M/s. Horizon Motors, Nadiad V. The ACIT, Kheda Circle, Nadiad

ITA 2757/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8570 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 2757/AHD/2015 (ASSESSMENT YEAR: 2011-12) M/S. HORIZON MOTORS NR. CHETAK PETROL PUMP COLLEGE ROAD, NADIAD V/S THE ACIT, KHEDA CIRCLE, NADIAD (APPELLANT) (RESPONDENT) PAN: AABFH 7495R APPELLANT BY : SHRI S. N. DIVETIA, AR RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. ( )/ ORDER DATE OF HEARING : 02 -04-201 8 DATE OF PRONOUNCEMENT : 04-04-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-2, VADODARA DATED 17.07.2015 PERTAINING TO A.Y. 2011-1 2. ITA NO. 2757 /AHD/2015 . A.Y. 2011-1 2 2 2. THE SUM AND SUBSTANTIVE GRIEVANCE OF THE ASSESSEE I S THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF PARTNERS REMUNERAT ION OF RS. 12,56,593/- U/S. 40(B) OF THE ACT. 3. THE ASSESSEE IS A DEALER OF HERO HONDA MOTORCYCLES AND ALSO DOING SERVICE WORK. RETURN FOR THE YEAR UNDER CONSIDERATION WAS S ELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE I SSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST ON FDR AT RS . 10,65,305/- AND INTEREST ON OTHERS AT RS. 20,94,323/- AS PART OF THE BOOK PR OFIT AND HAS COMPUTED PARTNERS REMUNERATION ON THE SAME. THE A.O. WAS OF THE FIRM BELIEF THAT INTEREST ON FDR AND INTEREST RECEIVED FROM OTHERS D O NOT FORM PART OF BUSINESS INCOME AND THEREFORE NOT ELIGIBLE FOR THE CLAIM OF PARTNERS REMUNERATION. THE A.O. RECOMPUTED THE PARTNERS REMUNERATION AND DISA LLOWED THE EXCESS REMUNERATION CLAIMED. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT FOR THE PURPOSES OF COMPUTATION OF ALLOWABLE REMUNERATION T O PARTNERS, THE BOOK PROFIT MEANS THE ENTIRE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE THE ACTION OF THE A.O. IS NOT ACCORDING T O THE PROVISIONS OF THE LAW AND THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION O F THE A.O. ITA NO. 2757 /AHD/2015 . A.Y. 2011-1 2 3 7. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. D.R. THAT I NTEREST EARNED ON FIXED DEPOSIT AND FROM OTHERS DO NOT FORM PART OF BUSINESS INCOME AND THEREFORE CANNOT BE INCLUDED FOR THE COMPUTATION OF REMUNERATION TO PAR TNERS. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE HAS INCLUDED THE INTEREST INCOME IN THE PROFIT AND LOSS ACCOUNT AND HAS DETERMINED THE NET PROFIT ACCORDINGLY. IN OUR CONSIDERED OPINION, IF THE INCOME IS INCLUDED IN TH E PROFIT AND LOSS ACCOUNT TO ASCERTAIN THE NET PROFIT QUA BOOK PROFIT FOR COMPUT ATION OF REMUNERATION OF THE PARTNERS, THE SAME CANNOT BE DISCARDED:- UNDER CLAUSE (V) OF SECTION 40(B) READ WITH EXPLAN ATION 3, THE REMUNERATION ALLOWABLE TO WORKING PARTNERS UPTO RS.50,000/- IS F ULLY ALLOWABLE IN THE HANDS OF THE FIRM. IN CASE THE AGGREGATE PAYMENT EXCEEDS THE LIMIT OF RS.50,000/-, CERTAIN MONETARY LIMITS HAVE BEEN PRESCRIBED UNDER SECTION 40(B)(V) IN THE FORM OF A PERCENTAGE OF 'BOOK-PROFIT'. FOR THE PURPOSES OF THI S CLAUSE, ACCORDING TO EXPLANATION 3, THE 'BOOK-PROFIT' MEANS THE NET PROF IT (AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUT ED IN THE MANNER LAID DOWN IN CHAPTER IVD) AS INCREASED BY THE AGGREGATE AMOUNT O F THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMO UNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. THE SAID CHAPTER NOWHERE PROVIDES THAT NET SHOULD BE THE ONLY INCOME FROM BUSINESS OR PROFESSION ALONE A ND NOT FROM OTHER SOURCES. SECTION 29 PROVIDES HOW THE INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION SHOULD BE COMPUTED AND THIS HAS TO BE DO NE AS PROVIDED UNDER SECTION 30 TO 43D. THUS FOR THE PURPOSE OF SECTION 40(B)(V) READ WITH EXPLANATION THERE CANNOT BE SEPARATE METHOD OF ACCOUNTING FOR ASCERTA INING NET PROFIT AND/OR BOOK-PROFIT IN OTHER WORDS, ACCORDING TO THE SAID E XPLANATION 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT INCLUDING INCOME FROM OTHER ITA NO. 2757 /AHD/2015 . A.Y. 2011-1 2 4 SOURCES NOT THE PROFIT COMPUTED UNDER THE HEAD PROF IT AND GAINS OF BUSINESS OR PROFESSION. 9. A SIMILAR VIEW WAS TAKEN BY THE CO-ORDINATE BENCH M UMBAI IN THE CASE OF SURESH A. SHROFF & CO. IN ITA NO. 4140/MUM/2008. TH E HONBLE HIGH COURT OF CALCUTTA MD. SERAJUDDIN & BROTHERS 80 DTR 0046 HAD THE OCCASION TO CONSIDER THE FOLLOWING SUBSTANTIAL QUESTION OF L AW:- (III) WHETHER AND IN ANY EVENT, ON A PROPER CONSTRU CTION OF THE PROVISIONS OF SECTION 40(B)(V) AND EXPLANATION 3 THERETO, BOOK PR OFIT COMPRISES THE ENTIRE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT OR O NLY PROFIT AND GAINS OF BUSINESS ASSESSED UNDER CHAPTER IV-D? 10. AND THE HONBLE HIGH COURT ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING:- THE SAID CHAPTER NOWHERE PROVIDES THAT METHOD OF A CCOUNTING FOR THE PURPOSE OF ASCERTAINING NET PROFIT SHOULD BE THE ONLY INCOM E FROM BUSINESS ALONE AND NOT FROM OTHER SOURCES, S. 29 PROVIDE HOW THE INCOME FR OM PROFITS AND GAINS OF BUSINESS OR PROFESSION SHOULD BE COMPUTED AND THIS HAS TO BE DONE AS PROVIDED U/S. 30 TO 43D. BY VIRTUE OF S. 5 OF THE SAID ACT T HAT TOTAL INCOMES OF ANY PREVIOUS YEARS INCLUDES ALL INCOME FROM WHATEVER SOURCE DERI VED. THUS FOR THE PURPOSE OF S. 40(B)(V) READ WITH EXPLANATION THERE CANNOT BE S EPARATE METHOD OF ACCOUNTING FOR ASCERTAINING NET AND/OR BOOK-PROFIT/THE SAID SE CTION NOWHERE PROVIDES AS RIGHTLY POINTED BY MR. KHAITAN, LEARNED SENIOR ADVO CATE THAT THE NET AS SHOWN IN THE PROFIT AND LOSS ACCOUNT NOT THE PROFIT COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION ITA NO. 2757 /AHD/2015 . A.Y. 2011-1 2 5 11. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH AND THE HONBLE HIGH COURT (SUPRA), WE SET ASIDE THE FINDINGS OF TH E LD. CIT(A) AND DIRECT THE A.O. TO ALLOW THE CLAIM OF PARTNERS REMUNERATION AS COMPUTED BY THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 04- 04- 20 18 SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 04/04/2018 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,AHME DABAD