GURLIA ENTERPISES, MUMBAI V. PR CIT 21, MUMBAI

ITA 3799/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0415 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 24-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT PATANKAR
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Non compliance
• Section: 43B; 143(3); 194C; 56; 263

Judgement Text

ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 3799/MUM./2017 (ASSESSMENT YEAR: 20 12 - 13 ) M/S. GURLIA ENTERPRISE SHOP NO.11/2, PATRA CHAWL, OPP. B.D.D. CHAWL NO.102 S.S. AMRUTWAR MARG, WORLI MUMBAI 400 013 PAN NO.AAFFG6068F . APPELLANT V/S PR CIT 21, R.NO.520, 5 TH FLOOR PIRAMAL CHAMBER, PAREL MUMBAI 400 012 . RESPONDENT ASSESSEE BY : SHRI. V.G.GINDE REVENUE BY : SHRI. ABHIJIT PATANKAR DATE OF HEARING 07.08.2017 DATE OF ORDER - 1 1 .08 .2017 O R D E R PER: SHAMIM YAHYA THIS APPEAL BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF LD. CIT DATED 27 .03.2014 PASSED U/S.263 OF THE IT ACT PERTAINING TO ASSESSMENT YEAR 2012 - 1 3 . ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 2 2. IN THIS CASE, LEARNED CIT FOUND THE ASSESSMENT ORDER ERRONEOUS AND THEREBY PREJUDICIAL TO THE INTEREST OF THE REVENUE BY INITIALLY OBSERVING AS UNDER: - 2 ON PERUSAL OF THE CASE RECORDS, IT IS OBSERVED FROM THE PROFIT & LOSS ACCOUNT THAT THE ASSESSES HAD RECEIVED INTEREST INCOME OF RS, 18,34,791/ - WHICH HAS BEEN INCLUDED IN THE BUSINESS RECEIPTS. ASSESSES HAS DECLARED GROSS PROFIT OF RS.54,65,178/ - AND NET PROFIT OF RS.7,55,689/ - AFTER DEBITING REMUNERATION TO PARTNERS OF RS. 13,58,534/ - , HOWEVER THE ASSESSEE'S INTEREST INCOME SHOULD HAVE BEEN TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES', AND ACCORDINGLY BOOK PROFIT FROM BUSINESS ACTIVITY IS A LOSS. IN SUCH CIRCUMSTANCES THE REMUNERATION OF PARTNER IS TO BE CALCULATED AS PER PROVISION OF SECTION 40(B)(V) OF INCOME TAX ACT 1961 WHEREBY THE MAXIMUM REMUNERATION IS ALLOWABLE AT RS.1,50,000/ - AND EXCESS AMOUNT DEBITED HAS TO BE ADDED B ACK TO ASSESSEE'S TOTAL 3. FURTHER ON PERUSAL OF FORM 3CD OF THE AUDIT REPORT, AUDITOR HAS STATED REMARK 'NO' AGAINST 'WHETHER THE ASSESSEE HAS COMPLIED WITH THE PROVISION OF CHAPTER XVII B REGARDING DEDUCTION OF TAX AT SOURCE AND REGARDING THE PAYMENT TH EREOF TO THE CREDIT OF THE CENTRAL GOVERNMENT'. IN THE PROFIT &, LOSS ACCOUNT ASSESSEE HAS DEBITED RS.28,57,780/ - AS LABOUR CHARGES. THE SAME INDICATES THAT THE ASSESSEE HAS NOT DEDUCTED AND CREDITED TDS U/S 194C OF INCOME TAX ACT 1961 AGAINST THESE PAYMEN TS. MOREOVER THERE IS NO OTHER SUPPORTING DOCUMENT KEPT ON RECORD TO SUBSTANTIATE AS TO WHETHER ANY TDS HAS BEEN DEDUCTED ON SUCH PAYMENTS .IN VIEW OF THE SAME THE SAID CLAIM OF RS.28,57,780/ - SHOULD HAVE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE U/S 40(A)(IA) OF INCOME TAX ACT 1961. FURTHER, DURING THE ASSESSMENT PROCEEDING ASSESSEE HAS NOT PRODUCED PROOF OF PAYMENT OF TDS RS.8,607/ - AND VAT PAYABLE OF RS.98,295/ - NOR HAS THE SAME BEEN VERIFIED AND THESE AMOUNTS ALSO TO BE DISALLOWED AN D ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. AS REGARDS THE ISSUE OF DISALLOWANCE OF NON - DEDUCTION OF TDS, THE LEARNED CIT REPRODUCED THE ASSESSEES RESPONSE AND REMANDED THE MATTER TO THE ASSESSING OFFICER BY OBSERVING AS UNDER: - II) DISALLOWANCE FOR NON - DEDUCTION OF TDS REGARDING: A. IT HAS BEEN STATED IN THE NOTICE THAT AN AMOUNT OF RS. 28,57,780/ - BEING LABOUR CHARGES PAID SHOULD BE DISALLOWED BECAUSE TDS HAS NOT BEEN DEDUCTED AND PAID ON THE SAME. THIS IS ON THE BASIS OF REMARK NO STATED IN FORM 3CD OF THE AUDIT REPORT, TO A QUESTION 'WHETHER THE ASSESSEE V HAS COMPLIED WITH THE ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 3 PROVISION OF CHAPTER XVIIB REG ARDING DEDUCTION OF TAX AT SOURCE AND PAYMENT T O THE CREDIT OF THE CENTRAL GOVT. B. IT MAY BE NOTED THAT THERE IS A CLERICAL ERROR IN SLATING 'NO'. IT MAY BE NOTICED THAT EVEN THOUGH THE REMARKS 'NO' ARE STATED IN THE MAIN QUESTION, THE OTH ER FOUR POINTS REQUIRING THE AUDITORS TO STATE THE NON COMPLIANCES ARE ALSO ''NIL' C. THIS I S BECAUSE WE HAVE DULY DEDUCTED MID PAID THE ENTIRE TD S ON THE SAID LABOUR CHARGES FROM TIME TO TIME AND HAVE ALSO FILED THE NECESSARY IDS RETURNS. ENCLOSED A RE COPIES OF THE SAID RETURNS AND A SHEET SHOWING THE DEDUC TE E - WISE PAYMENTS A ND VIS - A - VIS T D S DEDUCTED AND PAID REFER ANNEXURE - 2. D. IT IS HENCE STATED THAT DISALLOWANCE M / S 4(A)(IA) OF THE INCOME TAX ACT, 1961 IS NOT ATTRACTED AND HENCE THE ASSESSING OFFICER WAS RIGHT IN NOT DISALLOWIN G THE SAID LABOUR CHARGES . III ) PROOF OF PAYMENTS OF TDS OFRS.8607/ - AND VAT PAYABLE OFRS.98295/ - IT IS RESPECTFULLY SUBMITTED THAT WE HAVE PAID BOTH THE ABOVE AMOUNTS. WE ARC ENCLOSING PHOTOCOPIES OF THE PROO FS OF PAYMENT OF THE SAME. REFER ANNEXURE - 3&4. WE HENCE RESPECTFULLY SUBMIT THE ORDER PASSED BY THE ASSESSING OFFICER U /S 143(3) IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE FIND REQUEST YOUR HONOUR TO DROP THE PROCEEDINGS INITIATED, INVOKING PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961. 6. THE EVIDENCE FILED PRESENTLY OF PAYMENTS REQUIRE VERIFICATION AND ACC ORDINGLY REQUIRES TO BE REM ANDED BACK TO THE FILE OF THE AO FOR EXAMINING THE SAME AND DECIDING THE ALIENABILITY OF THE CLAIM OF EXPENSES ON WHICH TDS IS DEDUCTIBLE AND STATUTORY PAYMENTS WHICH ARC TO BE PAID WITHIN THE - STIPULATED PERIOD AS PER THE PROVISI ONS OF SECTION 43B OF THE ACT. 4. ON THIS ISSUE UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECORD, WE FIND THAT PROPER AND COGENT EVIDENCE IN THIS REGARD WAS NOT SUBMITTED BEFORE THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, LEARNED CIT HAS RIGHTLY RE MANDED THE MATTER BACK TO THE ASSESSING OFFICER TO EXAMINE THE EVIDENCES IN THIS REGARD AND DECIDE ACCORDINGLY . H ENCE, IN OUR CONSIDERED VIEW, THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT. ASSESSEE IS NOT AT ALL PREJUDICED BY LETTING ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 4 ASSESSING OFFICER TO EXAMINE TH E DOCUMENTS NOW BEING SUBMITTED. H ENCE, WE AFFIRM THE LEARNED CITS ACTION ON THIS ISSUE. 5. BOTH THE COUNSEL FAIRLY AGREED TO THIS PROPOSITION. 6. AS REGARDS THE QUERY OF THE LEARNED CIT REGARDING TREATMENT OF INTEREST INCOME AS INCOME FRO M OTHER SOURCE, THE ASSESSEES RESPONSE WAS THAT HE WAS USING THE IDLE FUND FRUITFULLY TO EARN INCOME FOR THE BUSINESS PURPOSE, HENCE, SAME SHOULD BE TREATED AS BUSINESS INCOME . ON THIS ISSUE, WE NOTE THAT LEARNED CIT HAS RIGHTLY REJECTED THE CONTENTIONS OF THE ASSESSEE AND THE SAME IS DIRECTLY COVERED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TANNA EXPORTS LTD., 78 DTR 39 5. IN THIS REGARD, WE REPRODUCE HEREUNDER THE ORDER OF LEARNED CIT ON THIS ISSUE: - 8. THE CONTENTION OF THE ASSESSEE HAS BEEN EXAMINED IN THIS CONNECTION INCLUDING THE FACTS OF THE CASE AND THE LEGAL PROPOSITION INCLUDING EXAMINATION OF THE CASE LAWS CITED BY THE ASSESSEE. THE ASSESSEE HAS ITSELF ADMITTED THAT IT IS A PARTNERSHIP FIRM EN GAGED IN THE MANUFACTURING AND TRADING OF GOLD ORNAMENTS AND JEWELLERY. ADMITTEDLY IT IS NOT IN THE BUSINESS OF MONEY LENDING OR BANKING, THE PROVISION OF THE INCOME TAX ACT PROVIDES FOR VARIOUS HEADS OF INCOME AND IT IS IMPERATIVE THAT INCOME OF EACH NATU RE HAS TO HE INCLUDED IN THEIR RESPECTIVE HEADS. IN THIS CONNECTION IT IS RELEVANT TO CITE THE OBSERVATION MADE BY THE HONORABLE JURISDICTION] HIGH COURT IN THE CASE OF 'TANNA EXPORTS LTD VS. CIT REPORTED AT 82 CCH 257 MUM (2012) US DTR (BOM) 395 WHICH IS AS UNDER ; '20. IN COMMISSIONER OF INCOME - TAX V. SWANI SPICES MILLS PVT. LTD., THIS COURT REVIEWED A LONG LINE OF JUDGMENTS ON THIS ISSUE AND HELD: '20, THESE JUDGMENTS OF THE SUPREME COURT ESTABLISH THAT THE INCOME OF AN ASSESSEE WHICH IS CHARGEABLE TO TA X UNDER SECTION 4 IS REQUIRED FOR THE PURPOSES OF COMPUTATION TO BE CLASSIFIED UNDER VARIOUS HEADS OF INCOME SPECIFIED IN SECTION 14, SECTION 56 WHICH DEALS WITH INCOME FROM OTHER SOURCES IS ATTRACTED WHERE THE INCOME D OES NOT B ELONG TO A CATEGORY WHICH IS SPECIFIED IN ANY OF THE OTHER HEADS ELUCIDATED IN SECTION 14. INCOME EARNED BY AN ASSESSEE, WHICH UTILIZES ITS SURPLUS FUNDS IN ORDER TO EARN INTEREST CANNOT BE CLASSIFIED UNDER THE HEAD OF BUSINESS INCOME, ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 5 BU T WILL FALL FOR CLASSIFICATION AS INCOME FROM O T HER SOURCES. , ORDINARILY, WHERE AN ASSESSEE INVESTS FUNDS SURPLUS TO THE BUSINESS AND EARN S INTEREST, SUCH INCOME DOES NOT CO NSTITUTE BUSINESS INCOME BUT FALL S UNDER THE HEAD OF INCOME FROM OTHER SOURCES. MERELY BECAUSE AN ASSESSEE CARRIES ON BUSINESS A ND T HE INCOME OF T HE BUSINESS IS INVESTED IN DEPOSITS, THAT WOULD NOT RESULT IN AN INFERENCE THA T THE RETURN OF THE INVESTMENTS MUST PARTAKE OF THE CHARACTER OF BUSINESS INCOME. EVERY INCOME WHICH IS EARNED BY AN ASSESSEE WHO CARRIES ON BUSIN ES S IS NOT BUSINESS INCOME. EVERY INCOME WHICH IS EARNED BY AN ASSESSEE WHO CARRIES ON B US INESS IS NOT BUSINESS INCOME. ON THE CO NTRARY, THE POSITION IN LAW IS T HAT IT IS ONLY WHERE INCOME EARNED ON ACCOUNT OF INTEREST SPRINGS OUT OF OR EMANATES FROM THE BUSI NESS ACT IVITY OF THE ASSESSEE, T HAT THIS INCOME CAN BE REGARDED US BEING OF THE NATURE AND CHARACTER OF BUSINESS INCOME. THE CONSIST ENT LINE OF REASONING WHICH EMERGES FROM THE DECISION OF SEVERAL HIGH ADVERTED TO EARLIER IS THAT THE ME RE FACT THAT AN ASSESSEE C ARRIES ON BUSINESS WOULD NOT RESULT IN AN INFERENCE THA T THE INCOME WHICH IS EARNED BY WAY OF INTEREST WOULD FAIL FOR CLASSIFICATION AS BUSINESS INCOME. WHERE AN ASSESSES INVESTS I TS SURPLUS FUNDS IN ORDER TO EARN INTEREST AND TO OBVIATE ITS FUNDS LYING ID LE, SUCH INCOME, WOULD NOT FALL FOR CLASSIFICATION AS BUSINESS INCOME. ' 7. HOWEVER, WE NOTE THAT LEARNED CIT HAS DIRECTED THE AO TO TREAT THE ABOVE INTEREST INCOME AS INCOME FROM OTHER SO URCE AND ACCORDINGLY RECOMPUTE THE PARTNERS REMUNERATION ALLOWAB LE U/S. 40B(V). 8. IN THIS REGARD, LEARNED COUNSEL OF THE ASSESSEE HAS MADE TWO FOLD SUBMISSIONS. 9. FIRSTLY, HE SUBMITS THAT THERE ARE SEVERAL CASE LAWS FOR THE PROPOSITION THAT EVEN INTEREST INCOME FROM OTHER SOURCES ARE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF PROFITS FOR DETERMINING PARTNERS REMUNERATION . IN THIS REGARD, LEARNED COUNSEL OF THE ASSESSEE HAS CITED THE FOLLOWING CASE LAWS. ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 6 SR. NO. PARTICULARS 1. SURESH A. SHROFF & CO. VS. JCIT [2012] 27 TAXMANN.COM 291 (MUMBAI ) 2. MD. SERAJUDDIN & BROS VS. CIT [2012] 24 TAXMANN.COM 46 (CAL.) 3. CIT VS. J.J. INDUSTRIES [2013] 356 ITR 531 (GUJARAT) 4. S.P. EQUIPMENT & SERVICES VS. ACIT [2010] 36 SOT 325 (JP.) 5. ITO VS. M/S. BANDRA ICE & COLD STORAGE CO. [3263 & 3431/MUM/2012] 10. ANOTHER SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE IS THAT ASSESSEE HAS PAID INTEREST ALSO TO THE PARTNERS AND HENCE THE INTEREST INCOME FROM OTHER SOURCES RECEIVED BY THE ASSESSEE HAS TO BE EXCLUDED, THEREFROM . T HAT T HE AMOUNT OF INTEREST PAID BY THE ASSESSEE SHOULD ALSO BE NETTED AND ONLY THE NET AMOUNT SHOULD BE CONSIDERED. 11. WE FIND THAT THE FIRST ISSUE RAISED HEREINABOVE HAS BEEN RAISED FOR FIRST TIME BEFORE US. IN OUR CONSIDERED OPINION, IT IS AN IMPORTANT LEGAL MATTER . H OWEVER, THE LOWE R AUTHORITIES NEVER HAD THE OPPORTUNITY TO EXAMINE THE SAME. HENCE, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE APPLICABILITY OF THE CASE LAWS BEING SUBMITTED BY THE ASSESSEES CO UNSEL TO THE FACTS OF THE CASE AND THEREAFTER DECIDE AS PER LAW. ITA NO.3799/MUM/2017 M/S. GURLIA ENTERPRISES 7 12. AS REGARDS THE ISSUE OF NETTING OF INTEREST, WE NOTE THAT THE SAME WAS PUT BEFORE THE CIT, I N THE ASSESSEES SUBMISSIONS TO LEARNED CIT . BUT HE HAS NOT ADJUDICATED THE SAME. IN OUR CONSIDERED OPINION THIS ASPECT ALSO NEEDS TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEIN G HEARD. 13. IN THE RESULT, T HIS APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 .08 .2017 S D / - S D / - SANDEEP GOSAIN SHAMIM YAHYA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 1 .0 8 .2017 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. BY ORDER KARUNA SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI