FILED BY THE APPELLANT, IT I S SEEN THAT THIS CLAUSE STIPULATES THAT THE PARTNERS WOULD BE ENTITLED TO A SALARY FROM THE FIRM IN THEIR PROFIT SHARING RATIO SUBJECT TO THE CONDITION THAT TOTAL SALARY PAID BY THE FIRM DOES NOT EXCEED THE MAXIMUM AMOUNT ALLOWABLE UNDER I.T. ACT. IT IS ALS O SPECIFICALLY MENTIONED IN THAT CLAUSE THAT THE FIRM CAN ALSO DISTRIBUTE ANY SALARY WHICH IS LESS THAN ABOVE MENTIONED AMOUNT. THUS, THE AMOUNT OF SALARY PAYABLE CAN VAR Y AT THE DISCRETION OF THE FIRM. IN THIS YEAR THE FIRM DECIDED NOT TO DISTRIBUTE ANY SA LARY AT ALL AND THUS, NO SALARY WAS CREDITED TO ANY OF THE PARTNERS. THIS WAS IN ACCOR DANCE WITH THE TERMS OF THE PARTNERSHIP DEED. THEREFORE, CONCLUSION OF THE ASSE SSING OFFICER THAT SALARY EQUAL TO 40% OF MAXIMUM SALARY PAYABLE WAS DUE TO THE APPELL ANT FORM THE FIRM IS WRONG AND CONSEQUENTLY, THE CONCLUSION THAT THE AMOUNT WAS TA XABLE IN THE HANDS OF THE APPELLANT IN VIEW OF PROVISIONS OF SECTION 28 (V) O F THE I.T. ACT IS ALSO WRONG. IN THE CASE OF TULSA RAM KANHIYALAL AND SONS VS. IT O CITED BY THE APPELLANT, WHERE THE PARTNERSHIP DEED CONTAINED A CLAUSE THAT THE PA RTIES ON MUTUAL CONSENT WOULD ADD, AMEND, VARY OR ALTER ANY OF THE TERMS OF THE P ARTNERSHIP, HON. JODHPUR BENCH OF ITAT HAS HELD THAT: ASSESSEE FIRM HAVING NOT CLAIMED ANY DEDUCTION TOW ARDS INTEREST AND REMUNERATION TO PARTNERS IN TERMS OF PARTNERSHIP DEED. ASSESSIN G OFFICER WAS NOT JUSTIFIED IN FORCING THE DEDUCTION ON THE ASSESSEE BY INVOKING S ECTION 40(B)(V). IT WAS NOT A CASE OF TAX EVASION BUT WAS MERELY A CASE OF LEGITIMATE TAX PLANNING. IN VIEW OF THE FACTS MENTIONED ABOVE AND THE DECISI ONS OF HON. JODUPUR BENCH OF ITAT, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TAXING THE AMOUNT OF RS. 10.00.480/- MADE BY THE ASSESSING OFFICER IS HEREBY DELETED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. SUBMITTED THAT AS PER THE PARTNERSHIP DEED OF SAI DEVELOPERS OF WHICH THE ASSESSEE IS A PARTNER, ASSESSEE WAS ENTITLED ITA NO 2722/AHD/2012 . A.Y. 2003-04 4 TO REMUNERATION. HE FURTHER POINTED OUT TO THE REL EVANT CLAUSE OF THE PARTNERSHIP DEED AND SUBMITTED THAT THE DISTRIBUTIO N OF PROFIT WAS MANDATORY. HE FURTHER SUBMITTED THAT NO REASON HAS BEEN GIVEN FOR NON DISTRIBUTION OF SALARY AND THE FIRM FROM WHICH THE ASSESSEE WAS TO GET REMUNERATION HAS CLAIMED THE ENTIRE PROFIT AS DEDUC TION UNDER 80IB(10). THE FIRM BY NOT PAYING THE REMUNERATION TO THE PART NERS HAS THEREBY INCREASED THE TAX FREE PROFITS. HE THUS SUPPORTED THE ORDER OF ASSESSING OFFICER. 6. THE LEARNED A.R. ON THE OTHER HAND SUBMITTED AND PO INTED OUT TO THE ACCOUNTS OF THE FIRM WHICH WAS PLACED ON RECORD AND FROM THAT IT WAS POINTED OUT THAT NO REMUNERATION HAS BEEN PAID BY T HE FIRM. IT WAS FURTHER SUBMITTED THAT SINCE NO REMUNERATION HAS BE EN PAID, THERE WAS NO QUESTION OF TAXING THE REMUNERATION IN THE HANDS OF THE FIRM. SHE FURTHER SUPPORTED THE ORDER OF CIT(A) AND ALSO RELIED ON TH E DECISION IN THE CASE OF TULSA RAM KANHIYALAL AND SONS VS. ITO 2008 118 T TJ (JODHPUR) 536. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS A PARTNER OF SAI DEVELOPERS, THE PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRU CTION. IT IS ALSO A FACT THAT THE ENTIRE PROFITS OF THE FIRM HAS BEEN CLAIME D AS DEDUCTION UNDER 80IB(10). IT IS ALSO A FACT THAT SAI DEVELOPERS FOR A.Y. 2003-04 HAS NOT CLAIM DEDUCTION FOR REMUNERATION TO THE PARTNERS BU T THE ASSESSMENT OF THE FIRM WAS RE-OPENED AND THEREAFTER IN THE REASSE SSMENT SALARY TO THE PARTNERS OF RS. 25,01,236/- WAS ALLOWED AS AN EXPEN DITURE. ITA NO 2722/AHD/2012 . A.Y. 2003-04 5 8. BEFORE US, THE ASSESSEE HAS PLACED FREE ENGLISH TRA NSLATION OF PARA 8 OF THE PARTNERSHIP DEED OF SAI DEVELOPERS WITH RESPECT TO REMUNERATION AND IT READS AS UNDER: 8. REMUNERATION: WE ALL PARTNERS ARE THE WORKING P ARTNERS IN THE FIRM AND BY FOLLOWING THE PROVISIONS OF INCOME TAX ACT, SUCH SA LARY, WHICH DOES NOT EXCEED THE MAXIMUM RECEIVABLE SALARY, SHALL BE DISTRIBUTED IN SHARING RATIO BETWEEN THE PARTNERS. INSPITE OF THAT, LOOKING TO THE CIRCUMSTA NCES OF THE FIRM, LESS SALARY CAN ALSO BE GIVEN BY THE ABOVE PROVISIONS. THE AFORESAID SAL ARY SHALL BE CREDITED TO PARTNERS' ACCOUNT AT THE END OF THE YEAR AND HE MAY DO PROPER WITHDRAWAL AGAINST IT. 9. BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD BY AS SESSEE TO DEMONSTRATE THE CIRCUMSTANCES WHICH HAVE LEAD THE F IRM, M/S SAI DEVELOPERS TO DECIDE TO NOT TO PAY THE SALARY TO TH E PARTNERS. ON THE OTHER HAND, FROM THE COPY OF THE PROFIT AND LOSS ACCOUNT OF THE FIRM FOR THE YEAR ENDED 31 ST MARCH, 2003 RELEVANT TO A.Y. 03-04, IT IS SEEN THA T THE NET PROFIT OF THE FIRM WHICH HAS BEEN TRANSFERRED TO TH E PARTNERS CAPITAL ACCOUNT IS RS. 61,21,841 WHICH THEREFORE MEANS THAT NON AVAILABILITY OF PROFITS COULD NOT BE THE REASON FOR NON PAYMENT OF REMUNERATION TO PARTNERS. BEFORE US, THERE IS NOTHING ON RECORD TO SHOW AS TO THE FIRST YEAR IN WHICH THE FIRM SAI DEVELOPERS HAD CLAIMED DEDU CTION U/S 80IB AND UP TO WHICH YEAR IT HAS CLAIMED DEDUCTION U/S. 80IB . FURTHER THERE IS NOTHING TO RECORD TO SHOW AS TO WHETHER THE FIRM WA S NOT PAYING ANY REMUNERATION TO ITS WORKING PARTNERS, EVEN WHEN IT HAD NOT CLAIMED DEDUCTION U/S. 80IB. WE ARE THEREFORE OF THE VIEW THAT THESE FACTUAL ASPECTS NEEDS VERIFICATION, IN VIEW OF THE FACT THA T THE ASSESSING OFFICER HAS HELD THE NON PAYMENT OF SALARY TO BE AN EXAMPLE OF TAX EVASION. WE THEREFORE REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE FOLLOWING FACTS AND THEREAFTER DECIDE THE ISSUE AS PER LAW:- 1. WHEN WAS THE FIRM INCORPORATED? ITA NO 2722/AHD/2012 . A.Y. 2003-04 6 2. WHAT WAS THE PAST HISTORY OF THE FIRM WITH RESPECT TO PAYMENT OF REMUNERATION TO PARTNERS? 3. IN WHICH YEAR THE FIRM FIRST AVAILED OF DEDUCTION U /S. 80IB AND UP TO WHICH YEAR? 4. WHETHER THE FIRM HAS PAID SALARY TO PARTNERS PRIOR TO THE YEAR OF AVAILING DEDUCTION U/S. 80IB? 5. WHETHER THE FIRM HAS ALSO PAID SALARY IN THE YEARS IN WHICH THE FIRM HAS NOT CLAIMED DEDUCTION U/S. 80IB? 6. WHETHER THE ADDITION OF SALARY MADE IN THE FIRM IN A.Y. 03-04 IN THE REASSESSMENT PROCEEDING HAS ATTAINED FINALITY? 10. THE ASSESSING OFFICER SHALL EXAMINE THE ABOVE ASPEC TS AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO ASSESSEE DECID E THE ISSUE AFRESH AS PER LAW. THUS THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. . ORDER PRONOUNCED IN OPEN COURT ON 20 - 09 - 2013. SD/- SD/- (MUKUL KR. SHRAWAT) (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