M/s Jain Stone Crusher, Banapura V. The ACIT ), Bhopal

ITA 284/IND/2010

• Counselvise Citation: 28422714 RSA 2010
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 11-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: S S DESHPANDE
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAEFJ1611N I.T.A.NO.284/IND/2010 A.Y. : 2006-07 M/S.JAIN STONE CRUSHER, ACIT, BANAPURA` VS 1(2), BHOPAL APPELLANT RESPONDENT APPELLANT BY : SHRI S. S. DESHPANDE, C.A. RESPONDENT BY : SMT.APARNA KARAN, SR. DR O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 19.2.2010 FOR THE ASSESSMENT YEAR 2 006-07, IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. VARIOUS GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE, BU T THE ONLY GROUND PRESSED BY THE LD. AUTHORIZED REPRE SENTATIVE DURING THE COURSE OF HEARING BEFORE US PERTAINS TO DISALLOWING OF DEDUCTION ON ACCOUNT OF INTEREST PAID TO PARTNER S U/S 40(B). -: 2: - 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE ASSESSEE IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF CONTRACT WORK. ON THE GROSS CONT RACT RECEIPT, THE ASSESSEE DECLARED PROFIT OF 5.57 %. TH E AO REJECTED THE BOOKS OF ACCOUNT AND MADE ADDITION BY APPLYING PROFIT RATE OF 8 %. BEFORE THE CIT(A), THE ASSESSEE RAISED BOTH THE GROUNDS WITH REGARD TO ESTIMATION OF PROFIT AT 8 % AND DISA LLOWANCE OF ASSESSEES CLAIM FOR DEDUCTION OF INTEREST PAID TO THE PARTNERS U/S 40(B) OF THE INCOME-TAX ACT, 1961. BY THE IMPUG NED ORDER, THE LD. CIT(A) AFTER FOLLOWING THE DECISION OF I.T. A.T. IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 ORDER DATED 12 TH OCTOBER, 2007, APPLIED THE NET PROFIT RATE OF 7 % IN PLACE OF 8 % APPLIED BY THE ASSESSING OFFICER AND C ONFIRMED THE ADDITION ACCORDINGLY. HOWEVER, THE GROUND RAISE D WITH REGARD TO ALLOWING CLAIM OF DEDUCTION ON INTEREST P AID TO THE PARTNERS WAS NOT DECIDED BY THE LD. CIT(A), EVEN TH OUGH THE SAME WAS RAISED IN THE FORM NO. 35 FILED BEFORE THE CIT(A). AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. -: 3: - 3 4. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNT AND E STIMATION OF PROFIT, STATUTORY DEDUCTION U/S 40(B) WITH REGARD T O THE INTEREST PAID TO THE PARTNERS IS TO BE ALLOWED WHIL E COMPUTING TOTAL INCOME OF THE ASSESSEE FIRM. HE FURTHER PLACE D RELIANCE ON THE DECISION OF I.T.A.T. CHANDIGARH BENCH IN THE CASE OF CHOPRA BROTHERS INDIA PRIVATE LIMITED, 45 ITD 85, W HEREIN AFTER REFERRING TO THE CBDT CIRCULAR NO.29-D(XIX-14 ) DATED 31.8.1985, IT WAS HELD THAT IF THE INCOME FROM CONT RACT BUSINESS IS TO BE ESTIMATED, DEDUCTION FROM SUCH IN COME TOWARDS DEPRECIATION AND INTEREST PAID TO THE PARTN ERS, HAS TO BE ALLOWED SEPARATELY. 5. ON THE OTHER HAND, IT WAS CONTENDED BY THE LD. SENI OR D.R. THAT THE LD. CIT(A) HAS ALREADY RELIED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND APPLIED PRO FIT RATE OF 7 % AND THERE IS NOTHING MENTION IN THE ORDER OF THE TRIBUNAL FOR ALLOWING SEPARATE DEDUCTION ON ACCOUNT OF INTEREST PAID TO PARTNERS. SHE FURTHER CONTENDED THAT THIS ISSUE DOE S NOT ARISE OUT OF THE ORDER OF THE CIT(A). -: 4: - 4 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSEE WAS ENGAGED IN CONTRA CT BUSINESS. THE AO FOUND DEFECTS IN THE BOOKS OF ACCO UNT, THEREFORE, APPLIED PROVISIONS OF SECTION 145(3) AND REJECTED THE SAME AND APPLIED PROFIT RATE OF 8 %. THE LD. CIT(A) REDUCED THE PROFIT RATE TO 7 % AND COMPUTED ASSESSEES INCOME. EVEN BEFORE THE CIT(A), THE ASSESSEE HAS ALSO RAISED GRO UNDS FOR ALLOWING DEDUCTION ON ACCOUNT OF INTEREST TO PARTNE RS AND DEPRECIATION, BUT THE CIT(A) HAS NOT DEALT WITH THE SAME, IT MEANS THE CIT(A) HAS DISMISSED THE GROUND RAISED BE FORE HIM. SINCE IT IS A PURELY LEGAL GROUND AND NOT ONLY ARIS ING OUT OF THE ORDER OF THE CIT(A) BUT ALSO SPECIFIC GROUND HAS BE EN TAKEN BEFORE US, WE HAVE TO DEAL WITH THE SAME AND DECIDE THE ISSUE ACCORDINGLY. 7. AS PER OUR CONSIDERED VIEW, THERE IS A SPECIFIC PROVISION IN CASE OF PARTNERSHIP FIRM FOR ALLOWING CLAIM OF DEDUCTION WITH REGARD TO THE INTEREST PAID ON THE P ARTNERS CAPITAL AND A LIMIT HAS BEEN PRESCRIBED U/S 40(B) U NDER WHICH INTEREST IS TO BE ALLOWED UP TO THE EXTENT OF 12 % ON THE AMOUNT CONTRIBUTED BY THE PARTNERS AND THAT SPECIFI C CLAUSE -: 5: - 5 SHOULD THERE IN THE PARTNERSHIP DEED TO THIS EFFECT . WE HAD GONE THROUGH THE TERMS OF THE PARTNERSHIP DEED, WHE REIN IT HAS BEEN SPECIFICALLY PROVIDED THAT THE PARTNERS OF THE FIRM WILL BE PAID INTEREST AT 12 % ON THE AMOUNT CONTRIBUTED BY THEM EITHER AS A LOAN OR CAPITAL. ONCE THE PROFIT OF THE BUSINESS IS DETERMINED, THE DEDUCTION PROVIDED WITH RESPECT OF CLAIM OF INTEREST IN CASE OF ASSESSEE BEING A PARTNERSHIP FI RM CANNOT BE DECLINED UNLESS IT IS FOUND THAT IT IS IN CONTRAVEN TION OF SECTION 40(B). WE, THEREFORE, DIRECT THE AO TO ALLOW ASSESS EES CLAIM OF INTEREST PAID TO THE PARTNERS IN TERMS OF PROVISION S OF SECTION 40(B) OF THE INCOME-TAX ACT, 1961. THE AO IS AT LIB ERTY TO VERIFY THE CORRECTNESS OF INTEREST CLAIMED AND PAID TO THE PARTNERS. WE DIRECT ACCORDINGLY. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 26 TH MAY, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH MAY, 2011. CPU* 275