ITO, Baddi V. M/s Gilvert Ispat, Solan

ITA 345/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5444 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 345/CHD/2011 ASSESSMENT YEAR: 2007-08 THE ITO, VS. M/S GILVERT ISPAT BADDI (H.P.) VILLAGE BURANWALA, SOLAN (H.P.) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SARITA KUMARI RESPONDENT BY: SHRI HARRY RIKHY ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF CIT(A), SHIMLA DATED 31.1.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ONLY GROUND OF APPEAL RAISED BY THE REVENUE IS AS UNDER- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION US/ 80IC TO THE EXTENT OF RS. 24,16,700/- MADE IN ACCORDANCE WITH SECTION 80IA(10). 3. THE LEARNED AR FOR THE ASSESSEE AT THE OUTSET PO INTED OUT THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL I N THE CASE OF M.S NAVKAR POLYPLAST COMPANY V ITO IN ITA NO. 953/CHD/2 009 WHEREIN THE GROUND RAISED BY THE ASSESSEE WAS ALLOWED. THE LEA RNED DR PLACED RELIANCE ON THE ASSESSMENT ORDER. 2 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM AND AS PER THE CONVENTS OF PARTNERSHIP DEED, THE FO UR PARTNERS OF THE PARTNERSHIP FIRM WERE ELIGIBLE FOR INTEREST ON THEI R CAPITAL ACCOUNTS AT THE RATE OF 12% PER ANNUM AND ALSO SALARY TO BE PAID TO THE PARTNERS. HOWEVER, NO SUCH INTEREST AND SALARY WAS PAID TO TH E PARTNERS BY THE ASSESSEE FIRM DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER RE-COMPUTED THE PROFITS OF THE BUSINESS BY INVOKING THE PROVISIONS OF SECTION 80IA (10) OF THE I.T. ACT HOLDING THAT THE ASSESSEE BY NOT PROVIDING THE SAID INTEREST TO THE PARTNERS AND NOT PAYING SALARY TO THE PARTNERS HAD RESULTED IN MORE PROFITS TO THE FIRM T HAN THE REASONABLE PROFITS WHICH WOULD HAVE ACCRUED TO THE ASSESSEE FI RM AND IN TURN RESULTING IN HIGHER CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDER OF THE TRIBUNAL IN M/S NAVKAR POLYPLAST COMPANY VS ITO (ITA NO. 953/CHD/2009) 5. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE CHAN DIGARH TRIBUNAL IN THE CASE OF M/S NAVKAR POLYPLAST COMPANY VS ITO IN ITA NO. 953/CHD/2009 ORDER DATED 9.4.2010, RELATING TO ASSE SSMENT YEAR 2004-05, WHEREIN THE TRIBUNAL IN TURN RELYING ON ITS EARLIER ORDER IN THE CASE OF ITO V A.K. IMPEX IN ITA NO. 766/CHANDI/2009 RELATING TO ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 26.11.2008IT HAD HELD AS U NDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. WITH REGARD TO THE DISPUTE IN HAND, THE CASE MADE O UT BY THE REVENUE IS ON THE STRENGTH OF SECTION 80IA(10) WHIC H WE REPRODUCE HEREIN AFTER : 80IA(10) - WHERE IT APPEARS TO THE ASSESSING OFFI CER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OT HER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO 3 ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER TH IS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. A PERUSAL OF THE SAID SECTION, IN SO FAR AS IT IS N ECESSARY FOR THE PRESENT CASE, REVEALS THAT IN ORDER TO INVOKE S OME ESSENTIAL REQUIREMENTS ARE: A) THAT THERE MUST BE CLOSE CONNECTION BETWEEN THE ASSESSEE AND THE OTHER PERSON; B) THAT THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS. THERE ARE OTHER REQUIREMENTS IN THE SAID SECTION WI TH WHICH WE DO NOT WISH TO DETAIL IN AS MUCH AS THE SAME ARE NOT RELEVANT TO THE DISPUTE ON HAND. SECTION 80IA(10) I S APPLICABLE TO SECTION 80IC ALSO BECAUSE OF PROVISIO NS OF SECTION 80IC(7). AS PER SECTION 80IA(10), WHERE TH E ASSESSING OFFICER FINDS THAT OWING TO A CLOSE CONNE CTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINESS AND ANY OTHER PERSON DOING ANY OTHER BUSINESS, THE COURSE O F BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANS ACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH ARISES IN SUCH BUSINESS, THE ASSESSING OFFICER IS EMPOWERED TO COMPUTE THE PROFITS OF SUCH BUSINESS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THE TWO REQUIREMENTS OF THE SECTION, WH ICH IN OUR VIEW ARE OF RELEVANCE IN THIS CASE, HAVE BEEN ENUME RATED EARLIER BY US. THE FIRST IS THAT THERE MUST BE A C LOSE CONNECTION BETWEEN THE ASSESSEE AND SUCH OTHER PERS ON. THE SECOND IS THAT THERE MUST BE AN ARRANGEMENT WHEREBY THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS. IN THE PRESENT CAS E, THE CHARGE OF ASSESSING OFFICER IS THAT THE ASSESSEE HA S NOT DEBITED ANY EXPENDITURE ON REMUNERATION TO ITS PART NERS AND INTEREST ON PARTNERS CAPITAL CONTRIBUTION AND THER EFORE, SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND ITS PARTNERS H AVE RESULTED IN MORE THAN ORDINARY PROFITS TO THE ASSES SEE. IN SO FAR AS THE FIRST CONDITION IS CONCERNED, REGARDING CLOSE CONNECTION OSTENSIBLY, THE SAME STANDS FULFILLED AS THE ASSESSEE AND ITS PARTNERS CAN BE SAID TO HAVE A CLO SE CONNECTION. THE MOOT QUESTION IS AS TO WHETHER THER E CAN BE SAID TO BE AN ARRANGEMENT OF TRANSACTION OF BUSINES S BETWEEN THE ASSESSEE AND ITS PARTNERS WHEREBY THE ASSESSEE EARNED MORE THAN THE ORDINARY PROFITS. A RELATED QUESTION IS AS TO WHETHER PAYMENT OF REMUNERATION AND INTEREST ON CAP ITAL 4 CONTRIBUTION TO THE PARTNERS CAN BE SAID TO BE AN A CTIVITY FALLING WITHIN THE SCOPE OF THE EXPRESSION BUSINES S TRANSACTED BETWEEN THEM. IN OUR VIEW, THE MEANING OF EXPRESSION BUSINESS TRANSACTED BETWEEN THEM APPEA RING IN SECTION 80IA(10) ONLY REFERS TO SUCH TRANSACTIONS W HICH RELATE TO THE TRADING ACTIVITY OF THE ASSESSEE. VI EWED IN THIS LIGHT, THE PAYMENT OF REMUNERATION AND INTEREST ON CAPITAL CONTRIBUTION TO PARTNERS CANNOT BE SAID TO BE FALLI NG WITHIN THE SCOPE OF TRADING ACTIVITIES OF THE ASSESSEE SO AS TO FALL WITHIN THE EXPRESSION BUSINESS TRANSACTED BETWEEN THEM FOR THE PURPOSES OF SECTION 80IA(10) OF THE ACT. M OREOVER, IN THE PRESENT CASE, THERE IS NO DISPUTE TO THE FAC T POSITION THAT THE ASSESSEE HAS NOT ACTUALLY INCURRED ANY LIA BILITY ON PAYMENT OF REMUNERATION OR INTEREST ON CAPITAL CONT RIBUTION TO THE PARTNERS. THE CIT(APPEALS) HAS CULLED OUT TH E RELEVANT CLAUSE OF THE PARTNERSHIP DEED WHICH AUTHORIZES THE PARTNERS TO REDUCE OR WAIVE THE PAYMENT OF REMUNERATION AND INTEREST ON CAPITAL CONTRIBUTION BY A MUTUAL AGREEMENT WITHO UT EXECUTION OF ANY FRESH DEED. THE FACTUM OF THE PAR TNERS HAVING APPENDED THEIR SIGNATURES TO THE PROFIT AND LOSS ACCOUNT WHEREBY NO CLAIM WAS MADE ON REMUNERATION A ND INTEREST ON PARTNERS CAPITAL CONTRIBUTION, ITSELF SHOW THEIR MUTUAL AGREEMENT NOT TO OBTAIN SUCH PAYMENTS FROM T HE FIRM. THUS, THE CONDUCT OF THE PARTNERS SHOW THAT THEY HA VE NOT ACTED UPON THE CLAUSE OF THE DEED WHICH OTHERWISE A UTHORIZES THEM TO TAKE REMUNERATION AND INTEREST ON THEIR CAP ITAL CONTRIBUTION. HAVING FACTUALLY OBSERVED THAT THERE WAS NO SUCH PAYMENTS MADE AND NEITHER WAS THERE ANY LIABIL ITY FOR SUCH AMOUNTS, IN OUR VIEW THE ASSESSING OFFICER WAS NOT EMPOWERED TO REDUCE THE PROFITS ON THIS SCORE FOR T HE PURPOSE OF SECTION 80IA(10) OF THE ACT. 8. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND THA T THE ASSESSING OFFICER NOT ONLY WRONGLY INVOKED THE PROV ISIONS OF SECTION 80IA(10) BUT ALSO ERRED IN INTERPRETING THE PARTNERSHIP DEED SO AS TO HOLD THE ASSESSEE LIABLE FOR REDUCING ITS PROFITS ON ACCOUNT OF REMUNERATION AND INTEREST TO THE PARTNERS FOR THE PURPOSES OF SECTION 80IC OF THE ACT. THE ORDER OF THE CIT(APPEALS), ON THIS GROUND IS HE REBY AFFIRMED. THUS, THE REVENUE FAILS ON GROUND NO. 1 AND 2. 5. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO T HE FACTS BEFORE TRIBUNAL IN M/S NAVAKAR POLYPLAST COMPANY V ITO (SU PRA) AND ITO VS M/S A.K. IMPEX (ITA NO. 766/CHANDI/2008). FOLLOWIN G THE RATIO LAID DOWN BY TRIBUNAL IN ITO VS M/S A.K. IMPEX (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IC 5 OF THE ACT. UPHOLDING THE ORDER OF CIT(A), WE DISMI SS THE GROUND OF APPEAL RAISED BY THE REVENUE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MAY, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13 TH MAY, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR