M/s. Kitchen Xpress Overseas, Kalol V. The ACIT.,Circle-7, Ahmedabad

ITA 2753/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6270 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Principle of natural justice; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I R. P. TOLANI , VICE PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. KITCHEN XPRESS OVERSEAS, 29 - P, SANTEJ - VADSAR ROAD, SANTEJ, KALOL - 382721, PAN: AACFR 3776 J (APPELLANT) VS THE ACIT, CIRCLE - 7, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI JAMES KURIAN , SR. D . R. ASSESSEE BY: S H RI S.N. DIVETIA , A.R. DATE OF HEARING : 02 - 03 - 2 017 DATE OF PRONOUNCEMENT : 10 - 04 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S AP PEAL FOR A.Y. 2007 - 08 , AR ISES FROM ORDER OF THE CIT(A) - XIV, AHMEDABAD DATED 26 - 09 - 2013 IN APPEAL NO. CIT(A) - XIV/A C IT/CIR. - 7/296/2011 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2753 / A HD/20 13 A SSES SMENT YEAR 200 7 - 08 I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 2 2. THE ASSESSEE HAS R AISED FOLLOWING GROUNDS OF APPEAL: - 1.1 THE ORDER PASSED U/S.250 ON 26 - 9 - 2013 FOR A.Y.2007 - 08 BY CIT(A) - X IV, ABAD UPHOLDING THE DISALLOWANCE OF PARTNERS REMUNERATION U/S 40(B) IN RESPECT OF INCOME AGGREGATING TO RS. 7,66,082 IS WHOLLY ILLEGAL, UNLAW FUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED DISALLOWAN CE. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THAT THE INCOME AGGREGATING TO RS.7,66,082 WAS NOT BOOK PROFIT WITHIN THE MEANING OF SEC 40(B) SO THAT PARTNERS' REMUNERATION WAS NOT ADMISSIBLE THEREON. 2.2 THAT IN THE FACTS ARID CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF PARTNERS' REMUNERATION IN RESPECT OF INCOME AGGREGATING TO RS. 7,66,082, THOUGH THE SAME BE ASSESSED AS INCOME FROM OTHER SOURCES. 3.1 THE LD. CIT(A) HAS ERRED IN UPHOLDING THAT THE INCOME AGGREGATING TO RS. 7,66,082 WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 1,44,44,020/ - WAS FILED ON 31 ST OCTOBER, 2007. THE ASSESSME NT U/S. 143(3) OF THE ACT WAS FINALIZED ON 12 TH NOVEMBER, 2009 AFTER ACCEPTING THE RETURN OF INCOME. SUBSEQUENTLY, THE CASE WAS REOPENED U/S. 147 OF THE ACT AND NOTICE U/S. 148 WAS ISSUED ON 30 TH MARCH, 2011. DURING THE COURSE OF RE - ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER ON VERIFICATION OF THE ASSESSMENT RECORD REVEALED THAT ASSESSEE HAD A TOTAL INCOME OF RS. 1,44,44,020/ - WHICH I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 3 COMPRISE D INCOME RS. 2,33,18,201/ - OF THE NATURE OF OTHER INCOME LIKE SALE OF DEPB LICENSE , BUILDING RENT INCOME, DIV IDEND INCOME, INTEREST INCOME ETC. THE ASSESSING OFFICER OBSERVED THAT SUCH KIND OF INCOME WAS MORE THAN THE NET PROFIT OF RS. 1 , 42 , 90 , 023/ - . T HE ASSESSING OFFICER CONCLUDED T HAT AFTER EXCLUDING THE INCOME FROM OTHER SOURCE OF RS. 2 , 33 , 18 ,201/ - , T HE NET PROFIT AND GAINS OF BUSINESS OR PROFESSION BEC O ME A NEGATIVE FIGURE (LOSS) . T HEREFORE, HE WORKED OUT THE REMUNERATION ALLOWABLE U/S 40 OF THE ACT OF RS.332429/ INSTEAD OF RS. 97 , 28 , 000/ - REMUNERATION TO THE PARTNERS CLAIMED BY THE ASSESSEE. IN THIS M ANNER THE EXCESS REMUNERATION TO THE AMOUNT OF RS. 93 , 95 , 5 7 1/ - WAS DISALLOWED BY THE ASSESSING OFFICER AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) SUSTAINED THE ADDITION TO THE AMOUNT OF RS. 7 , 66 , 082/ - AND DELETED THE REMAINING ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 5. I HAVE PERUSED THE FACTS OF THE CASE AS ENUMERATED BY A.O. AND AS SUBMITTED BY APPELL ANT. I HAVE PERUSED THE CASE LAWS RELIED ON BY A.O. AS WELL AS APPELLANT. AFTER CAREFUL CONSIDERATION OF FACTS, SUBMISSION AND CONTENTION OF BOTH A.O. AS WELL AS OF APPELLANT, GROUND WISE ADJUDICATION IS AS FOLLOWS: 5.1 IN RESPECT OF GROUND 1 AGAINST THE VALIDITY OF REOPENING, IT IS BEYOND DOUBT THAT A.O. WITHIN FOUR YEAR AFTER RECORDING OF REASONS INITIATED THE REASSTT. PROCEEDINGS. THE REASONS SO RECORDED WERE GIVEN TO APPELLANT AND OBJECTION RAISED AGAINST SUCH REOPENING WERE DULY DISPOSED B Y A.O. NOW THE FIRST QUESTION ARISES ABOUT WHETHER ON THE BASIS OF CASE RECORD OF APPELLANT ANY SUCH SATISFACTION CAN BE MADE? FURTHER, APPELLANT CONTENDED THAT ALL THE DETAILS IN RESPECT OF THEIR RECEIPT / INCOME WERE SUBMITTED TO A.O. DURING ORIGINAL ASS TT. I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 4 U/S 143(3) OF THE ACT AND A.O. CONSIDERED THE SAME. IT IS IN THIS REGARD FIRST WE HAVE TO LOOK THE PROVISIONS OF SECTION 147 OF THE ACT. AS PER EXPLANATION 2(C) TO THE SECTION 147 AT CLAUSE (I) & (IV) VERY CLEARLY ELABORATE THAT WHERE AN ASSTT. HAS BEE N MADE BUT IF INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED OR EXCESSIVE ALLOWANCE (ANY OTHER ALLOWANCE) UNDER THIS ACT COMPUTED I.E. IN THE CASE OF APPELLANT U/S 40B OF THE ACT, THEN IT WILL BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS EXCE PTED. FURTHER, IN THE ABSENCE OF ANY EVIDENCES SUBMITTED BY APPELLANT ABOUT WHY THE DETAILS WERE SUBMITTED I.E. WHETHER CALLED BY A.O. OR VOLUNTARILY SUBMITTED, THE CONTENTION IS NOT SUBSTANTIATED. HENCE AS PER EXPL. 1 TO SECTION 147 OF THE ACT, 'PRODUCTIO N BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCES COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE A.O. WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO TO SECTION 147 OF THE ACT I.E. WILL NOT AMOUNT TO TRUE & FULL DISCLOSURE ON THE PART OF APPELLANT. THE APPELLANT EMPHASIZED THAT SUCH INCOME UNDER THE HEAD 'OTHER INCOME' IS SHOWN AS BOOK PROFIT AND AS PER SECTION 40B OF THE ACT SUCH BOOK PROFIT IS TO BE CONSIDERED FOR COMPUTING PA RTNER'S R EMUNERATION. BUT, AS PER PROVISIONS OF SECTION 40B OF THE ACT AT EXPL. 3 DEFINITION OF 'BOOK PROFIT 1 IS PROVIDED. AS PER THIS EXHAUSTIVE DEFINITION IT IS THE NET PROFIT AS SHOWN IN THE P & L A/C FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANN ER LAID DOWN IN CHAPTER IV - D IS TO BE CONSIDERED. THE CHAPTER IV - D DEALS WITH COMPUTATION OF BUSINESS INCOME HENCE THE CONCEPT OF COMPUTATION UNDER VARIOUS HEADS INCLUDING 'INCOME FROM OTHER SOURCES' HAS TO BE CONSIDERED AND IT IS ONLY INCOME AS COMPUTED U NDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION' IS TO BE CONSIDERED U/S 40B OF THE ACT. HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS (P) LTD. (1992) 198 ITR 297 HELD THAT THE PROCEEDINGS U/S 147 OF THE ACT ARE FOR THE BENEFIT OF THE REVENUE AND NOT AN ASSESSEE, AND ARE AIMED AT GATHERING THE 'ESCAPED INCOME' OF AN ASSESSEE. AS APPELLANT FAILED TO SUBMIT & SUBSTANTIATE THAT DETAILS IN RESPECT OF THESE EXPENDITURE WERE FILED DURING ORIGINAL ASSTT. PROCEEDINGS WERE WHETHER CALLED FOR BY A.O. ? WHETHER A.O. FORMED AN OPINION ON THESE DETAILS? IT IS THEREFORE THE CONTENTION OF APPELLANT THAT THERE IS CHANGE OF OPINION CANNOT BE ACCEPTED. HON'BLE DELHI HIGH COURT IN THE CASE OF NAVABGANJ SUGAR MILLS CO. LTD. V. CIT (1980) 123 ITR 287 HELD T HAT THERE SHOULD BE SOMETHING POSITIVE TO SHOW THAT THERE WAS IN FACT SUCH FORMATION OF OPINION AT THE ORIGINAL ASSTT. STAGE. IF INITIALLY NO OPINION WAS FORMED, THE QUESTION OF CHANGE THEREIN COULD NOT BE SAID TO TAKE PLACE. THERE I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 5 ARE PLETHORA OF JUDGMENT IN RESPECT OF 'FULL & TRUE DISCLOSURE OF PRIMARY FACT' VIZ. HON'BLE SUPREME COURT IN THE CASE OF SRI KRISHNA (P) LTD. V. ITO (1996) 221 ITR 538, CALCUTTA DISCOUNT CO. LTD. V. ITO (1961) 41 ITR 191, INDIAN OIL CORPORATION V. ITO (1986) 159 ITR 956, AND PAR ASHURAM POTTERY WORKS CO. LTD. V. ITO (1977) 106 ITR 1 < HELD SO. IT IS THEREFORE, THE REOPENING AND REASSTT. BY A.O. IS HELD JUSTIFIED AND IN COMPLIANCE OF ESTABLISHED LEGAL PRINCIPLE. THIS GROUND OF APPELLANT IS DISMISSED ON THE FACT OF THE CASE AND IN T HE ABSENCE OF PROPER SUBSTANTION OF THE GROUND. 5.2 NOW COMING TO THE MERIT OF GROUND I.E. GROUND NO. 2 FOR TREATMENT, CONSIDERATION - OF VARIOUS INCOME/RECEIPT BEING FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND THEREBY DISALLOWANCE OF PARTNER'S REMUNERATION AS PER PROVISIONS OF 40(B) OF THE ACT. CONSIDERING NOW EACH SUCH RECEIPT / INCOME THE HEAD UNDER WHICH IT COMES AS PER PROVISION OF CHAPTER IV D AND IV F IS AS FOLLOWS: (I) TEMPORARY RENT INCOME OF RS. 70.000/ - CONSIDERING THE FACT THAT APPELL ANT'S BUSINESS IS NOT LETTING OUT BUILDING AND SAME IS RENT FROM BUILDING, THE SAME CAN EITHER BE HELD AS 'INCOME FROM HOUSE PROPERTY' OR 'INCOME FROM OTHER SOURCES'. AS PER ESTABLISHED LEGAL PROPOSITION SUCH TEMPORARY RECEIPT FROM LETTING OUT PARTIAL BUIL DING CAN ONLY BE HELD AS 'INCOME FROM OTHER SOURCES'. (II) RECEIPT AS SALE OF DEPB LICENSE FOR AN AMOUNT OF RS. 2,21,82,086/ - IS BUSINESS INCOME AS PER CLEAR PROVISIONS OF SECTION 28(IIID) OF THE ACT AS BROUGHT BY THE FINANCE ACT 1990 WITH RETROSPECTIVE EF FECT FROM 01/04/72. RATIO OF VARIOUS CASE LAWS RELIED ON BY APPELLANT ARE CLEARLY APPLICABLE IN THE CASE OF APPELLANT. (II I) DIVIDED INCOME OF RS. 12 IS BEYOND DOUBT AN INCOME FROM OTHER SOURCES. (IV) THE RECEIPT OF RS. 61,639/ - FOR STOLEN GOODS IS RELATED TO TRADING ACCOUNT AND GOODS TRADED BY APPELLANT HENCE THE SAME IS PART OF BUSINESS INCOME. THIS IS NOT THE RECEIPT OF INSURANCE CLAIM BUT A SALE IN RESPECT OF STOLEN GOOD COMPENSATED BY THE WARE HOUSE. (V) IN RESPECT OF VARIOUS INTEREST INCOME/RECEIPT AS PER SETTLED LEGAL PROPOSITION ANY INTEREST RELATED TO BUSINESS ACTIVITIES I.E. INTEREST FROM LOAN TO STAFF, FROM FOR REQUIRED FOR BANK GUARANTEE, FROM GEB DEPOSIT AND FROM LATE RECEIPT OF SALE PROCEED IS BUSINESS IN COME. HOWEVER, THE INTEREST OF RS. 5,87, 344/ - FROM THE ADVANCE GIVEN TO M/S R.M. FOODS CANNOT BE HELD AS INCOME FROM BUSINESS & PROFESSION. IT IS NOT THE ADVANCES FOR ANY GOODS & SERVICES BUT THE I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 6 APPLICATION OF APPELLANT'S SURPLUS MONEY TO EARN INTEREST WHICH CANNOT BE HELD AS APPELLANT'S BUSINE SS. (VI) INTEREST ON FOR OF RS. 1,08,726/ - FOR PLACING FD WITH BANK FOR SANCTIONING OF TERM LOAN TO M/S R. M. FOOD INDUSTRIES ALSO CANNOT BE HELD AS FROM REGULAR BUSINESS ACTIVITIES. THIS IS ALSO APPLICATION OF APPELLANT'S SURPLUS MONEY FOR THE HELP OF ONE OF ASSOCIATE CONCERN AND AT THE PLACE OF EXTENDING SUCH MONEY AS LOAN TO M/S R. M. FOOD INDUSTRIES, THE SAME WAS KEPT AS FD AGAINST WHICH (A SECURITY) A TERM LOAN WAS GRANTED TO M/S R. M. FOOD INDUSTRIES BY BANK. (VII) IN REFERENCE TO KASAR /VATAV OF RS. 18,319.43/ - , THE SAME ARE RELATED TO CREDIT BALANCE IN RESPECTIVE OF VARIOUS PARTIES WRITE OFF AND IN THE NATURE OF INCOME U/S 41(1) OF THE ACT. HENCE THE SAME IS BUSINESS RECEIPT SINCE FALLING UNDER CHAPTER IV D OF THE ACT. (VIII) VAT CREDIT OF OPENING ST OCK OF RS. 9,38,204/ - IS PART & PARCEL OF STOCK OF GOODS BEING TRADED BY APPELLANT HENCE BUSINESS INCOME. IT IS THEREFORE OUT OF TOTAL RECEIPT / INCOME OF RS. 2,33,18,201.85/ - REFLECTED BY APPELLANT AS 'OTHER INCOME', AN AMOUNT OF RS. 7,66,082/ - (70000 + 12 + 587344 + 108726) IS HELD TO BE FALLING UNDER THE HEAD 'INCOME FROM OTHER SOURCE'. THE REMUNERATION PAYABLE U/S 40 B OF THE ACT THEREFORE WORKED OUT AS FOLLOWS: RS. NET PROFIT BEFORE REMUNERATION TO PARTNERS 2,40,18,023/ - LESS: INCOME FR OM OTHER SOURCES 7,66,082/ - 2,32,51,941/ - ELIGIBLE PROFIT FOR REMUNERATION ALLOWABLE REMUNERATION AS PER PROVISIONS 40 B RS. ON FIRST 75000 @ 90% 67,500/ - ON NEXT 75000@ 60% 45, 000/ - ON BALANCE 22101941 @ 40% 92.40.776/ - 93,53,276/ - THE APPELLANT CLAIMED THE REMUNERAT ION TO PARTNER AT RS. 97,28,000/ - WHILE THE ALLOWABLE REMU NERATION COMES TO RS. 93,53,276/ - . THEREFORE T HE EXCESS CLAIM OF RS. 3,74,724/ - IS DISALLOWABLE AND WILL RESULT INTO ADDITION OF SAME AMOUNT. THE A.O . IS THEREFORE DIRECTED TO ALLOW THE REMUNERAT ION TO PARTNER AT RS. 93,53,276/ - WHICH WILL RESULT INTO PART RELIEF TO APPELLANT. AT THE PLACE OF TOTA L DISALLOWANCE OF RS. 93,95,571/ - OUT OF TOTAL OF RS. 97,28,000/ - THE APPELLANT IS NOW ENTITLED FOR DEDUCTI ON OF RS. 93,53 ,276/ - I.E. THE ADDITION REQUIRE D TO BE MADE IS OF RS. 3,74,724/ - (9728000 - I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 7 9353276). THE A.O. IS DIRECTED TO DELET E THE ADDITION OF RS. 90,20,847/ - (93,95,571 - 3,74,724). THIS GROUND IS THEREFORE PARTLY ALLOWED. 5. WE HEARD THE RIVAL CONTE NTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. COUNSEL STATED THAT THE ENTIRE INCOME CREATED IN PROFIT AND LOSS A/C WAS ELIGIBLE FOR BUSINESS PROFIT U/S. 40B OF THE ACT. THE LD. COUNSEL CONTENDED THAT LD.CIT(A) HAD NOT CONSIDERED HIS SPECIFIC SUBMISS ION DEMONSTRATING THAT T EMPORARY R ENT INCOME OF RS. 70, 000/ ON LETTING OUT BUILDING , INTEREST OF RS. 5,87,344/ - FROM THE ADVANCE GIVEN TO M/S R.M. FOODS, INTEREST ON FOR OF RS. 1,08,726/ - FOR PLACING FD WITH BANK FOR SANCTIONING OF TERM LOAN TO M/S R. M. F OOD INDUSTRIES WERE KIND OF INCOME EARNED UNDER THE HEAD BUSINESS& PROFESSION. WE HAVE GONE THROUGH THE RECORD AND OBSERVED THAT THE SPECIFIC SUBMISSION MADE BY THE ASSESSEE WAS NOT CONSIDERED AND ELABORATED IN THE FINDINGS OF THE LD. CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE , WE RESTORE THIS ISSUE TO THE FILE OF LD.CIT(A) TO RE - ADJUDICATION ON THIS LIMITED ISSUE A FRESH AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 10 - 04 - 201 7 SD/ - SD/ - ( R.P. TOLANI ) ( AMARJIT SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD : DATED 10 /04 /2017 I.T.A NO. 2753 /AHD/20 13 A.Y. 2007 - 08 PAGE NO M/S. KITCHEN XPRESS OVERSE AS VS. ACIT 8 / COPY OF O RDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,