DCIT, Coimbatore V. M/s. Texmo Industries, Coimbatore

ITA 2761/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7403 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 14-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R. DURAI PANDIAN
• Keywords: Business income; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(b); 73; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2979/MDS./2016 / ASSESSMENT YEAR : 2012-13 M/S. TEXMO INDUSTRIES , METTUPALAYAM ROAD, G.N.MILLS POST, COIMBATORE 641 029. PAN AABFT1899B VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, NON CORPORATE CIRCLE-4, COIMBATORE. ( () / APPELLANT) ( *+() /RESPONDENT) ./ I.T.A.NO.2761/MDS./2016 / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME-TAX, NON CORPORATE CIRCLE-4, COIMBATORE. VS. M/S. TEXMO INDUSTRIES , METTUPALAYAM ROAD, G.N.MILLS POST, COIMBATORE 641 029. PAN AABFT1899B ( () / APPELLANT) ( *+() /RESPONDENT) ITA NOS.2761,2979/MDS./16 :- 2 -: / APPELLANT BY : MR.R.DURAI PANDIAN, JCIT, D.R /RESPONDENT BY : NONE / DATE OF HEARING : 14.03.2017 / DATE OF PRONOUNCEMENT : 22 - 03 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS CROSS APPEAL FILED BY THE ASSESSEE AND THE R EVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX(A)-3, COIMBATORE DATED 21.06.2016 PERTAINING TO THE ASSESSMENT YEAR 2012-13. 2. THE MAIN GRIEVANCE OF THE REVENUE IN ITS APPEAL IS WITH REGARD TO GRANTING OF DEDUCTION U/S.40(B) OF THE AC T. 4. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HA VE HEARD THE LD.D.R AND PERUSED THE MATERIAL ON RECORD. WE H AVE PROCEEDED TO DECIDE THE CASE ON MERITS. THIS ISSUE RAISED IN THE APPEAL OF REVENUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL ON 13.2 .2017 IN ASSESSEE'S OWN CASE IN ITA NO.3145 TO 3147/MDS./2016 FOR ASSES SMENT YEARS 2008-09, 2010-11 & 2013-14 VIDE ORDER EVEN DATED WHEREIN THE TRIBUNAL HELD AS UNDER:- ITA NOS.2761,2979/MDS./16 :- 3 -: 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE M ATERIAL ON RECORD AND HAVE ALSO CAREFULLY GONE THROUGH THE PAR TNERSHIP DEED. ADMITTEDLY, THE ASSESSEE WAS ASSESSED UNDER THE STA TUS OF THE FIRM. HOWEVER, THE AO MADE OBSERVATIONS IN THE A SSESSMENT ORDER THAT ASSESSEE TO BE ASSESSED AS A AOP, THER EBY HE DISALLOWED THE PAYMENT OF INTEREST AND SALARY TO TH E PARTNERS OBSERVING THAT THERE IS NO NATURAL PERSON IN THE FI RM AND THESE PARTNERS HAVE JOINED THE FIRM AS A REPRESENTATIVE O F HUF OR TRUST. IN THE PREAMBLE PORTION OF THE PARTNERSHIP DEED, TH E NAME OF THE PARTNERS ARE MENTIONED IN THE INDIVIDUAL CAPACITY A S SUCH LD.A.R TOOK A PLEA THAT THE FIRM IS HAVING A NATURAL PERSO NS AS PARTNERS. HOWEVER, WHEN YOU HAVE PERUSED THE PARTNERSHIP DEED , CLAUSES MENTIONED THEREIN DULY DEMONSTRATED THAT THE PARTNE RSHIP WAS FORMED BY THESE PERSONS AS A REPRESENTATIVE OF HUF/ TRUST. THE CAPITAL ALSO CONTRIBUTED TO THE FIRM FROM THE ASSET S, FUNDS AND INCOME OF HUF/TRUST. WHEN THIS IS THE CASE, IT CAN NOT BE SAID THAT PARTNERS ARE ENTITLED FOR INTEREST IN TERMS OF PROV ISIONS OF THE SECTION 40(B) OF THE ACT, WHICH STRICTLY PROHIBITS THE INTEREST PAYMENTS MADE TO THESE PERSONS, CANNOT BE ALLOWED W HILE COMPUTING THE BUSINESS INCOME OF ASSESSEE FIRM. TO TAKE A DIFFERENT STAND, THE ASSESSEE HAS TO SHOW THAT CAPI TAL WAS INTRODUCED BY INDIVIDUAL PARTNERS FROM THEIR INDIVI DUAL SOURCE. HOWEVER, THERE IS NOTHING ON RECORD IN THIS REGARD. HENCE, ANY PAYMENT OR REMUNERATION PAID TO PARTNERS IN THEIR I NDIVIDUAL CAPACITY TO BE ALLOWED AS DEDUCTION IN TERMS OF PRO VISIONS OF THE SECTION 40(B) OF THE ACT. HOWEVER, THE INTEREST PA ID FOR CAPITAL WHICH IS CONTRIBUTED BY THE HUF/TRUST CANNOT BE ALL OWED AS DEDUCTION IN TERMS OF SEC.40(B) OF THE ACT. IN THE CASE OF BRIJ MOHAN DAS LAXMAN DAS REPORTED IN [1997] 223 ITR 82 5 (SC) WHEREIN HELD THAT:- EXPLNS. 1,2 AND 3 TO THE ABOVE CLAUSE WERE ADDED B Y THE TAXATION LAWS (AMENDMENT) ACT, 1984 W.E.F. 1ST APRI L, ITA NOS.2761,2979/MDS./16 :- 4 -: 1985. EXPLN. 2 EXPRESSLY PROVIDES THAT WHERE AN IND IVIDUAL IS A PARTNER IN A FIRM ON BEHALF OF OR FOR THE BENE FIT OF ANY OTHER PERSON, ANY INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL OTHERWISE THAN AS PARTNER IN REPRESENTAT IVE CAPACITY, SHALL NOT BE TAKEN INTO ACCOUNT FOR THE P URPOSE OF CL. (B). IT IS, THEREFORE, CLEAR THAT W.E.F. 1ST AP RIL, 1985, THE QUESTION OF THE NATURE INVOLVED HEREIN WOULD NOT AR ISE. WHERE A PERSON IS A PARTNER IN A REPRESENTATIVE CAP ACITY, I.E., AS REPRESENTING HUF, ANY INTEREST PAID TO HIM IN HIS INDIVIDUAL CAPACITY WILL NOT BE HIT BY CL. (B). THE ONLY QUESTION IS WHAT IS THE POSITION EARLIER TO 1ST APR IL, 1985' WHICH IS THE CASE HERE. EXPLN. 2 TO S.40(B) IS THE LEGISLATIVE RECOGNITION OF THE THEORY OF DIFFERENT CAPACITIES A N INDIVIDUAL MAY HOLD' -NO DOUBT CONFINED TO CL. (B) OF S. 40. ONCE THIS IS SO, WE SEE NO REASON TO HOLD THAT THIS THEORY OF DIFFERENT CAPACITIES IS NOT VALID OR AVAILABLE FOR THE PERIOD ANTERIOR TO 1ST APRIL, 1985. ACCORDINGLY, EVEN FOR THE PERIOD ANTERIOR TO 1ST APRIL, 1985, ANY INTEREST PAID TO A PARTNER, WHO IS A PARTNER REPRESENTING HIS HUF, ON THE DEPOS IT OF HIS PERSONAL/INDIVIDUAL FUNDS, DOES NOT FALL WITHIN THE MISCHIEF OF CL. (B) OF S. 40. EXPLN. 2, IN THE CONTEXT OF CL. (B) OF S. 40, IS DECLARATORY IN NATURE. GAJANAND POONAM CHAND VS. CIT (1988) 73 CTR (RAJ) 255 : (1984) 174 ITR 34 6 (RAJ) : TC 33R.300 APPROVED; CIT VS. LONDON MAC HIN ERY COMPANY (1979) 10 CTR (ALL) 301: (1979) 117 ITR 111 (ALL) : TC 33R.288 IMPLIEDLY OVERRULED; CIT VS. BRI JMOHN DAS LAXMAN DAS (1979) 11 CTR (ALL) 243 : CTR (ALL) 243 : (1979) 117 ITR 121 (ALL) : TC 33R.289 SET ASIDE ACCORDINGLY, WE REMIT THE ISSUE IN DISPUTE TO THE F ILE OF AO TO EXAMINE THESE FACTS AND DECIDE ACCORDINGLY. THIS CO MMON GROUND IN ALL THESE APPEALS IS PARTLY ALLOWED FOR STATISTI CAL PURPOSES. 4. ACCORDINGLY, THE ISSUE RAISED IN REVENUES APPE AL IS REMITTED TO THE FILE OF AO FOR FRESH CONSIDERATION. 5. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEA L IS WITH REGARD TO DISALLOWANCE U/S.14A OF THE ACT. ITA NOS.2761,2979/MDS./16 :- 5 -: 6. THIS ISSUE RAISED IN THE APPEAL OF ASSESSEE CA ME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OW N CASE IN ITA NO.320/MDS./2016 FOR ASSESSMENT YEAR 2010-11 VIDE O RDER DATED 14.06.2016 WHEREIN HELD THAT:- 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD.A.R CONTENTION THAT THE ASSESSEE COMPANY MADE INVESTMENTS IN LIQUID FUNDS OUT OF FUN DS GENERATED IN THE BUSINESS. EVEN THOUGH LOANS WERE OBTAINED THEY WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENTS IN TAX TREE LIQUID F UNDS. WE ON PERUSAL OF PROFIT AND LOSS ACCOUNT FOUND THE ASSESSEE HAS C LAIMED INTEREST CHARGES ON SECURED LOANS FROM BANK AS PER SCHEDULE V RS.2,19,82,076/-. FURTHER, THE LD. AUTHORISED REPRE SENTATIVE DEMONSTRATED THE PARTNERS CURRENT ACCOUNT BALANCE A S ON 31.03.2010 RS.132.77 CRORES. ON COMPARING THE OPENING AND CLOS ING BALANCE OF PARTNERS CURRENT ACCOUNT OF THE PREVIOUS YEAR THER E IS INCREMENTAL INCREASE OF 22.53 CRORES. SIMILARLY, THE INVESTMENT S OF THE ASSESSEE FIRM AS ON 31.03.2009 ARE U0.18 CRORES WHICH INCLUD ES FIXED DEPOSITS IN THE BANK, REC BONDS AND LIQUID FUND INVESTMENTS AND ON COMPARING THE INVESTMENTS AS ON 31.03.2010 THE INCREMENTAL IN CREASE IS ONLY 27.11 CRORES. THE ID. AUTHORISED REPRESENTATIVE DEM ONSTRATED THAT THE ASSESSEE HAS MADE INVESTMENTS OUT OF INTERNAL ACCRU ALS OF BUSINESS OPERATION AND PRODUCED LEDGER ACCOUNT OF LIQUID FUN DS WE FOUND THE ANALOGY ADOPTED BY THE ASSESSEE FIRM RELYING ON THE PARTNERS CURRENT ACCOUNT BALANCE WERE INCREMENTAL INCREASE IN BALANC E IS RS.22 53 CRORES ON COMPARING THE INCREMENTAL INVESTMENT VALU E OF RS.27.11 CRORES IS NOT REALISTIC AND FURTHER THE ASSESSEE FI RM COULD NOT SUBSTANTIATE THE INVESTMENTS IN LIQUID FUNDS WITH C ASH FLOW STATEMENT AND BANK ACCOUNT WITH DIRECT NEXUS AND THE LD. ASSE SSING OFFICER HAS RELIED ON PROVISIONS OF SEC.14A R.W.S. 8D(2) AND CA LCULATED DISALLOWANCE. CONSIDERING THE APPARENT FACTS, FINAN CIAL STATEMENTS AND INCREMENTAL VALUES, THE DISPUTED ISSUE HAS TO BE RE EXAMINED BY THE ID. ITA NOS.2761,2979/MDS./16 :- 6 -: ASSESSING OFFICER AS THERE IS NO FINDING BY THE ID. ASSESSING OFFICER IN THE ASSESSMENT ORDER. IN RESPECT OF SUBMISSIONS OF LD. AUTHORISED REPRESENTATIVE WITH EVIDENCE DEMONSTRATED IN THE TR IBUNAL THEREFORE, WE REMIT THE ENTIRE DISPUTED ISSUE TO THE FILE OF A SSESSING OFFICER TO CONSIDER AFRESH AND THE ASSESSEE SHALL BE PROVIDED WITH ADEQUATE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER. TH E GROUND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6.1 IN VIEW OF THIS, WE REMIT THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. 7. IN THE RESULT, THE APPEAL OF ASSESSEE AS WELL A S THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND MARCH, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 22 ND MARCH, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF