M/s. Sham Lal and Sons, Pathankot V. The Dy. Commissioner of Income-tax, Pathankot

ITA 293/ASR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0613 (ITAT-AMRITSAR)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-01-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 09-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIA
• Assessee Lawyers: VAIBHAV AGGARWAL
• Keywords: Business income; Depreciation
• Section: 80G; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NOS.293 & 294(ASR)/2012 ASSESSMENT YEARS:2004-05 & 2008-09 PAN :AATFS3729B M/S. SHAM LAL & SONS, VS. DY. COMMR. OF INCOME-TAX , JAMMU. CIRCLE, PATHANKOT. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. VAIBHAV AGGARWAL, CA RESPONDENT BY:SH.R.L.CHHANALIA, DR DATE OF HEARING: 02/01/2013 DATE OF PRONOUNCEMENT:04/01/2013 ORDER PER BENCH ; THESE TWO APPEALS OF THE ASSESSEE ARISE FROM TWO D IFFERENT ORDERS OF CIT(A), AMRITSAR, EACH DATED 25.04.2012 FOR THE ASS ESSMENT YEARS 2004-05 & 2008-09 RESPECTIVELY. 2. IN ITA NO.293(ASR)/2012 FOR THE A.Y. 2004-05, TH E ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 2 1. THAT THE LD. CIT(A) HAS ERRED BOTH QUESTIONS OF LAW AND FACTS IN UPHOLDING THE ADDITION BY DISALLOWING WORKING ALLOW ANCE AMOUNTING TO RS.127814/- PAID TO THE PARTNERS. 2. THAT THE LD. CIT(A) HAS ERRED BOTH QUESTIONS OF LAW AND FACTS IN NOT APPRECIATING THE PROVISIONS OF CHAPTER IVD WHIC H GOVERNS THE METHOD FOR COMPUTING THE WORKING ALLOWANCE AND THE MEANING OF BOOK PROFIT. 3. THAT THE LD. CIT(A) HAS ERRED QUESTION OF FACTS IN NOT CONSIDERING THE INTEREST INCOME RECEIVED FROM BANK AS PART AND PARCEL OF THE BUSINESS INCOME. 4. THAT THE LD. CIT(A) HAS ALSO IGNORED THE PROVISI ONS OF SECTION 28(V) OF THE INCOME-TAX ACT, 1961. 5. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ALTER OR ADD ANY GROUND OF APPEAL BEFORE THE APPEAL IS HEARD OR DISP OSED OFF. 3. IN ITA NO.294(ASR)/2012 FOR THE A.Y. 2008-09, TH E ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED BOTH QUESTIONS OF LAW AND FACTS IN UPHOLDING THE ADDITION ON ACCOUNT OF DHARMA ACCOUNT AS THE SAME IS COLLECTED BY THE APPELLANT FOR WELFARE ACT IVITIES AND IS NOT A TRADING RECEIPT. 2. THAT THE LD. CIT(A) HAS ERRED BOTH QUESTIONS OF LAW IN NOT APPRECIATING THE DECISION OF THE APEX COURT IN CIT VS. BIJLI COTTON MILL (P) LTD. REPORTED AT 116 ITR 60 3. THAT THE LD. CIT(A) HAS ERRED BOTH QUESTIONS OF LAW AND FACTS IN UPHOLDING THE ADDITION MADE ON ACCOUNT OF DISALLOWA NCE OF EXPENSES FOR PERSONAL USE WHEN THE FIRM HAS ALREAD Y PAID FRINGE BENEFIT TAX (FBT) ON THE SAME. 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ALTER OR ADD ANY GROUND OF APPEAL BEFORE THE APPEAL IS HEARD OR DISP OSED OF. 3 4. FIRST OF ALL, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.293(ASR)/2012 FOR THE A.Y. 2004-05. THE BRIEF FA CTS OF THE CASE ARE THE AO NOTICED THAT EXCESS CLAIM AMOUNTING TO RS.1,27,8 14/- OF WORKING ALLOWANCE TO PARTNERS HAS BEEN DEBITED TO THE P & L ACCOUNT AT RS.5,55,996/- AS AGAINST ACTUALLY ADMISSIBLE IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 40(B) AT RS.4,28,182/- AND THE ROOT CAUSE OF THIS E RRONEOUS OMISSION & COMMISSION ON THE PART OF THE ASSESSEE GERMINATED F ROM DEBITING NET INTEREST PAID CLAIMED AT RS.1,19,861.35P. BY REDUCING THE F DRS ACCRUED INTEREST OF RS.3,19,536/- OUT OF THE TOTAL BANK INTEREST PAID/ INCURRED AT RS.4,39,397.53. AS PER A.O., THE ACCRUED FDRS INTEREST AMOUNTING TO RS.3,19,536/- IS NOT LIABLE TO BE ADJUSTED AGAINST THE BUSINESS EXPENDIT URE BECAUSE THE SAME IS ASSESSABLE SEPARATELY UNDER THE HEAD INCOME FROM O THER SOURCES U/S 56 OF THE ACT AS EARNING OF FDRS ACCRUED INTEREST FROM VA RIOUS BANKS HAS NO DIRECT BEARING AND NEXUS EITHER WITH THE INCURRING OF BANK TERM LOAN INTEREST OR WITH THE MODE OF BUSINESS INCOME DERIVED BY ACTING AS FR UIT AGENT. 5. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE, SH. VAIBHAV AG GARWAL, CA AT THE OUTSET INVITED OUR ATTENTION TO THE PROVISIONS OF S ECTION 40(B) [EXPLANATION- 3], WHERE IT IS CLEARLY MENTIONED THAT FOR THE PURP OSE OF THIS CLAUSE BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE 4 RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN THE CHAPTER IV- D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMU NERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. THE LD. COUNSEL FOR THE A SSESSEE FURTHER ARGUED THAT WHATEVER IS THE INCOME, WHICH HAS BEEN CREDITE D TO THE PROFIT & LOSS ACCOUNT EXCEPT INCREASE OF THE REMUNERATION PAID OR PAYABLE TO THE PARTNERS, THE SAID INCOME IS ELIGIBLE FOR PAYMENT OF REMUNERA TION TO THE PARTNERS U/S 40(B) OF THE ACT. HE RELIED UPON THE DECISION OF CO -ORDINATE BENCH IN THE CASE OF ACIT VS. SHETH BROTHERS (2006) 99 TTJ 189 ( RAJ-TRIB) AND S.P. EQUIPMENT & SERVICES VS. ACIT (2010) 36 SOT 325 (JP ). 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT IS A SETTLED LAW THAT INTEREST INCOME OF SURPLUS FUNDS IS TO BE TREATED AS INCOME FROM OTHER SOURCES IN VIEW OF THE DECISIONS OF HONBLE SUPREME COURT, IN THE CASE OF PANDIAN CHEMICALS VS. CIT REP ORTED IN 262 ITR 278, CIT VS. DR. V.P. GOPINATHAN REPORTED IN 248 ITR 44 9 AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 127 (S C). IN VIEW OF THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF ACIT V S. SHETH BROTHERS (2006) 99 TTJ 189 (RAJ-TRIB) (SUPRA) AND IN VIEW OF EXPLANATION (3) TO 5 SECTION 40(B), THE WHOLE INCOME OF THE FIRM UNDER D IFFERENT HEADS IS LIABLE TO BE ASSESSED IN THE HANDS OF THE FIRM AND REMUNERATI ON TO PARTNERS DEBITED TO PROFIT & LOSS A/C CANNOT BE BROKEN DOWN INTO DIFFER ENT COMPONENTS, TO BE ALLOCATED TO THE INCOME COMPUTED UNDER DIFFERENT HE ADS. THE INCOME EMBEDDED IN THE NET PROFIT AS APPEARING IN THE PROF IT & LOSS ACCOUNT OF THE ASSESSEE FIRM IS TO BE TAKEN INTO CONSIDERATION FOR ALLOWING DEDUCTION OF REMUNERATION PAID TO PARTNERS UNDER SECTION 40(B) W ITHOUT EXCLUDING THE INTEREST INCOME WHICH FORMED PART OF THE BOOK PROFI T.THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION AS CLAIMED AND AO IS DIR ECTED TO ALLOW THE CLAIM OF THE ASSESSEE. ACCORDINGLY, ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED IN ITA NO.293(ASR)/2012. 9. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO .294(ASR)/2012 FOR THE ASSESSMENT YEAR 2008-09. AS REGARDS GROUNDS NO. 1 & 2, THE BRIEF FACTS ARE THAT THE AO MADE AN ADDITION OF RS.11,825/- TOW ARDS UNUTILIZED ANNUAL ACCRETION WITH THE NARRATION DHARAM ACCOUNT. TH E LIABILITY REMAINED UTILIZED FOR THE PURPOSE THE CHARITY HAS BEEN COLLE CTED OVER AND ABOVE THE COST OF GOODS EITHER GIVING DONATION ELIGIBLE FOR EITHER 100% OR 50% U/S 80G OF THE I.T.ACT, 1961. THIS SURPLUS WAS TREATED AS RECEIPTS LIABLE TO TAX IN THE HANDS OF THE ASSESSEE, AS IT IS THE BUSINESS RE CEIPTS OVER AND ABOVE THE COSTS OF GOODS. 6 10. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSE SSING OFFICER. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE, MR. VAIBHAV AGGAR WAL, CA COULD NOT SUBSTANTIATE OR SUBMIT ANY EXPLANATION BEFORE ANY O F THE AUTHORITIES BELOW OR EVEN BEFORE US. HOWEVER, THE SAID LIABILITY WHIC H REMAINED UNUTILISED IS NOT THE INCOME OF THE ASSESSEE. IN THE FACTS AND CI RCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). T HUS, GROUNDS NO. 1 & 2 OF THE ASSESSEE ARE DISMISSED. 12. AS REGARDS GROUND NO.3 OF THE ASSESSEE, THE AO HAS DISALLOWED 20% OF THE TOTAL EXPENSES OF RS.1,02,819/- UNDER FIVE D IFFERENT HEADS OF EXPENSES SUCH AS STAFF REFRESHMENT, PETROL EXPENSES, FESTIVA L EXPENSES, CAR DEPRECIATION AND HOTEL EXPENSES BEING THE PERSONA L ELEMENT WHICH CANNOT BE RULED OUT AND THE ASSESSEE FAILED TO ADDUCE COP Y OF THE FBT ASSESSMENT ORDER. 13. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSE SSING OFFICER. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE COU LD NOT SUBSTANTIATE THE CLAIM THAT THESE ARE NOT THE PERSONAL ELEMENT AND I N THE ABSENCE OF ANY FBT ASSESSMENT ORDER BEFORE ANY OF THE AUTHORITIES BELO W. 15. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ACTION A.O. B Y CONSIDERING THE 7 PERSONAL ELEMENT UNDER FIVE HEADS MENTIONED IN HIS ORDER. WE FIND NO INFIRMITY IN HIS ORDER. THUS, GROUND NO.3 OF THE A SSESSEE IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.293(ASR)/2012 IS ALLOWED AND IN ITA NO.294(ASR)/2012 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH JANUARY, 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4 TH JANUARY, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SHAM LAL & SONS, JAMMU. 2. THE DCIT, CIRCLE, PATHANKOT. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.