M/S A-One Enclave, Ujjain V. THE Pr.CIT, Ujjain

ITA 311/IND/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0103 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: S S DESHPANDEY
• Keywords: Business income; Depreciation; Deemed to accrue or arise in india; Difference of opinion; Corroborative evidences; Change of opinion
• Section: 69C; 143(3); 40(b); 133A; 69; 263; 63

Judgement Text

[ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] , , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.311/IND/2017 ASSESSMENT YEAR: 2012-13 A - ONE ENCLAVE 3687/1, HARIPHATAK ROAD UJJAIN / VS. PR. CIT UJJAIN ( APPELLANT ) ( REVENUE ) P.A. NO. AACFI3971J APPELLANT BY SHRI S.S. DESHPANDEY, AR RESPONDENT BY SMT. ASHIMA GUPTA, DR DATE OF HEARING: 22.10.2018 DATE OF PRONOUNCEMENT: 05.12.2018 / O R D E R PER KUL BHARAT, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER O F THE PRINCIPAL COMMISSIONER OF INCOME TAX, UJJAIN DATED 27.3.2017 IN RESPECT OF THE ASSESSMENT YEAR 2012-13. [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 2 2. BRIEFLY STATED FACTS ARE THAT ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) WAS COMPLETED BY THE A.O. ON 5.3.2015 ASSESSING INCOM E AT RS.39,78,892/-. SUBSEQUENTLY, LD. PRINCIPAL CIT INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT AND ISSUED A NOTICE TO THE ASSESSEE AS TO WHY THE ASSESSMENT FRAMED SHOULD NOT BE REVISED ON THE GROUNDS MENTIONED IN T HE SHOW CAUSE NOTICE DATED 14.3.2017. IN RESPONSE THERE TO WRITTEN SUBMISSIONS DATED 24.3.2017 WAS FILED ON BEHAL F OF THE ASSESSEE REQUESTING TO DROP THE PROCEEDINGS U/S 2 63 OF THE ACT. THE SUBMISSION OF THE ASSESSEE WAS NOT ACCEPTABLE BY THE LD. PRINCIPAL CIT AND HE PROCEEDED TO REVISE THE ASSESSMENT ORDER. LD. PRINCIPAL CIT CONSI DERING FACTS OF THE CASE WAS OF THE VIEW THAT THE ASSESSMENT OR DER SO FRAMED WAS ERRONEOUS IN SO FAR IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE ASSESSMENT ORDE R WAS SET ASIDE. THE A.O. WAS DIRECTED TO RE-EXAMINE THE IS SUES [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 3 IN THE LIGHT OF THE OBSERVATIONS MADE BY THE PRINCIP AL CIT. AGGRIEVED BY THIS, THE ASSESSEE IS IN THE PRESENT APP EAL. 3. LD. COUNSEL FOR THE ASSESSEE SHRI S.S. DESHPANDEY VEHEMENTLY ARGUED THAT THE ORDER SO PASSED IS NOT JUST IFIED AND CONTRARY TO THE SETTLED POSITION OF LAW. HE SUBM ITTED THAT THE A.O. DULY CONSIDERED ALL THE ISSUES AND FRAMED ASSESSMENT. HE FURTHER SUBMITTED THAT TWIN CONDITION FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT AR E NOT SATISFIED IN THE PRESENT CASE. HE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SYNOPSIS. FOR THE SAKE OF CLARITY, SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED AS UNDER: [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 4 [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 5 [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 6 [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 7 [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 8 [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 9 4. ON THE CONTRARY, LD. D.R. OPPOSED THE SUBMISSIONS AND SUPPORTED THE ORDER OF PRINCIPAL CIT. HE SUBMITT ED THAT THERE IS NO ILLEGALITY IN THE ORDER PASSED BY THE LD. PRINCIPAL CIT AS THE A.O. HAS NOT APPLIED HIS MIND ON THE FACTS OF THE CASE. HE FURTHER SUBMITTED NON CONDUCTI NG OF THE ENQUIRY HAS RESULTED INTO THE ORDER BEING ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE SUBMITTED THAT AT THE STAGE OF INVOCATION OF THE PROCEE DINGS U/S 263 OF THE ACT, IT IS SUFFICIENT THAT ON SOME IS SUES A.O. DID NOT APPLY HIS MIND. IN THE PRESENT CASE, HE SUBM ITTED THAT EX-FACIE, THE A.O. HAS NOT EXAMINED THE ISSUES, THEREFORE, IT CANNOT BE STATED THAT THE A.O. HAS APPLIE D HIS MIND AND ADOPTED ONE OF THE PLAUSIBLE VIEW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAILABLE ON RECORDS AND GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW. IT IS SETTLED POSITION OF LAW THAT POWERS U/S 263 OF THE ACT CAN BE EXERCISED IF TWIN [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 10 CONDITIONS ARE SATISFIED I.E. ANY ORDER PASSED UNDER TH E ACT BY THE ASSESSING OFFICER IS ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. NOW IN THE PRESENT CASE, IT IS TO BE EXAMINED WHETHER THESE TWIN CONDITIONS ARE SATISFIED?. THE BASIS OF REVISING THE ORDER BY THE LD. PRINCIPAL CIT IS THAT NO EXPENSES WERE ALLOWABL E ON THE SURRENDERED INCOME AS SUCH INCOME CANNOT BE CATEGORISED AS THE BUSINESS INCOME. FURTHER, THE CLAI M RELATED TO SET OFF OF DEPRECIATION AND ALLOWABILITY OF DONATION WAS ALSO NOT EXAMINED. ON THE OTHER HAND, AS PER ASSESSEE, ALL THESE ISSUES WERE EXAMINED IN REGULAR ASSESSMENT PROCEEDINGS AND ORDER IS BEING REVISED PUR ELY ON THE BASIS OF CHANGE OF OPINION. IT IS ALSO THE SUB MISSION OF THE ASSESSEE THAT EXPLANATION INSERTED IN THE SECTIO N 263 OF THE ACT BY THE AMENDMENT WOULD NOT BE APPLICABLE IN THE YEAR UNDER CONSIDERATION AS THE SAME WOULD BE APPLICABLE [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 11 W.E.F. THE ASSESSMENT YEAR 2017-18. FOR THE SAKE OF C LARITY, THE RELEVANT CONTENTS OF THE ORDER IS REPRODUCED AS U NDER: 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LET OUT GARDEN FOR VARIOUS PROGRAMMES, HOTEL RUNNING, RESTAURANT. DUR ING THE YEAR UNDER CONSIDERATION A SURVEY U/S 133A WAS CONDUCTED ON TH E BUSINESS PREMISES OF THE ASSESSEE AND DURING THE COURSE OF SURVEY IT WAS FOU ND THAT THE INVESTMENT IN THE CONSTRUCTION OF HOTEL WAS MORE THAN THE INVESTMENT SHOWN IN THE BOOKS OF THE ACCOUNT OF THE ASSESSEE AND THE ASSESSEE AGREED TO DECLARE ADDITIONAL INCOME OF RS.1,25,01,135/- IN HIS RETURN FOR THE YEAR UNDER C ONSIDERATION. THE SAME INCOME HAS BEEN DECLARED IN HIS RETURN IN ADDITION TO REGULAR INCOME. THE INCOME IS CONSIDERED AS INCOME UNDER SECTION 69 OF THE ACT . AFTER DISCUSSION THE FOLLOWING ISSUES HAVE BEEN EMERGED:- 3. THE ASSESSEE HAS DECLARED LOSS FROM BUSINESS OF RS.81,48,508/-. IT IS CLAIMED THAT THIS YEAR WAS THE FIRST YEAR OF THE STARTING OF HOTEL IMPERIAL AND DUE TO NEW HOTEL THE ASSESSEE COULD NOT ATTRACT THE TOURIST IN SUFFICIENT NUMBERS AS SUCH IT COULD NOT FETCH SUFFICIENT RECEIPT, HOWE VER THE FIXED OVER HEAD HAD TO BE BORNE BY THE ASSESSEE TO MAINTAIN THE DAY TO DAY WORKING OF HOTEL BUSINESS. FURTHER BEING FIRST YEAR OF BUSINESS THERE IS HUGE DEPRECIATION OF THE HOTEL BUILDING WHICH ALSO RESULTED IN LOSS IN THE BOOKS. THE ASSESSEE PRODUCED GUEST REGISTER, RECEIPT REGISTER OF RESTAURANT AND GARDEN AND CLAIMED THAT THE ENTIRE RECEIPT HAS BEEN DECLARED BY THE ASSESSEE. HOWEVER THE EXPENSES OF ELECTRICITY, INTEREST AND DEPRECIATION HAS TO BE INCURRED WHICH RESULTED LOSS DURING THE YEAR. 4. DISALLOWANCE OF REMUNERATION PAID TO PARTNERS:- ON THE PERUSAL OF COMPUTATION OF INCOME, IT IS FOU ND THAT THE ASSESSEE FIRM HAS CLAIMED DEDUCTION FOR REMUNERATION TO THE PARTN ERS AMOUNTING TO RS.9,00,000/-. THE ASSESSEE WAS ASKED TO EXPLAIN T HE JUSTIFICATION OF CLAIMING SUCH HIGHER REMUNERATION WHILE THERE IS A LOSS TO T HE ASSESSEE. IN THE REPLY IT IS [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 12 SUBMITTED THAT THE ASSESSEE HAS DECLARED THE SUM OF RS.1,25,01,135/- AS SUCH IT INCOME IS ARRIVED AT RS.43,52,627/- AS SUCH THE CAL CULATION OF REMUNERATION TO PARTNERS IS CORRECTLY MADE. I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE AND FOUND NOT ACCEPTABLE. THE ASSESSEE DURING THE COURSE OF SURVEY HAS DECLARED INVESTMENT IN THE HOTEL IMPERIAL SOURCE OF WHICH COULD NOT BE EXPLAINED AS SUCH THE DECLARED INCOME IS CONSIDERED AS INCOME UNDER SECTION 69 OF THE ACT. AS SUCH THE INCOME FROM DECLARATION IN THE INVESTM ENT OF HOTEL CANNOT BE TREATED AS BUSINESS INCOME AND CANNOT BE INCLUDED I N THE INCOME WHILE CALCULATING THE REMUNERATION U/S 40(B) OF THE ACT. RELIANCE IS PLACED ON THE DECISION OF ITAT CHANDIGARH IN THE CASE OF M/S. MAK SON DISTRIBUTORS, VS. THE DCIT IN ITA NO.53/CHD/2011 WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 7. UNDER THE PROVISIONS OF INCOME TAX ACT, THE INT EREST AND SALARY PAID TO THE PARTNERS IS TO BE ALLOWED AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT WHICH IS IN CONNECTION WITH THE DE TERMINATION OF BUSINESS INCOME. ONCE INCOME IN THE HANDS OF THE ASSESSEE H AS BEEN ASSESSED AS DEEMED INCOME BY INVOKING THE PROVISIONS OF SECTION 69A, 69B & 69C OF THE ACT AND IS NOT ASSESSED AS INCOME FROM BUSINESS UNDER INCOME TAX ACT, THE PROVISIONS OF SECTION 40(B) OF THE ACT IN CONNECTION WITH THE ALLOWANCE OF SALARY PAID TO THE PARTNERS CANNOT BE INVOKED TO ALLOW THE DEDUCTION ON ACCOUNT OF SUCH SALARY BEING PAID TO T HE PARTNERS OF THE FIRM. THE ASSESSEE HAS RELIED UPON THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN BHANU MAL INDER LAL (SUPRA ) WHEREIN VIDE ORDER DATED 22.10.2010, THE TRIBUNAL HAD DIRECTED THE ALL OWANCE OF SALARY IN RESPECT OF THE BUSINESS INCOME ASSESSED IN THE HAND S OF THE ASSESSEE. THE SAID RATIO WAS LAID DOWN BY THE TRIBUNAL IN THE FACTS OF THE CASE WHERE THERE WAS A SURVEY AND CERTAIN INCOME WAS SUR RENDERED, PART OF WHICH WAS ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE AND PART AS ADDITIONAL INCOME OF THE ASSESSEE U/S 69A, 69B & 69C IN THE HANDS OF THE ASSESSEE. THE DIRECTION WAS GIVEN BY THE TRIBUNAL TO ALLOW THE SAID CLAIM OF SALARY PAID TO THE PARTNERS AGAIN ST THE BUSINESS INCOME EARNED BY THE ASSESSEE. IN THE FACTS OF THE CASE B EFORE US, THE SURRENDERED INCOME WAS ASSESSED AS ADDITIONAL INCOM E U/S 69A, 69B & 69C OF THE ACT AND HENCE NO CLAIM OF SALARY PAID TO THE PARTNERS IS TO BE ALLOWED AGAINST THE SAID INCOME. IN VIEW OF ABOVE THE ASSESSEE IS NOT ENTITLED TO MA KE PAYMENT OF REMUNERATION OF RS.9,00,000/-. ACCORDINGLY THE REMUNERATION OF RS. 3,00,000/- IS ALLOWED AND BALANCE OF RS.6,00,000/- IS ADDED TO THE INCOME OF THE ASSESSEE. [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 13 6. FROM THE ABOVE ORDER, IT IS CLEAR THAT THE ASSESSING OFFICER IS CONSCIOUS OF THE FACT THAT THE INCOME SO SURRENDERED DID NOT PARTAKE CHARACTER OF THE BUSINESS INCOME. HOWEVER, HE DISALLOWED THE CLAIM OF PARTNERS REMUNERATION BUT ALLOWED CLAIM OF SET OFF OF LOSS/EXPENDITURE AGAINST THE INCOME SO SURRENDERED. FURTHER, IT IS ALSO NOTED THAT THE ASSESSMENT ORDER DO ES NOT SPEAK OF CONSIDERATION OF CLAIM OF DONATION BY THE ASSESSING OFFICER. THE MOOT QUESTION IN THE PRESENT CASE IS THAT WHETHER ASSESSEE IS ENTITLED FOR THE ALLOWANCE OF EXPENSES AND SET OFF OF LOSS? THE ASSESSEE HAS FAILED TO DEMONSTRATE THE INCOME SO SURRENDERED DURING THE COU RSE OF SEARCH HAD ANY LINK WITH THE BUSINESS RECEIPTS. IN THE ABSENCE OF SUCH LINK, THE SET OFF OF EXPENDITURE AGAIN ST SUCH INCOME WOULD NOT BE ALLOWED. THEREFORE, THE ALLOWANCE OF SUCH EXPENDITURE BY THE A.O. IN THE ABSEN CE OF SUPPORTING EVIDENCE OF BUSINESS INCOME IS PATENTL Y [ITA NO.311/IND/2017] [A-ONE ENCLAVE, UJJAIN] 14 ERRONEOUS AND CONSEQUENTLY PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE DO NOT SEE ANY INFIRMITY INTO THE O RDER OF THE LD. CIT(A). GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 05 . 12.2018. SD/- (MANISH BORAD) SD/- (KUL BHARAT) A CCOUNTANT MEMBER JUDICIALMEMBER INDORE; DATED : 05/12/2018 VG/SPS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUAR D FILE. BY ORDER ASSISTANT REGISTRAR, ITAT, INDORE