M/S TIP TOP PACKAGING , Mumbai V. ITO WARD 26(3)(5), Mumbai

ITA 3984/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8357 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 04-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Keywords: Business income; Depreciation; Set aside
• Section: 40(b)

Judgement Text

INTHEINCOMETAX APPELLATETRIBUNAL MUMBAI BENCHSMCMUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER)AND SHRI MANISHBORAD (ACCOUNTANT MEMBER) ITANO.3984/MUM/2019 ASSESSMENT YEAR:2013-14 M/STIP TOPPACKAGING, D-02, ANSAINDUSTRIAL ESTATE, SAKI VIHARROAD, ANDHERI, MUMBAI-400072. VS. INCOMETAX OFFICER, WARD- 26(3)(5), KAUTILYABLDG. BLOCK G, BKC, BANDRA (EAST) MUMBAI-400051 PANNO. AACFT 0032F APPELLANT RESPONDENT ASSESSEEBY : NONE REVENUEBY : MS. SMITAVERMA, DR DATE OF HEARING : 11/08/2021 DATE OF PRONOUNCEMENT : 13/08/2021 ORDER PER MANISHBORAD,A.M. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-38, MUMBAI [IN SHORT CIT(A)] FOR THE ASSESSMENT YEAR 2013-14 DATED 28.02.2019 AND ARISES OUT OF ASSESSMENT COMPLETEDU/S143(3)OF THE INCOMETAXACT, 1961(IN SHORTTHE ACT). THOUGH THE CASE WAS FIXED FOR HEARING ON 02.12.2020, 12.04.2021, 21.06.2021 & 11.08.2021, NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE BENCH ON THE ABOVE DATES. AS THERE IS NON- M/S TIPTOP PACKAGING ITA NO. 3984/M/2019 2 COMPLIANCE ON THE PART OF THE ASSESSEE, WE ARE PROCEEDING TO DISPOSE OFF THIS APPEALONMERITS,AFTEREXAMININGTHE DOCUMENTSAVAILABLEON RECORD. 2. THE GROUNDSOFAPPEAL FILEDBYTHE REVENUE READASUNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST ON PARTNERS CAPITAL ACCOUNT OF RS.1,56,000/- AND REMUNERATION TO THE PARTNER RS.60,000/- MADE BY THE ASSESSING OFFICER IS WITHOUT PROPERTY CONSIDERING THE FACTS AND PROVISION OF SECTION 40(B) OF THE INCOME TAX ACT, AND TERMS OF PARTNERSHIPDEED. 2. THELD.CIT(A)HASERREDINLAWANDONFACTSINCONFIRMINGTHECOMMISSIONINCOME OF RS.13,480/- AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME WITHOUT PROPERLY CONSIDERING THEFACTS ANDCIRCUMSTANCES OF THECASE. 3. THE LD. INCOME TAX OFFICER HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.74,395/- ON MOTORCAR WITHOUT PROPERLY CONSIDERING THEFACTS ANDCIRCUMSTANCES OF THECASE. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL. THE RETURN OF INCOME FOR AY 2013-14 DECLARING INCOME OF RS.1,36,880/-. THE CASE WAS SELECTED FOR SCRUTINY FOLLOWED BY SERVING OF NOTICES U/S143(2)AND142(1)OFTHEACT.INTHEAPPEALRECORDSWEFINDTHATTHEASSESSEE HAS ALSO SUBMITTED REVISED COMPUTATION OF INCOME DECLARING INCOME AT RS.26,438/- AS AGAINST THE INCOME OF RS.1,36,880/- FURNISHED IN THE ORIGINAL RETURN. HOWEVER, IN THE ASSESSMENT ORDER THERE IS NO REFERENCE TO THIS REVISED COMPUTATIONOFINCOME. 4. DURINGTHECOURSEOFASSESSMENTPROCEEDINGS,THELD.AOEXAMINEDCERTAIN TRANSACTIONS AND CAME TO THE CONCLUSION THAT THE INTEREST THAT ASSESSEE IS NOT ENTITLED TO CLAIM THE INTEREST OF RS.1,56,000/- PAID TO PARTNERS AS THERE WAS M/S TIPTOP PACKAGING ITA NO. 3984/M/2019 3 NEGATIVEBALANCEINTHEPARTNERSCURRENTCAPITALACCOUNTANDALSOTHELOANTAKEN FROM PARTNER HAS NOT BEEN USED FOR BUSINESS PURPOSES. THE LD. AO ALSO DISALLOWED THE CLAIM OF REMUNERATION PAID AT RS.60,000/- STATING THAT NO BUSINESS WAS CARRIED OUT DURING THE YEAR. LD. AO ALSO DISALLOWED THE SOCIETY CHARGESOFRS.49,576/-.THELD.AOMADEDISALLOWANCEU/S14AATRS.1008/-AND DENIED THE CLAIM OF DEPRECIATION OF CAR AT RS.74,395/- AND DEPRECIATION ON BUILDING OF RS.33,562/-. THE LD. AO TREATED THE COMMISSION INCOME OF RS.13,480/- AS INCOME FROM OTHER SOURCES WHICH WAS SHOWN BY THE ASSESSEE AS BUSINESS INCOME. THOUGH THE ASSESSEE FILED REVISED COMPUTATION OF INCOME BUT LD. AO TOOK THE BASIS OF INCOME SHOWN IN THE ORIGINAL RETURN OF INCOME AT RS.1,36,876/-ANDAFTERMAKINGNECESSARYADDITIONSASDISCUSSEDABOVEASSESSED INCOME ATRS.3,67,420/-. 5. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND PARTLY SUCCEEDED AS LD. CIT(A) AFTER APPRECIATING THE DOCUMENTARY EVIDENCE FILED BY THEASSESSEEASWELLASTHEREVISEDCOMPUTATIONOFINCOMEGAVEPARTRELIEFTOTHE ASSESSEE. 6. NOW THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL AGAINST THE ADDITIONS SUSTAINED BYLD.CIT(A).SINCENONE APPEAREDONBEHALFOFTHEASSESSEE,ONLYTHE ARGUMENTS OF LD. DEPARTMENTAL REPRESENTATIVE (DR) WERE NOTED WHO RELIED ON THE FINDINGSOF BOTHTHE LOWERAUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD. WE NOTE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ESTABLISHED FOR RUNNING THE BUSINESS OF TRADING IN IRON AND STEEL. THERE ARE TWO PARTNERS HAVING FIXED M/S TIPTOP PACKAGING ITA NO. 3984/M/2019 4 CAPITAL AND CURRENT CAPITAL ACCOUNT. THE ASSESSEE HAS CHALLENGED VARIOUS ADDITIONSUSTAINEDBY LD.CIT(A)AND SAME ARE DEALT ASFOLLOWS. 8. AS REGARDS GROUND NO. 1 REGARDING DISALLOWANCE OF INTEREST PAID TO PARTNERS AT RS.1,56,000/- AND REMUNERATION TO THE PARTNERS AT RS.60,000/-, WE OBSERVED THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND PARTNERS ARE ENTITLED TO REMUNERATION AND INTEREST ON CAPITAL AS PER THE CONDITIONS PROVIDED IN THE PARTNERSHIPDEED.BOTHINTERESTANDREMUNERATIONAREAPPROPRIATIONOF PROFIT.IT IS NOT IN DISPUTE THAT THE AMOUNT PAID TO PARTNERS BY THE FIRM TOWARDS INTEREST AND REMUNERATION HAS BEEN DULY REFLECTED BY THEM IN THEIR RESPECTIVE RETURN OF INCOME. BOTH THE LOWER AUTHORITIES DENIED THE CLAIM OF INTEREST ALLEGING THAT THERE WAS NEGATIVE BALANCE IN CURRENT CAPITAL ACCOUNT AND ALSO DENIED REMUNERATION ALLEGINGTHAT NO BUSINESSWASCARRIEDOUTDURINGTHE YEAR. 9. WE HOWEVER DO NOT FIND ANY MERIT IN THE FINDINGS OF BOTH THE LOWER AUTHORITIES BECAUSE THE ASSESSEE IS INTO BUSINESS OF TRADING IN IRON AND STEEL. MAINTAINING TWO CAPITAL ACCOUNTS I.E. FIXED AND CURRENT IS NOT PROHIBITED UNDER THE LAW. NO OTHER INTEREST HAS BEEN PAID TO OTHER PARTIES. THE INTEREST HAS BEEN RIGHTLYCALCULATEDONTHEAMOUNTOUTSTANDINGIN THE CAPITALACCOUNTANDISNOTIN EXCESS OF THE LIMIT PROVIDED UNDER THE ACT. THE SAME DESERVES TO BE DISALLOWED AS EXPENDITURE I.E. APPROPRIATION OF PROFIT. SIMILARLY, THE ASSESSEE HAS EARNED BUSINESS INCOME IN THE FORM OF COMMISSION, WHICH THOUGH SMALL IN TERMS OF INCOME BUT NEVERTHELESS IT HAD EARNED BUSINESS INCOME. EARNING MORE OR LESS INCOME DEPENDS ON YEAR TO YEAR WORKING OF THE FIRM. THE REMUNERATION PAID TO PARTNERSISHAVINGA MINIMUMLIMIT WHICH THE FIRM HASTO PAYTHE PARTNERS.THIS AMOUNT MAY INCREASE DEPENDING OF THE PROFIT BUT WITHIN THE LIMITS PROVIDED UNDER THE PROVISIONS OF INCOME TAX ACT. THE ALLEGED SUM OF REMUNERATION IS M/S TIPTOP PACKAGING ITA NO. 3984/M/2019 5 MINIMUM SALARY PAID TO PARTNERS FOR LOOKING AFTER THE WORKING OF THE PARTNERSHIP FIRM. WE THEREFORE, UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE-FIRM IS ENTITLED TO CLAIM EXPENDITURE IN THE FORM OF INTEREST TO PARTNERS AT RS.1,56,000/- AND REMUNERATION AT RS.60,000/- UNDER THE PROVISION OF SECTION 40(B) OF THE ACT. ACCORDINGLY,GROUNDNO.1OF THEASSESSEESAPPEALISALLOWED. 10. AS REGARDSGROUNDNO.2CHALLENGINGTHAT BOTHTHE LOWERAUTHORITIESERRED IN TREATING THE COMMISSION INCOME AS INCOME FROM OTHER SOURCES, WE FIND THAT ASSESSEE DISCLOSED THE COMMISSION INCOME IN THE FINANCIAL STATEMENTS AT RS.13,480/-.THELD.AOHASGIVENNOREASONFORTREATINGTHISSUMASINCOMEFROM OTHER SOURCES. NO EFFORTS WERE MADE BY THE LD. CIT(A) ALSO TO EXAMINE THE COMMISSION INCOME SHOWN BY ASSESSEE FIRM, HE ALSO DID NOT GAVE ANY SPECIFIC REASON FOR TREATING IT AS INCOME FROM OTHER SOURCES. UNDER THESE FACTS, WE SET ASIDE THE FINDING OF LD. CIT(A) AND TREAT THE INCOME FROM COMMISSION AT RS.13,480/- ASBUSINESSINCOME. 11. AS REGARDS GROUND NO. 3 CHALLENGING THE ACTION OF BOTH THE LOWER AUTHORITIES DENYING CLAIM OF DEPRECIATION OF MOTOR CAR AT RS.74,395/-, WE FIND THATTHEDEPRECIATIONCLAIMMADEONTHEMOTORCARISNOTFORTHEFIRSTTIME.MOTOR CASEWASPURCHASEDINTHEEARLIERYEAR.WDVASON01.04.2012WASRS.4,95,965/- . ASSESSEE FIRM IS MAINLY IN BUSINESS OF TRADING IRON AND STEEL. IT ALSO EARNED COMMISSION INCOME DURING THE YEAR. JUST FOR THE REASON THAT IT HAD MAJORLY EARNEDINCOMEFROMHOUSEPROPERTIESCANNOTBEA SOUNDBASISTODENYTHECLAIM WHICHISBEENREGULARLYMADE BYTHEASSESSEEINTHE PREVIOUSYEAR.WETHUSFIND NO MERIT IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND THUS SET ASIDE M/S TIPTOP PACKAGING ITA NO. 3984/M/2019 6 THE FINDING OF LD. CIT(A) AND DELETE THE DISALLOWANCE OF DEPRECIATION OF RS.74,395/- ANDALLOWTHE GROUNDNO.3. 12. IN THE RESULT,ALL THE GROUNDSOF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. IN THE RESULT,THE APPEALFILEDBYTHE ASSESSEEISALLOWED. ORDER PRONOUNCEDINTHEOPENCOURTON 13/08/2021. SD/- SD/- ( SAKTIJIT DEY ) ( MANISHBORAD ) JUDICIALMEMBER ACCOUNTANTMEMBER MUMBAI; DATED:13/08/2021. RAHUL SHARMA,SR. P.S. COPYOFTHEORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT,MUMBAI 6. GUARDFILE. BY ORDER, //TRUE COPY// (DY./ASSISTANTREGISTRAR) ITAT,MUMBAI