DCIT, Faridabad V. M/s. Mewat Grit Udyog, Rewari

ITA 4022/DEL/2011

• Counselvise Citation: 402220114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 05-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GUNJAN P RASAD
• Assessee Lawyers: SURESH ANAND
• Keywords: Depreciation; Search and seizure
• Section: 143(3); 133A; 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, A.M. AND SHRI RAJPAL YADAV, JM ITA NO: 4022/DEL/2011 ASSESSMENT YEAR : - 2003-04 DY.CIT, C.C. II VS. M/S MEWAT GRIT UDYOG FARIDABAD BEHIND PNB BUILDING QUTUBPUR, REWARI PAN: : AABFM 5886 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GUNJAN PRASAD, CIT(DR) RESPONDENT BY : SHRI SURESH ANAND, FCA O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD.CIT(A)-I, LUDHIANA DT. 3.6.2011 FOR ASSESSMENT Y EAR 2003-04. 2. FACTS IN BRIEF:- THE ASSESSEE IS A PARTNERSHIP FIRM. IT WAS CONSTITUTED ON 12 TH DAY OF MARCH, 2003 BY FOUR PARTNERS I.E. 1. SHRI N K GUPTA; 2. SHRI KL GUPTA; 3. SHRI BK GUPTA AND 4. M A SANTOSHI MARBLES PVT.LTD. THE PARTNERSHIP WAS CONSTITUTED SUBSEQUEN T TO THE DEMISE OF SMT.IMARTI DEVI ON 11.3.2003. SMT. IMARTI DEVI WA S A PARTNER IN MEWAT GRIT UDYOG, A PARTNERSHIP FIRM ALONG WITH SHRI NK GUPTA, KL GUPTA AND BK GUPTA VIDE PARTNERSHIP DEED DT. 7 TH JUNE, 2002. THIS PARTNERSHIP WAS OF THE MOTHER AND THREE BROTHERS AND WAS CONSTI TUTED AS PER PARTNERSHIP DEED DT. 7 TH JUNE, 2002. THE PARTNERSHIP WAS AT WILL. A 2 PERUSAL OF THE PARTNERSHIP DEED DT. 7 TH JUNE,2002 REVEALS THAT THERE IS NO CLAUSE OF PROVISION IN THE PARTNERSHIP DEED TO THE EFFECT THAT IN THE EVENT OF DEATH OF ANY OF THE PARTNERS, THE PARTNERS HIP WILL CONTINUE. IN OTHER WORDS ON DEATH OF A PARTNER, IN THE ABSENCE O F A CLAUSE FOR CONTINUANCE, THE PARTNERSHIP FIRM GETS DISSOLVED B Y OPERATION OF LAW, AS PER THE INDIAN PARTNERSHIP ACT. 3. ON THE DEMISE OF SMT.IMARTI DEVI THE PARTNERSHIP FIRM WAS DISSOLVED AS PER PROVISIONS OF S.42C OF THE INDIAN PARTNERSHIP ACT ON 11.3.2003. 4. THE THREE BROTHERS FORMED A FRESH PARTNERSHIP A LONG WITH A PRIVATE LIMITED COMPANY ON 12.3.2003. THE NEW PARTNERSHIP FIRM TOOK OVER THE BUSINESS OF THE OLD PARTNERSHIP FIRM AND AGREED T O CONTINUE THE OLD BUSINESS UNDER THE SAME NAME AND STYLE. THE ASSETS AND LIABILITIES OF THE OLD PARTNERSHIP FIRM WERE TAKEN OVER BY THE N EW PARTNERSHIP FIRM AS PER THE BALANCE SHEET OF THE OLD FIRM AS ON 11.3 .2003. 5. THE ASSESSEE HAD FILED A RETURN OF INCOME FOR TH E OLD PARTNERSHIP FIRM ON 1.12.2003 FOR THE PERIOD 1.4.2002 TO 11.3 .2003, DECLARING AN INCOME OF RS.2,32,00,740/-. THE ACIT, REWARI CIRCL E PASSED AN ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 20 TH MARCH, 2006 DETERMINING THE INCOME AT RS.6,01,860/-. 6. THE ASSESSEE ALSO FILED A RETURN OF INCOME FOR T HE NEW FIRM ON 1.12.2003 FOR THE PERIOD 12.3.2003 TO 31.3.2003 DEC LARING A LOSS OF RS.L,28,85,623/-. THE ACIT, REWARI CIRCLE PASSED A N ORDER U/S 143(3) OF 3 THE INCOME TAX ACT, 1961 DETERMINING THE LOSS AT RS . 27,91,560/-. BOTH THE ORDERS U/S 143(3) HAVE BEEN PASSED BY THE SAME AO ON THE SAME DATE I.E. 26 TH MARCH, 2006. 7. A SEARCH AND SEIZURE WAS CARRIED OUT U/S 132 OF THE INCOME TAX ACT, 1961 ON THE GROUP ON 24.8.2006. SURVEY OPERAT IONS U/S 133A OF THE INCOME TAX ACT, 1961 WAS ALSO CARRIED OUT. NOTICES WERE ISSUED TO THE ASSESSEE U/S 153A OF THE INCOME TAX ACT, 1961. IN RESPONSE THE ASSESSEE FILED TWO SEPARATE RETURNS OF INCOME I.E. ONE FOR THE OLD FIRM FOR THE PERIOD 1.4.2002 TO 11.3.2003 AND THE SECOND FO R THE NEW FIRM FROM 12.3.2003 TO 31.3.2003, AS WAS DONE ORIGINALLY. TH E AO COMPLETED A SINGLE ASSESSMENT OF THE FIRM FOR THE ACCOUNTING YE AR 1.4.2002 TO 31.3.2003 U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 24.12.2008. HE CLUBBED THE INCOMES OF BOTH THE FIRMS. IN THE PRO CESS THE ASSESSEES CLAIM FOR DEPRECIATION ON THE ASSETS IN THE OLD FIR M FOR THE FULL YEAR AND IN THE NEW FIRM AT 50% OF THE ELIGIBLE DEPRECIATION AS THE UTILIZATION OF THE ASSET WAS FOR LESS THAN 180 DAYS WAS REJECTED. 8. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY UPHELD T HE CONTENTIONS OF THE ASSESSEE THAT A SINGLE ASSESSMENT CANNOT BE DONE FO R BOTH THE RETURNS FILED, FOR THE REASON THAT THE RECONSTITUTED PARTNE RSHIP FIRM, AFTER THE DEATH OF THE PARTNER IS A SEPARATE AND AN INDEPENDE NT FIRM. HE RELIED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. 4 SONAL OFFSET PRESS 32 ITD, 582 DELHI AND THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EMPIRE ESTATES 218 ITR 355. 9. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS OF THE CASE IN ALLOWING THE DEPRECIATION AT FULL RATE ON THE SAME ASSETS BY TREATING BOTH THE FIRMS AS SEPARATE ENTITY PARTICULARLY WHEN THE EARLIER FIRM WHICH STAND DISSOLVE ON 11.3.2003 DOES NOT HOLD AND WAS NOT THE OWNER OF THOSE ASSETS AS ON 31 ST MARCH AND WAS, THUS, NOT ENTITLED FOR DEPRECIATION AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 2. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S OF THE CASE IN TREATING THE FIRM FOR TWO DIFFERENT PERIODS AS SEPARATE FIRM S BY IGNORING THE FACT THAT THE ALLEGED NEWLY CONSTITUTED FIRM ADMITTEDLY DID N OT HAVE A SEPARATE PAN WHICH IS MANDATORY REQUIREMENT TO CLAIM THE STATUS OF A SEPARATE FIRM. 3. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.30,46,700/- MADE BY THE ASSESSIN G OFFICER BY ALLOWING THE DEPRECIATION ON THE SAME ASSETS AT FULL RATE. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 5. IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 10. MR.GUNJAN PRASAD, LD.CIT, DR, ARGUING ON BEH ALF OF THE REVENUE SUBMITTED THAT THIS IS A MERE RECONSTITUTION OF A P ARTNERSHIP FIRM AND IT IS A FAMILY AFFAIR AND UNDER SUCH CIRCUMSTANCES TH E CLAIMS MADE BY THE ASSESSEE THAT THEY ARE TWO PARTNERSHIP FIRMS AND TH AT THEY HAVE TO BE ASSESSED SEPARATELY RESULTED IN EXCESSIVE ALLOWANCE OF DEPRECIATION. THE LD.COUNSEL FOR THE ASSESSEE MR.SURESH ANAND ON THE OTHER HAND FILED A PAPER BOOK RUNNING INTO 28 PAGES AND SUBMITTED THA T THE ORIGINAL PARTNERSHIP CONSTITUTED ON 7 TH JUNE, 2002 GOT DISSOLVED DUE TO OPERATION OF LAW, ON THE DEMISE OF ONE OF THE PARTNERS SMT.IM ARTI DEVI. HE RELIED 5 ON THE PROVISIONS TO S.187 SUB-SECTION (2) AND S.1 88 OF THE ACT. HE SUPPORTED THE ORDER OF CIT(A). 11. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL PLACED O N RECORD, WE HOLD AS FOLLOWS:- A PERUSAL OF THE PARTNERSHIP DEED DT. 7 TH JUNE, 2002 REVEALS THE PARTNERSHIP IS AT WILL. THERE IS NO CLAUSE THA T THE PARTNERSHIP WOULD CONTINUE IN THE EVENT OF DEATH OF ANY OF THE PARTNERS. UNDER THE CIRCUMSTANCES THE PARTNERSHIP GETS DISSOLVED BY OP ERATION OF LAW. THUS THE PARTNERSHIP CONSTITUTED ON 7 TH DAY OF JUNE,2002 COMES TO AN END ON 11 TH DAY OF MARCH, 2003. A FRESH PARTNERSHIP DEED WAS EXECUTED ON THE 12 TH DAY OF MARCH, 2003. THIS CANNOT BE TERMED AS A RECONSTITUTED PARTNERSHIP DEED. BOTH THE FIRMS ARE SEPARATE LEG AL ENTITIES. S.187 (2) READS AS FOLLOWS. S.187(2) - FOR THE PURPOSE OF THIS SECTION, THERE IS A CHA NGE IN THE CONSTITUTION OF THE FIRM (A) IF ONE OR MORE OF THE PARTNERS CEASE TO BE PART NERS OR ONE OR MORE NEW PARTNERS ARE ADMITTED, IN SUCH CIRCUMSTANCES THAT O NE OR MORE OF THE PERSONS WHO WERE PARTNERS OF THE FIRM BEFORE THE CH ANGE CONTINUE AS PARTNER OR PARTNERS AFTER THE CHANGE; OR (B) WHERE ALL THE PARTNERS CONTINUE WITH A CHANGE I N THEIR RESPECTIVE SHARES OR IN THE SHARES OF SOME OF THEM: (PROVIDED THAT NOTHING CONTAINED IN CLAUSE (A) SHAL L APPLY TO A CASE WHERE THE FIRM IS DISSOLVED ON THE DEATH OF ANY OF ITS PA RTNERS). 6 S.188 READS AS FOLLOWS:- WHERE A FIRM CARRYING ON A BUSINESS OR PROFESSION I S SUCCEEDED BY ANOTHER FIRM, AND THE CASE IS NOT ONE COVERED BY S.187, SEP ARATE ASSESSMENTS SHALL BE MADE ON THE PREDECESSOR FIRM AND THE SUCCE SSOR FIRM IN ACCORDANCE WITH THE PROVISIONS OF S.170. 12. A COMBINED READING OF THESE SECTIONS LEAVE US I N NO DOUBT THAT SEPARATE ASSESSMENTS HAVE TO BE FORMED. THUS WE UP HOLD THE FINDING OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2012. SD/- SD/- (RAJPAL YADAV) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 30 TH OCTOBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :