ACIT, NCC-3, CHENNAI V. MEGATRENDS INC, CHENNAI

ITA 3165/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6358 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 22-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMATHI VENKATRAMAN
• Assessee Lawyers: T C A SANGEETHA
• Keywords: Principle of natural justice; Wrong claim; Accommodation entries; Set aside
• Section: 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , ! . , ! ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.3165/CHNY/2018 /ASSESSMENT YEAR: 2011-12 THE ASST. COMMISSIONER OF- INCOME TAX, NON-CORPORATE CIRCLE-3, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI-600 034. VS. M/S.MEGATRENDS INC., NO.9/6, DHANAMMAL STREET, CHETPET, CHENNAI-600 031. [PAN: AAHFM 5300 Q] ( ) /APPELLANT) ( *+) /RESPONDENT) ./ ITA NO.3213/CHNY/2018 /ASSESSMENT YEAR: 2011-12 M/S.MEGATRENDS INC., NO.9/6, DHANAMMAL STREET, CHETPET, CHENNAI-600 031. [PAN: AAHFM 5300 Q] VS. THE ASST. COMMISSIONER OF- INCOME TAX, NON-CORPORATE CIRCLE-3, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI-600 034. ( ) /APPELLANT) ( *+) /RESPONDENT) DEPARTMENT BY : MS.SUMATHI VENKATRAMAN, JCIT ASSESSEE BY : MS.T.C.A.SANGEETHA, ADV. - /DATE OF HEARING : 01.05.2019 - /DATE OF PRONOUNCEMENT : 01.05.2019 ITA NOS.3165 & 3213/CHNY/2018 :- 2 -: / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO.3165/CHNY/2018 IS AN APPEAL FILED BY THE R EVENUE & ITA NO.3213/CHNY/2018 IS AN APPEAL FILED BY THE ASSESSE E AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, CHEN NAI, IN ITA NO.30/2017-18/ AY 2011-12/CIT(A)-4 DATED 11.09.2018 FOR THE AY 2011- 12. 2. MS.SUMATHI VENKATRAMAN, JCIT, REPRESENTED ON BEH ALF OF THE REVENUE AND MS.T.C.A.SANGEETHA, ADV., REPRESENTED O N BEHALF OF THE ASSESSEE. 3. IN THE REVENUES APPEAL IN ITA NO.3165/CHNY/2018 , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AN D TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING O FFICER TO TREAT THE STATUS OF THE ASSESSEE AS FIRM, AS AGAINST THE ASSESSING OF FICERS TREATMENT OF THE ASSESSEE AS AOP, RESULTING IN REVERSAL OF THE DIS ALLOWANCE OF CLAIM OF REMUNERATION AND INTEREST ON CAPITAL PAID TO THE PA RTNERS TO THE TUNE OF RS.92,30,297/-. 2.1 THE LD.CIT(A) FAILED TO FOLLOW THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KYLASA SARABHAIAH V. CIT (1965) 56 ITR 219, WHICH WAS FOLLOWED BY THE HONBLE MADRAS HIGH COURT IN A.ASHA & CO. V. CI T (1973) (87 ITR 57), WHEREBY A FIRM CAN BE A PARTNER IN ANOTHER FIRM, PR OVIDED ALL THE PARTNERS OF THE SMALLER FIRMS ARE SIGNATORIES TO THE DEED OF THE LA RGER FIRM, WHICH ESSENTIAL CONDITION IS NOT FULFILLED IN THE CASE OF THE ASSES SEE FIRM. 2.2 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT I N THE INSTANT CASE, ALL THE PARTNERS OF THE SMALLER FIRMS HAVE NOT SIGNED THE P ARTNERSHIP DEED AND THE ASSESSEE CANNOT BE GRANTED THE STATUS OF FIRM AS LAID DOWN UNDER SEC.184 OF THE INCOME TAX ACT, 1961. 2.3 THE LD.CIT(A) FAILED TO NOTE THAT AS PER THE P ROVISIONS OF SECTION 185 OF THE INCOME TAX ACT, 1961, WHEN A FIRM FAILED TO COMPLY WITH THE PROVISIONS OF SECTION ITA NOS.3165 & 3213/CHNY/2018 :- 3 -: 184 OF THE ACT FOR ANY ASSESSMENT YEAR, THE FIRM SH ALL BE SO ASSESSED THAT NO DEDUCTION BY WAY OF ANY PAYMENT OF INTEREST, SALARY , BONUS, COMMISSION OR REMUNERATION OR WHATEVER NAME CALLED, MADE BY SUCH FIRM TO ANY PARTNER OF SUCH FIRM SHALL BE ALLOWED IN COMPUTING THE INCOME CHARG EABLE TO TAX. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. AT THE TIME OF HEARING, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUES WERE SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY S 2012-13 & 2013-14 IN ITA NOS.417 & 740/CHNY/2017 DATED 05.03.2018, WHERE IN, AT PARA NO.9, IT HAS BEEN HELD AS FOLLOWS: 9. COMING TO THE ISSUE AS TO WHETHER THE ASSESSEE I S TO BE ASSESSED AS A PARTNERSHIP FIRM OR AN AOP. A PERUSAL OF THE PARTNE RSHIP DEED OF THE ASSESSEE CLEARLY SHOWS THAT PARTNERS AT 14 & 15 OF THE PARTN ERSHIP DEED NAMELY M/S.DCP TRADING CO., AND M/S.KRUPA TRADING CO., RESPECTIVEL Y. A PERUSAL OF THE PARTNERSHIP DEED IN THE CASE OF BOTH THE SMALLER PA RTNERSHIP DEED CLEARLY SHOWS THAT IN CLAUSE-10(G), THE PARTNERSHIP DEED MENTIONS THAT THE PARTNERS HAVE AUTHORIZED THE MANAGING PARTNER TO ENTER INTO PARTN ERSHIP WITH OTHER PARTNERSHIP FIRMS. THIS BEING SO, WE DO NOT FIND NECESSITY FOR ALL THE PARTNERS OF THE SMALLER PARTNERSHIP FIRM TO SIGN PARTNERSHIP DEED OF THE AS SESSEE LARGER FIRM. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE PARTNERSH IP IS A VALID PARTNERSHIP IN THE CASE OF THE ASSESSEE AND THE STATUS OF THE ASSESSEE IS TO BE CONSIDERED AS FIRM. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 6. AS IT IS NOTICED THAT THE ISSUES IN THE REVENUE APPEAL, AS TO WHETHER, THE ASSESSEE IS TO BE ASSESSED AS AN AOP OR A PARTN ERSHIP FIRM IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AYS 2012-13 & 2013-14. ON IDENTICAL FINDINGS, IT IS HELD THAT THE ASSESSEE IS LIABLE TO BE ASSESS ED IN THE STATUS OF A FIRM. FURTHER, AS IT IS NOTICED THAT THE LD.CIT(A) HAS FO LLOWED THE JUDICIAL DISCIPLINE IN FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH OF THIS ITA NOS.3165 & 3213/CHNY/2018 :- 4 -: TRIBUNAL, REFERRED TO SUPRA, WE FIND NO ERROR TO IN TERFERE IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. CONSEQUENTLY, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 7. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEAL S), CIT-A, IS ERRONEOUS IN LAW AND OPPOSED TO THE FACTS AND CIRCUMSTANCES O F THE CASE AND OPPOSED TO ALL CANONS OF NATURAL JUSTICE. SECTION 147 JURISDICTION 2. THE COMMISSIONER OF INCOME TAX APPEALS (CIT-A) WAS WRONG IN NOT ACCEPTING THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN RE-O PENING THE ASSESSMENT UNDER SECTION 147. 3. THE CIT-A FAILED TO APPRECIATE THE FACT THAT THERE WAS NO NEW/FRESH INFORMATION AVAILABLE TO THE ASSESSING OFFICER, THE ACT OF THE ASSESSING OFFICER IN REASSESSING SECTION 35(1)(II) CONTRIBUTION TO CH ANGE OF OPINION WHICH CANNOT BE A CASE OR RE-OPENING UNDER SECTION 147. 4. THE CIT-A WAS WRONG IN CONFIRMING THE REOPENING THE ASSESSMENT IS CORRECT WHEN THERE IS NO INCOME ESCAPING ASSESSMENT, NO CON CEALMENT AND HAS DECLARED ALL MATERIAL FACTS IN THE RETURN. 5. THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THE AO REOPENED THE ASSESSMENT UNDER SECTION 147 UNDER BORROWED REASONINGS AND NO T HIS OWN SATISFACTION AND THIS IS NOT PERMITTED UNDER LAW AND AS EXPLAINE D BY VARIOUS APPELLATE FORUMS INCLUDING THE APEX COURT. 6. THE CIT-A HAS NOT CONSIDERED THE REPRESENTATIONS MA DE BY THE APPELLANT DURING THE COURSE OF THE APPEAL HEARING. DIS-ALLOWANCE OF CONTRIBUTION MADE UNDER SECTION 35 ( 1)(II): 7. THE CIT-A OUGHT TO HAVE SEEN THAT TIME AMOUNTS PAID TO THE M/S. SOCIETY FOR WELFARE OF HANDICAPPED PERSONS, WERE THROUGH PROPER BANKING CHANNELS. THE AXIS BANK ACCOUNT OF THE SOCIETY HAS RECEIVED THE S UM DONATED BY THE APPELLANT. ITA NOS.3165 & 3213/CHNY/2018 :- 5 -: 8. THE CIT-A OUGHT TO HAVE CONSIDERED THE FACT THAT TH E APPELLANT HAS DONATED THE SUM WITH BONA FIDE INTENTIONS AFTER VERIFYING T HE NOTIFICATION ISSUED BY THE GOVERNMENT OF INDIA. 9. THE COMMISSIONER OUGHT TO HAVE ALLOWED THE DONATION MADE UNDER SECTION 35(1)(II) AS A MERE PERUSAL OF OUR RETURN FILED WIL L SHOW THAT WE HAVE DISCLOSED THE AMOUNT DONATED TO THE ORGANIZATION AND HAVE CLA IMED DEDUCTION ON THE SAME AS PER THE INCOME TAX ACT, 1961. THERE IS NO S UPPRESSION OR CONCEALMENT ON OUR PART. WE HAVE ACTED AS PER THE S TATUTE. 10. THE CIT-A OUGHT TO HAVE REALISED THAT THE APPELLANT CAN ONLY SEE TO IT THAT DONATION IS MADE TO AN APPROVED ORGANIZATION. 11. THE CIT-A OUGHT TO HAVE REALISED THAT THE APPELLANT HAS SUBMITTED THE DETAILS OF THE DONATION MADE, RECEIPTS AND OTHER DETAILS TO THE ASSESSING OFFICER. IT IS NOT THE ONUS OF THE APPELLANT TO CALL THE ORGANIZAT ION FOR CROSS EXAMINATION. 12. THE CIT-A WAS WRONG IN PENALIZING THE ASSESSEE FOR NO FAULT OF THEIRS. 13. THE CIT-A HAS FAILED TO APPRECIATE THAT EXPLANATION TO SECTION 35 PROTECTS THE PETITIONER FROM THE COMMISSIONS/OMISSIONS OF THE DO NE ORGANIZATION I.E. SOCIETY FOR WELFARE OF HANDICAPPED PERSONS AND ANY DEFAULT BY THAT ORGANIZATION TO FULFILL THE REQUIREMENTS OF SECTION 35 WOULD RESULT IN THE GOVERNMENT WITHDRAWING THE RECOGNITION GRANTED TO T HEM. FOR THESE AND OTHER GROUNDS THAT MAYBE ADVANCED, TH E APPELLANT PRAYS THAT THE APPEAL OF THE APPELLANT BE ALLOWED AND THE DONATION OF RS.1,25,00,000/- MADE BY THE APPELLANT UNDER SECTION 35(1)(II) TO SOCIETY FOR WE LFARE OF HANDICAPPED PERSONS AND THE QUALIFYING AMOUNT OF RS.2,18,75,000/- CLAIMED A S DEDUCTION UNDER SECTION 35(1)(II) BE ALLOWED. 8. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE HAD MADE A PAYMENT TO M/S.SOCIETY FOR WELFARE OF HANDICAPPED P ERSONS. IT WAS A SUBMISSION THAT THE SAID SOCIETY WAS REGISTERED AND WAS HELD TO BE ENTITLED FOR THE BENEFIT OF SEC.35(1)(II) OF THE AC T. IT WAS A SUBMISSION THAT THE ASSESSEE WAS LIABLE TO BE ALLOWED THE CLAI M OF DEDUCTION U/S.35(1)(II) OF THE ACT. 9. IN REPLY, THE LD.DR SUBMITTED THAT THE ISSUE WAS LIABLE TO BE RESTORED TO THE FILE OF THE AO IN LINE WITH THE DEC ISION OF THE CO-ORDINATE ITA NOS.3165 & 3213/CHNY/2018 :- 6 -: BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE AYS 2012-13 & 2013-14, REFERRED TO SUPRA, WHEREIN, THE CONTRIBUTI ON WAS MADE TO M/S.SCHOOL OF HUMAN GENETICS & POPULATION HEALTH, K OLKATA. IT WAS A SUBMISSION THAT THE ORGANIZATION BEING M/S.SOCIETY FOR WELFARE OF HANDICAPPED PERSONS ITSELF HAS CATEGORICALLY STATED THAT THE SAID BANK ACCOUNT HAS NOT BELONG TO THE SOCIETY AND THE ASSES SEE HAD NOT PRODUCED ANY EVIDENCE TO PROVE OTHERWISE. IT WAS ALSO A SUB MISSION THAT THE SAID SOCIETY HAD FILED AN FIR AGAINST MISUSE OF ITS NAME IN RESPECT OF THE BANK ACCOUNT WITH AXIS BANK. IT WAS A SUBMISSION THAT T HE DISALLOWANCE WAS LIABLE TO BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 11. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO HAS QUESTIONED THE PAYMENT MADE BY THE ASSESSEE TO M/S. SOCIETY FOR WELFARE OF HANDICAPPED PERSONS. THE DIRECTOR OF THE SAID S OCIETY HAS CATEGORICALLY STATED THAT THE BANK ACCOUNT INTO WHICH THE ASSESSE E HAS MADE THE PAYMENT DOES NOT BELONG TO THE SAID SOCIETY AND THA T THE SOCIETY ALSO FILED AN FIR IN RESPECT OF THE MISUSE OF ITS NAME. THIS ADMITTEDLY HAS NOT BEEN DISLODGED BY THE ASSESSEE. THIS BEING SO, IN THE INTEREST OF NATURAL JUSTICE, THE ISSUES IN THE ASSESSEES APPEAL ARE RE STORED TO THE FILE OF THE AO WITH THE DIRECTIONS WHICH ARE IDENTICAL DIRECTIO NS GIVEN IN THE ASSESSEES OWN CASE FOR THE EARLIER AYS BEING THAT THE ASSESSEE HAS NOT BEEN GIVEN ADEQUATE OPPORTUNITY TO PROVE THE GENUIN ENESS, BUT THE ITA NOS.3165 & 3213/CHNY/2018 :- 7 -: ASSESSMENT HAS BEEN MADE BASED ON THE EVIDENCES COL LECTED BY THE REVENUE. THIS IS NOT PERMISSIBLE. THIS BEING SO, IN THE INTEREST OF NATURAL JUSTICE, THE ISSUE OF GENUINENESS OF THE DONATIONS ARE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE AO MUST KEEP IN MIND THAT THE ONUS OF PROVING THE DONATIONS ARE ACTUALLY DONATIONS AND NO T ACCOMMODATION ENTRIES AND THAT THE SAID ORGANIZATIONS WERE ELIGIB LE FOR CLAIMING DEDUCTION U/S.35(1)(II) OF THE ACT RESTS ON THE ASSESSEE. IF THE AO DOES HAVE ANY EVIDENCE TO THE CONTRARY, IT IS TO BE PUT TO THE AS SESSEE FOR HIS REBUTTAL. THE ASSESSEE SHALL PRODUCE THE RECIPIENTS OF THE DO NATION FOR EXAMINATION ALONG WITH THE EVIDENCES TO PROVE THE DONATION. TH E INTERNAL COMMUNICATIONS OF THE REVENUE ARE EVIDENCES FOR DRA WING AN OPINION ON POSSIBLE WRONG CLAIMS BUT THEY ARE NOT THE FINAL EV IDENCE. THIS BEING SO, THE ISSUE OF THE DONATION IN THESE APPEALS ARE REST ORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO PROVE THE GENUINENESS OF THE DONATION. 12. THE ASSESSEE HAS ALSO RAISED THE GROUNDS IN RES PECT OF THE RE- OPENING OF THE ASSESSMENT BUT NO ARGUMENTS HAVE BEE N MADE IN RESPECT OF THE SAME. CONSEQUENTLY, THE GROUNDS IN RESPECT OF THE RE-OPENING MORE SPECIFICALLY GROUND NOS.2 TO 6 OF THE ASSESSEE S APPEAL STANDS DISMISSED AS NOT ARGUED AND THE ISSUE OF THE DONATI ON MADE BY THE ASSESSEE TO M/S.SOCIETY FOR WELFARE OF HANDICAPPED PERSONS IS RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION. CONSEQUENT LY, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. ITA NOS.3165 & 3213/CHNY/2018 :- 8 -: 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 1 ST DAY OF MAY, 2019, IN CHENNAI. SD/- SD/- ( . ) ( S. JAYARAMAN ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 2 /DATED: 1 ST MAY, 2019. TLN - *34 54 /COPY TO: 1. ) /APPELLANT 4. 6 /CIT 2. *+) /RESPONDENT 5. 4 * /DR 3. 6 ( ) /CIT(A) 6. /GF