M/s. S.S.Minerals, Jajpur V. ACIT, Cuttack

ITA 41/CTK/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3858 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A TIGGA
• Assessee Lawyers: M UDAYPURIA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH , CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND KULDIP SINGH JUDICIAL MEMBER ITA NO.41/CTK/2015 ASSESSMENT YEAR : 2010 - 2011 M/S. S.S.MINERALS, SUKINDA, JAJPUR VS. ACIT, CIRCLE 1(2), CUTTACK PAN/GIR NO. AAEFS 6062 Q (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI M.UDAYPURIA, AR REVENUE BY : SHRI A.TIGGA, DR DATE OF HEARING : 24 /04/ 2017 DATE OF PRONOUNCEMENT : 26 /04/ 2017 O R D E R PER N.S.SAINI, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - CUTTACK, DATED 20.10.2014 , FOR THE ASSESSMENT YEAR 2010 - 2011 . 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.11,39,911/ - BEING SALARY AND INTEREST PAYABLE TO PARTNERS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED 2 ITA NO.41/CTK/2015 ASSESSMENT YEAR :2010 - 2011 FACTS OF THE CASE ARE THAT THE ASSESSING OFFICE R FOUND THAT THE ASSESSEE HAS CLAIMED SALARY AND INTEREST TO THE PARTNERS OF RS.25,39,911/ - . THE ASSESSING OFFICER FURTHER FOUND FROM THE LEDGER ACCOUNTS OF THE PARTNERS THAT THEY HAVE DRAWN AN AMOUNT OF RS.14,00,000/ - AS AGAINST THE CLAIM OF THE FIRM REGARDING SALARY & INTEREST OF RS.25,39,911/ - . SINCE THE ASSESSEE WAS FOLLOWING CASH METHOD OF ACCOUNTING, THE ASSESSING OFFICER ALLOWED RS.14,00,000/ - AND DISALLOWED BALAN CE AMOUNT OF RS.11,39,911/ - . 4. ON APPEAL BEFORE THE CIT(A) IT WAS SUBMITTED THAT BY THE ASS ESSEE THAT INTEREST & SALARY PAYABLE TO PARTNERS AS PER PARTNERSHIP DEED IN ACCORDANCE WITH SECTION 40(B) OF THE ACT,WHICH HAS TO BE ALLOWED AS IT IS A MODE OF DIVISION OF PROFIT. LD A.R. RELIED ON THE DECISION OF P&H HIGH COURT IN THE CASE OF CIT VS. SUP REME BUILDERS, 217 CTR 281 AND THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CITG VS. VIJAY CONSTRUCTION, 213 CTR 105. 5. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: THE APPELLANT IS FOLLOWING CASH METHOD OF ACCOUNTING. THOUGH THE INTEREST AND SALARY CREDITED TO THE PARTNERS CAPITAL ACCOUNT AS PER THE BOOKS OF THE APPELLANT WERE AT RS.25,39,911/ - , THE TOTAL AMOUNT WITHDRAWN BY THE PARTNERS WERE RS.14,00,000/ - DURING THE YEAR. THE ABOVE CITATIONS HOLD THAT P AYMENT OF SALARY AND INTEREST TO PARTNERS IS TO BE GOVERNED BY PROVISIONS OF SECTION 40(B) OF THE ACT AND THE PARTNERSHIP DEED. THE AO HAS NOT DISPUTED THE SAME BUT SINCE THE ASSESSEE IS FOLLOWING CASH METHOD OF ACCOUNTING; 3 ITA NO.41/CTK/2015 ASSESSMENT YEAR :2010 - 2011 DEDUCTION CAN ONLY BE GIVEN FOR THE AMOUNTS WITHDRAWN BY THE PARTNERS DURING THE YEAR I.E. RS.14,00,000/ - . THE AO IS CORRECT IN ADDING THE BALANCE AMOUNT OF RS.11,39,911/ - TO THE TOTAL INCOME OF THE APPELLANT. THE ABOVE CREDITS SHALL BE ALLOWED IN THE SUBSEQUENT YEARS IF WITHDRAWN BY THE PARTNERS OF THE APPELLANT ONLY. 6. BEFORE US, LD AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE NAGPUR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIJAY KUMAR PATNI, 1 08 ITD 409 (NAG) WHERE, IT WAS HELD THAT INTEREST AND REMUNERATION CREDITED TO THE ACCOUNT OF THE PARTNERS TANTAMOUNT TO RECEIPTS BY THEM A ND IS CHARGEABLE IN THEIR HANDS NOTWITHSTANDING NON - WITHDRAWAL EVEN THOUGH PARTNERS ARE FOLLOWING CASH SYSTEM OF ACCOUNTING. 7. LD D.R. RELIED ON THE ORDERS OF LOWER AUTHORITIES. 8. IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE FIRM CLAIM ED DEDUCTION OF SALARY AND INTEREST TO THE PARTNERS OF RS.25,39,911/ - . ON VERIFICATION OF THE LEDGER ACCOUNT OF THE PARTNERS, THE ASSESSING OFFICER FOUND THAT THEY HAVE WITHDRAWN AN AMOUNT OF RS.14,00,000/ - AS AGAINST THE CLAIM OF THE FIRM OF SALARY AND I NTEREST OF RS.25,39,911/ - . THE ASSESSING OFFICER OBSERVED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE FIRM IS CASH METHOD AND, THEREFORE, ALLOWED DEDUCTION OF RS.14,00,000/ - AND DISALLOWED BALANCE AMOUNT OF RS.11,39,911/ - . 4 ITA NO.41/CTK/2015 ASSESSMENT YEAR :2010 - 2011 9. ON APPEAL, THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. BEFORE US, LD A.R . RELIED ON THE DECISION OF NAG PUR BENCH OF THE TRIBUNAL IN THE CASE OF VIJAY KUMAR PATNI (SUPRA). WE FIND THAT THE TRIBUNAL IN THAT CASE HELD AS UNDE R : 8.1 IT IS NOW SETTLED LAW THA T THE MERCANTILE SYSTEM OF ACCOUNTANCY TAKES NOTE OF 'PAYMENT DUE' WHEREAS CASH SYSTEM OF ACCOUNTING RECOGNIZES ONLY PAYMENT RECEIVED. UNDER THE CASH SYSTEM OF ACCOUNTING, ONLY THE ACTUAL RECEIPTS OR DISBURSEMENT ARE ACCOUNTED FOR. THE QUESTION, THEREFORE, TO BE DECIDED IS WHETHER THE AMOUNT CREDITED BY THE FIRM TO THE INDIVIDUAL ACCOUNT OF THE PARTNERS IN THEIR CAPITAL ACCOUNT WITH FIRM CAN BE SAID TO HAVE BEEN RECEIVED BY THE PARTNERS OR NOT. IT IS AGREED FACT THAT IN THE PARTNERSHIP DEED THERE IS NO PROH IBITION FOR THE PARTNER WITHDRAWING THE SUM LYING TO THE CREDIT OF HIS ACCOUNT WITH THE FIRM. THUS IT CAN BE SAID THAT THE FIRM HAS MADE THE AMOUNT UNCONDITIONALLY AVAILABLE TO THE ASSESSEE PARTNERS. THE PARTNERS ARE ENTITLED TO WITHDRAW SUCH AMOUNT AT ANY POINT OF TIME JUST LIKE A DEPOSIT IN THE BANK ACCOUNT. THE PARTNERSHIP FIRM CREDITS THE INTEREST ON THE BASIS OF AMOUNT STANDING TO THE ACCOUNT OF PARTNERS. SUCH AMOUNT ALSO INCLUDES THE SHARE OF PROFIT AND INTEREST DUE AND PAYABLE FOR EARLIER YEARS. THE INTEREST PAYABLE TO THE PARTNERS IS AN ALLOWABLE DEDUCTION UNDER S. 36(1)(III) OF THE ACT SUBJECT TO THE CONDITION PRESCRIBED IN S. 40(B) OF THE ACT. AS PER S. 36(1)(III) INTEREST PAYABLE IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS IS ADMISS IBLE DEDUCTION. THUS, WHEN THE PARTNERS CLAIMED THE DEDUCTION BY WAY OF INTEREST IN THE HANDS OF FIRM, IT WAS HELD TO BE CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. THIS PROVES THAT THE SHARE OF PROFIT AND INTEREST CREDITED IN EARLIER YEAR BECOMES THE CA PITAL BORROWED IN THE SUBSEQUENT YEAR. THIS PROVES THAT THE AMOUNT OF INTEREST WAS PAID BY THE FIRM TO ITS PARTNERS WHO IN THEIR TURN HAVE LENT THE AMOUNT TO THE FIRM IN WHICH THEY ARE PARTNERS. THUS IT CAN BE HELD THAT THE AMOUNT OF INTEREST CREDITED TO T HE PARTNERS AND WHICH WAS MADE UNCONDITIONALLY AVAILABLE TO THE PARTNERS IS TO BE TREATED AS AMOUNT RECEIVED BY THE PARTNERS. HENCE EVEN IN THE CASE WHERE THE PARTNERS ARE FOLLOWING CASH SYSTEM OF ACCOUNTING, SUCH INTEREST IS DEEMED TO HAVE BEEN RECEIVED B Y THE PARTNERS. SCOPE OF TOTAL INCOME PROVIDED IN S. 5(1) INCLUDES ALL INCOME RECEIVED OR DEEMED TO BE RECEIVED. THE WITHDRAWAL BY THE PARTNER FROM THE FIRM IS THEIR OWN ACTION. THE CREDIT IN THE ACCOUNT OF THE PARTNERS BY THE FIRM IMPLIES PAYMENT AND WITH DRAWAL BY THE PARTNER IN NO WAY CAN BE CONSIDERED AS THE ONLY AMOUNT RECEIVED 5 ITA NO.41/CTK/2015 ASSESSMENT YEAR :2010 - 2011 BY SUCH PARTNER. THUS THE ACTION OF WITHDRAWAL WILL NOT GOVERN THE PROVISION OF EVEN THE CASH SYSTEM OF ACCOUNTING WHICH CAN BE SAID TO HAVE BEEN RECEIVED BY THE PARTNERS. 11. IN THE PRESENT CASE, THE SALARY AND INTEREST HAS BEEN CREDITED TO THE ACCOUNT OF THE PARTNERS AND IT WAS UNCONDITIONAL AVAILABLE TO THE PARTNERS AND, THEREFORE, IN VIEW OF THE ABOVE DECISION, THE SAME IS TO BE TREATED AS AMOUNT RECEIVED BY THE PARTNERS NOT WITHSTANDING NON - WITHDRAWAL EVEN THOUGH PARTNERS ARE FOLLOWING CASH SYSTEM OF ACCOUNTING. THEREFORE, IN OUR CONSIDERED VIEW, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING RS.11,39,911/ - OUT OF SALARY AND INTEREST PAID TO THE PARTNERS ON THE GROU ND THAT THE ASSESSEE WAS FOLLOWING CASH METH OD OF ACCOUNTING AND AMOUNT OF RS.14,00,000/ - WAS WITHDRAWN BY THE PARTNERS. WE, THEREFORE, SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.11,39,911/ - AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 26 /04/2017 IN THE PRESENCE OF PARTIES. SD/ - SD/ - (KULDIP SINGH) ( N.S SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER CUTTACK; DATED 26 /04/2017 B.K.PARIDA, SPS 6 ITA NO.41/CTK/2015 ASSESSMENT YEAR :2010 - 2011 COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT :M/S. S.S.MINERALS, SUKINDA, JAJPUR 2. THE RESPONDENT. ACIT CIRCLE 1(2), CUTTACK 3. THE CIT(A) CUTTACK 4. PR.CIT , CUTTACK 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//