Banda Narendra Kumar & Company, Tanuku V. The Income Tax Officer, Ward-1., Tanuku

ITA 395/VIZ/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3227 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 10-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NARAYAN
• Keywords: Depreciation; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 14A; 263; 2; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER I . T . A . NO S . 395 & 396/VIZ/2019 (ASST. YEAR S : 20 1 4 - 1 5 & 2015 - 16 ) M/S. BANDA NARENDRA KUMAR & CO., NH - 5, NEAR AVR GODOWNS , TETALI POST, TANUKU MANDAL, WEST GODAVARI DISTRICT. VS. ITO, WARD - 1, TANUKU . PAN NO. AAGFB 1578 C (APP ELLANT ) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI , ADVOCATE DEPARTMENT BY : SHRI R.S. NARAYAN , CIT DR DATE OF HEARING : 05 / 0 3 /2020 . DATE OF PRONOUNCEMENT : 11 / 0 3 /20 20 . O R D E R PER V. DURGA RAO , JUDICIAL MEMBER THESE APPEAL S BY THE SAME ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER S OF PRINCIPAL COMMISSIONER OF INCOME TAX , RAJAHMUNDRY , BOTH DATED 29 /0 3 /201 9 FOR THE ASSESSMENT YEAR S 20 1 4 - 1 5 & 2015 - 16 . SINCE FACTS AND ISSUES ARE COMMON, CLUBBED AND HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) ITA NO. 395/VIZ/2019 2. FACTS OF THE CASE IN BRIEF ARE THAT ASSESSEE - M/S. BANDA NARENDRA KUMAR AND COMPANY IS A FIRM , FILED ITS RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 55,307/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND AFTER FOLLOWING DUE PROCEDURE, ASSESSMENT WAS COMPLETED U/SEC. 143(3) , DATED 17/06/2016 . IN THE ASSESSMENT ORDER, THE ASS ESSING OFFICER HAS NOTED THAT IN RESPONSE TO THE NOTICE ISSUED, THE ASSESSEES REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED INFORMATION AS CALLED FOR . AFTER VERIFYING THE SAME AND AFTER DISCUSSING WITH THE ASSESSEES REPRESENTATIVE, ASSESSMENT IS COMPLETED . SUBSEQUENTLY, THE PR.COMMISSIONER BY EXERCISING HIS POWERS CONFERRED IN HIM U/SEC. 263 ISSUED A NOTICE ON THE FOLLOWING REASONS: - (I ) SRI B.NARENDRA KUMAR JOINED AS A PARTNER IN THE ASSESSEE FIRM BY CONTRIBUTING HIS LAND TOWARDS CAPITAL AND CONSTRUCTED GODOWN THEREON ALONG WITH OTHER PARTNERS. THE ASSESSEE - FIRM IN TURN JOINED AS A PARTNER IN ANOTHER FIRM BY NAME M/S AVR GODOWNS BY CONTRIBUTING LAND AND GODOWN TOWARDS ITS CAPITAL, AND THE ASSESSEE - FIRM CLAIMED THE SHARE OF PROFIT AS EXEMPT . IT IS ALSO NOTICED THAT AGAINST THE INTEREST RECEIVED OF RS.6,65,720/ - FROM M/S AVR GODOWNS, THE ASSESSEE IS CLAIMING AN EQUAL AMOUNT AS INTEREST PAID TO ITS PARTNERS, WHICH WAS ALLOWED BY THE AO, THOUGH NO INTEREST IS PAYABLE ON THE CAPITAL CONTRIBUTED IN KIND. (II) IT IS FURTHER SEEN FROM THE P&L ACCOUNT THAT THE ASSESSEE HAS RECEIVED GROSS INCOME TO THE EXTENT OF RS.7,51 ,678/ - , OF WHICH SHARE INCOME FROM M/S AVR GODOWNS WAS TO THE EXTENT OF RS85,958 / - , AND AGAINST THE SAID GROSS INCOME THE ASSESSEE CLAIMED AN EXPENDITURE TO THE EXTENT OF RS.7,21 ,027/ - INCLUDING INTEREST PAID TO PARTNERS. AS PER THE PROVISIONS OF SECTION 14A, SO MUCH OF EXPENDITURE AS IS ATTRIBUTABLE TO EARNING OF EXEMPT SHARE INCOME IS R EQUIRED TO BE DISALLOWED, 3 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) WHICH WAS NOT DONE BY THE A O DURING THE ASSESSMENT PROCEEDINGS. IN RESPONSE TO THE NOTICE ISSUED, THE ASSESSEE HAS MADE A DETAILED SUBMISSION WHICH IS AS UNDER: - WE SUBMIT THAT SRI B. NARENDRA KUMAR (INDIVIDUAL) ORIGINALLY ENTERED IN TO AN AGREEMENT WITH THE A.P. STATE WAREHOUSING CORPORATION TO CONSTRUCT 30,000/ - SFT GODOWN AND ALSO AVAILED LOAN FROM UNION BANK OF INDIA TO CONSTRUCT THE GODOWN. SUBSEQUENTLY, DUE TO INSUFFICIENT FUNDS TO COMPLETE THE PROJ ECT HE INVITED THE P ARTNER SMT. A.SUMITHA KUMARI AND EXECUTED A PARTNERSHIP DEED DT.12 - 09 - 2001. THE LAND BELONGING TO B.NAREDRA KUMAR, AGREEMENT ENTERED WITH THE APSWC BY B.NARENDRA KUMAR AND LOAN TAKEN IN THE NAME OF B.NARENDRA KUMAR HAD BEEN TRANSFERRED TO THE FIRM AS FIRM'S ASSET AND LIABILITY. AFTER THAT THE OTHER GODOWN LICENSE HOLDERS INVITED THIS FIRM AS PARTNER TO HAVE MORE BENEFITS AND FORMED A PARTNERSHIP FIRM M / S.AVR GODOWNS. IN VIEW OF BECOMING A PARTNER, THE ASSESSEE FIRM M/ S. B NARENDRA KUMAR & CO HAD CONTRIBUTED ITS ASSET I.E. LAND AND GODOWN AS CAPITAL CONTRIBUTION INTO THE FIRM M/S.AVR GODOWNS BY DULY CREDITING TO THE CAPITAL ACCOUNT OF M/S.BNR & CO., SIMILARLY THE LIABILITY WITH THE UNION BANK OF INDIA WAS ALSO TAKEN OVER BY THE FIRM M/S.AVR GODOWNS BY DULY DEB ITING TO THE CAPITAL ACCOUNT OF M/S.BNR & CO., IN VIEW OF THE ABOVE TRANSACTION, THE BNR & CO IS ONE OF THE PARTNERS IN M/S.AVR GODOWNS HAVING 25% SHARE AND GETTING INTEREST ON CAPITAL AND SHARE OF PROFIT. THE FIRM M/ S. BNR & CO HAS BEEN FILING R OI BY DULY OFFERING THE INTEREST RECEIVED ON CAPITAL WITH THE M/S.AVR GODOWNS AS INCOME AND ALSO CLAIMING INTEREST PAID TO ITS PARTNERS AS EXPENDITURE. THE FIRM BNR & CO. IS PAYING INTEREST TO THE PARTNERS EXACTLY THE AMOUNT RECEIVED FROM THE FIRM M/ S. AVR GODOWNS. THE BOTH DEEDS OF PARTNERSHIP ARE AUTHORIZING TO PAY INTEREST ON CAPITALS. BASED ON THE ABOVE FACTS, WE HUMBLY SUBMIT THAT THE INTEREST RECEIVED BY THE ASSESSEE FIRM FROM M/S.AVR GODOWN AS PARTNER IS OFFERED TAX. IN TURN THE ASSESSEE FIRM IS PAYING INTERES T ON CAPITALS OF THE PARTNERS. AT EACH LEVEL THE INTEREST INCOME HAS BEEN OFFERED TO TAX. THERE IS NO BAR IN PAYMENT OF INTEREST TO PARTNERS ON CAPITAL WHICH WAS GENERATED ON CONTRIBUTION OF ASSET TO THE FIRM AS CAPITAL. IF YOUR GOODSELVES VIEW IS CORRECT, THEN THE INTEREST RECEIVED FROM THE FIRM M/S.AVR GODOVWIS ON CAPITAL OF THE ASSESSEE FIRM WHICH WAS GENERATED OUT OF CONTRIBUTION OF THE ASSET IS ALSO NOT TAXABLE. FURTHER ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT THE ASSESSEE FIRM HAD NOT CLAIMED ANY EXP ENDITURE AGAINST THE SHARE INCOME FROM THE FIRM WHICH IS EXEMPT. HENCE THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. WITH REGARD TO INTEREST PAYMENT TO PARTNERS THERE IS A DIRECT NEXUS WITH INTEREST RECEIVED. THE INTEREST RECEIVED ON CAPITAL WITH THE A VR GODOWNS IS BEING PAID TO THE PARTNERS OF THE. ASSESSEE FIRM. IN FACT THE FIRM IS REQUIRED TO PAY INTEREST ON CAPITAL BALANCE OF RS.75,24,636 @ 12%, HOWEVER, THE INVESTMENT 4 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) MADE IN M/S.AVR GODOWNS WAS RS.62,99,350 / - ON WHICH THE ASSESSEE FIRM RECEIVED IN TEREST. THE ASSESSEE FIRM HAS RESTRICTED THE INTEREST TO ITS PARTNERS TO THE EXTENT OF CAPITAL WITH THE AVR GODOWNS. THUS THEREBY THE ASSESSEE FIRM HAS INDIRECTLY APPLIED THE PROVISIONS OF SEC. 14A IN THE BOOKS OF ACCOUNT ITSELF. THERE IS NO NEED OF FURTHE R DISALLOWANCE IN INTEREST PAYMENT U/S. 14A. ON PERUSAL OF THE ASSESSMENT RECORD YOUR GOODSELVES MAY OBSERVE THAT THE ASSESSING OFFICER HAD PASSED ORDER AFTER DUE APPLICATION OF MIND AND HAS FINALIZED THE ASSESSMENT BASED UPON FACTS OF THE CASE. THE ASSESS ING OFFICER HAS MADE PROPER ENQUIRY AND EXAMINED THE RECORDS FROM EACH AND EVERY ANGLE AND HAS TAKEN A PLAUSIBLE VIEW. IT CANNOT BE SAID THAT THERE WAS NON - APPLICATION OF MIND BY HIM. THEREFORE, THE PROPOSED REVIEW U/S. 263 IS MERE CHANGE OF OPINION. THE A SSESSEE IS RELYING ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: MA L BAR INDUSTRIAL COMPANY LIMITED VS. CIT(2000) 243 1TR 83 (SC) COMMISSIONER OF INCOME TAX VS. LUDHIANA V. MAX INDIA LIMITED 295 ITR 282(SC) GRASSIM INDUSTRIES LIMITED VS. CIT 321 1TR 92 (BOMBAY HC) CIT VS. HINDUSTAN LEVER LTD., (2012) 343 ITR 161 (BOMBAY HC) WE FURTHER BRING TO YOUR KIND NOTICE THAT THE CASE WAS SELECTED FOR LIMITED SCRUTINY FOR THE CASS REASON THAT THE DETAILS OF INTEREST EX EMPTION CLAIMED U/S. 14A. THEREFORE THE ISSUE NO:1 IS OUT OF PURVIEW OF THE REVISION PROCEEDINGS. THEREFORE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IT IS THEREFORE HUMBLY REQUESTED TO CO NSIDER THE AFORESAID SUBMISSION AND CLOSE THE PROCEEDINGS'. 3 . THE PR.COMMISSIONER BY CONSIDERING THE EXPLANATION OF THE ASSESSEE GAVE A FINDING THAT AS SEEN FROM THE PROFIT & LOSS ACCOUNT , THE ASSESSEE HAS RECEIVED GROSS INCOME TO THE EXTENT OF RS. 7,51,678/ - WHICH INCLUDES SHARE INCOME FROM M/S. AVR GODOWNS WAS TO TH E EXTENT OF RS. 85,958/ - . A GAINST THE SAID GROSS INCOME, THE ASSESSEE CLAIMED EXPENDITURE TO THE EXTENT OF RS.7,21,027/ - INCLUDING INTEREST PAID TO THE PARTNE R S. AS PER THE PROVISIONS OF SECTION 14A , SO MUCH OF EXPENDITURE AS IS 5 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) ATTRIBUTABLE TO EARNING OF EXEMPT SHARE INCOME IS REQUIRED TO BE DISALLOWED. ACCORDINGLY, HE WAS OF THE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIRECTED THE ASSESSING OFFICER TO PASS A CONSEQUENTIAL ORDER AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 4 . BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT INTEREST PAYMENT MADE TO THE PARTNERS IS NOT ATTRACTS TO SECTION 14A AND THEREFORE THE FINDING GIVEN BY THE PR.COMMISSIONER IS NOT CORRECT. HE RELIED ON THE DECISION OF THE ITAT, PUNE BENCH IN THE CASE OF QUALITY INDUSTRIES VS. JCIT [(2016) 161 ITD 217 (PUNE)] . HE FURTHER SUBMITTED THAT SO FAR AS ALLOWBILITY OF DEPRECIATION IS CONCERNED, SECTION 14A HAS NO APPLICATION. 5. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE PR.COMMISSIONER . 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 7 . IN THIS CASE THE PR.COMMISSIONER BY EXERCISING POWERS CONFERRED IN HIM U/SEC. 263 IS OF THE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE REASON THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS. 7,21,027/ - INCLUDING 6 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) INTEREST PAID TO THE PARTNERS ATTRACTS THE PROVISIONS OF SECTION 14A AND EVEN IN RESPECT OF DEPRECIATION ALSO 14A APPLIES. THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO PASS CONSEQUENTIAL ORDER BY AFFORD ING REA S ON A BLE OPPORTUNITY OF HEARING . W E FIND THAT THE ABOVE FINDING GIVEN BY THE PR.COMMISSIONER IS CONTRADICTING EACH OTHER . EITHER HE HAS TO DIRECT THE ASSESSING OFFICER TO PASS CONSEQUENTIAL ORDER OR OTHERWISE REASON ABLE OPPORTUNITY, MEANS THE ASSESSING OFFICER HAS TO PASS THE ORDER AFTER HEARING THE ASSESSEE ON MERITS OF THE CASE. WE FIND THAT THE DIRECTION GIVEN BY THE PR.COMMISSIONER IS AMBIG U OUS, THERE F ORE KEEPING IN VIEW OF THE SUBMISSIONS MADE BY THE ASSESSEE WE ARE OF THE OPINION THAT THE ORDER OF THE PR.COMMISSIONER HAS TO BE MODIFIED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO PASS ORDERS DENOVO IN ACCORDANCE WITH LAW WITHOUT INFLUENCING BY THE FI NDING GIVEN BY THE PR.COMMISSIONER . THUS, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 396/VIZ/2019 8 . THE FACTS INVOLVED IN THIS APPEAL ARE SIMILAR TO THE FACTS INVOLVED IN ITA NO. 395/VIZ/2019. THEREFORE, OUR DECISION IN ITA NO.395/VIZ/2019 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL ALSO. 7 ITA NO S . 395 & 396/VIZ/2019 ( M/S. BANDA NARENDRA KUMAR & CO. ) 9 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON TH IS 1 1 T H DAY OF MARCH , 2020 . S D / - S D / - (D.S. SUNDER SINGH) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 1 T H MARCH , 20 20 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. BANDA NARENDRA KUMAR & CO., NH - 5, NEAR AVR GODOWNS, TETALI POST, TANUKU MANDAL, WEST GODAVARI DISTRICT. 2. THE REVENUE ITO, WARD - 1, TANUKU. 3. THE PR. CIT , RAJAHMUNDRY. 4. THE D.R . , VISAKHAPATNAM . 5. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.