M/s DD Pati & Others, Bhubaneswar V. ACIT, Bhubaneswar

ITA 412/CTK/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52382 (ITAT-CUTTACK)
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 03-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2010
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: B PANDA
• Keywords: Depreciation
• Section: 44AD; 143(3)

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 412/CTK/2010 (ASSESSMENT YEAR 2007 - 08) M/S.D.D.PATI & OTHERS, M - 80, OSHB COLON Y, NAGESWR, TANGI, BHUBANESWAR PAN: AACFD 2716 J VERSUS ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.PANDA, AR FOR THE RESPONDENT S MT. PARAMITA TRIPATHY, DR ORDER SHRI K.K.GUPTA, ACCOU NTANT MEMBER : THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON CONFIRMING THE DISALLOWANCE OF SALARY AND INTEREST TO PARTNERS EVEN AFTER ACCEPTING THE ESTIMATION OF THE INCOME OF THE ASSESSEE AT 11% OF THE GROSS RECEIPTS, THE ASSESSEE BEING A CONTRACTOR WAS SUBJECTED TO PROCEEDINGS UNDER THE PROVISIONS OF SECTION 143(3) OF THE INCOME - TAX AT,1961. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A FIRM OF CIVIL CONTRACTOR SPECIA LIZED IN CONSTRUCTION OF BRIDGES IN THE VILLAGE AREAS AND EXECUTES ORDERS FROM GOVERNMENT OF ORISSA. THE ASSESSEE FILED THE RETURN OF INCOME OF 20 ,62,783 WHICH WAS SCRUTINIZED U /S.143(3). THE ASSESSING OFFICER PASSED THE ORDER U/S.143(3) R.W.S. 145(3) IN DICATING THAT THE NET PROFIT IS TO BE ESTIMATED AT 11% WHEREFROM HE ALLOWED DEPRECIATION ONLY. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY INDICATING THAT THE CLAIM OF SALARY AND REMUNERATION TO PARTNERS WAS TO B E ALLOWED INSOFAR A S THE ASSESSING OFFICER IN HIS ORDER HAD CLEARLY NOTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 - 03 HAD ALLOWED THE CLAIM OF GRANTING DEPRECIATION ON AN ESTIMATION OF 11% NP. THE LEARNED CIT(A) HOWEVER CONSIDERED THE CASE OF THE ASSESSEE BY HOLDING THAT THIS IS SUE DIE NOT REQUIRE FURTHER CONSIDERATION AS A MATTER FOR ITA NO.412/CTK/2010 2 SEPARATE ALLOWANCE OF SALARY AND INTEREST TO THE PARTNERS AS THE ASSESSING OFFICER HAD RELIED O N THE ORDER OF THE TRIBUNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2002 - 03 WHEN THE SIMILAR ESTIMATION WAS RES ORTED TO BY THE ASSESSING OFFICER AND THE DISALLOWANCE ON DEPRECIATION AND SALARY & REMUNERATION TO PARTNERS WERE APPEALED BEFORE THE FIRST APPELLATE AUTH ORITY, THE LEARNED CIT(A) HAD GRANTED DELETION OF DISALLOWANCE OF SALARY AND REMUNERATION TO THE PARTNERS WHICH WAS NOT APPEALED AGAINST BEFORE THE TRIBUNAL. THEREFORE, THE TRIBUNAL IN THEIR ORDER HAD NOTED THAT THE ESTIMATION , ON THE FACTS AND CIRCUMSTANC ES FOR THE IMPUGNED ASSESSMENT YEAR WAS TO BE CONSIDERED BY ALLOWING DEPRECIATION WHEN THE NP HAS BEEN ESTIMATED IN VIEW OF THE FACT THAT THE NP TO BE ASSESSED WAS TO BE AFTER HAVING CONSIDERED THE ALLOWANCE OF DEPRECIATION AND SALARY & REMUNERATION TO THE PARTNERS AS PROVIDED UNDER THE PROVISIONS OF SECTION 44AD WHEN THE ASSESSING OFFICER CHOSE TO REJECT THE BOOKS RESULT BY INVOKING THE PROVISIONS OF SECTION 145(3). THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT FOR THE ASSESSMENT YEAR 2008 - 09 , THE ASSESSING OFFICER HAS HIMSELF CONSIDERED THE CASE OF THE ASSESSEE BY ALLOWING DEPRECIATION WHEN THE ASSESSMENT WAS MADE U/S.143(3 ) WHICH COPY IS BEING FURNISHED. HE POINTED OUT THAT THE PARTNERS ARE GIVEN INTEREST ON THE CAPITAL BALANCE AND THE SALA RY IS GIVEN TO THE PARTNERS ON THEIR WORKING IN ACCORDANCE WITH THE PARTNERSHIP DEED HAVE BEEN DISALLOWED WITHOUT BRINGING ON RECORD ANY VIOLATION TO INVOK E THE PROVISIONS OF SECTION 184(5) INSOFAR AS THE ASSESSMENT HAS BEEN FRAMED IN THE STATUS FIRM WHI CH MAY KINDLY BE PERUSED. THE ASSESSING OFFICER HAS CATEGORICALLY NOTED THAT THE DISALLOWANCE OF SALARY TO THE PARTNERS IS RESTRICTION AS GIVEN IN SECTION 40(B) THEREFORE COULD NOT BE VISITED IN VIEW OF ESTIMATION OF INCOME AT A HIGHER AMOUNT WHEN THE ITA NO.412/CTK/2010 3 COMP UTATION OF INTEREST ON CAPITAL OF THE PARTNERS AND SALARY & REMUNERATION COMPLIES WITH IN THE SAID RESTRICTIONS. 4. THE LEARNED DR OPPOSED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE BY INDICATING THAT THE TRIBUNAL HAD ALLOWED ONLY THE DEPRECIAT ION TO BE CONSIDERED FOR REDUCTION IN THE NP SO ESTIMATED @11% INSOFAR AS THE ASSESSING OFFICER HAD OBSERVED THAT THE ITAT IN ASSESSEES OWN CASE FOR THE AYS 2003 - 04 AND 2004 - 05 WAS TO ALLOW THE CLAIM OF DEPRECIATION ONLY. 5. WE HAVE HEARD THE RIVAL CONTEN TIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . ON CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) FOLLOWED THE TRIBUNALS ORDER WHICH WAS ACTED UPON BY THE AO WITHOUT ADDRESSING TO THE ISSUE IN THE MANNER WHICH HIS PREDECESSOR CIT(A) HAD DONE BY ALLOWING THE SALARY AND INTEREST TO THE PARTNERS FOR THE ASSESSMENT YEAR 2002 - 03. THE NON - DELETION OF DEPRECIATION WAS ONLY THE ISSUE WHICH WAS AGITATED BY THE ASSESSEE BEFORE THE TRIBUNAL AND WAS GRAN TED RELIEF CANNOT BE SAID TO HAVE BEEN A DIRECTION FOR EXCLUDING SALARY & INTEREST TO PARTNERS AS HAS BEEN NOTED BY THE ASSESSING OFFICER. THE LEARNED CIT(A) THEREFORE ERRED IN HOLDING THAT IT WAS THE TRIBUNALS DECISION WHICH RESTRICTED THE DISALLOWANCE O F SALARY AND REMUNERATION TO THE PARTNERS WITHOUT ANY SPECIFIC FINDING BY THE ASSESSING OFFICER . IN VIEW THEREOF, WE ARE INCLINED TO HOLD THAT THE ESTIMATION OF INCOME FOR NP WHICH IS ARRIVED AT AFTER THE CLAIM OF DEPRECIATION, INTEREST AND SALARY TO PART NERS WAS TO BE CONSIDERED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT WHEN NO SPECIFIC REASON HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER OR THE LEARNED CIT(A) FOR DISALLOWANCE THEREOF. ACCEPTANCE OF 11% INCOME ON THE BASIS OF GROSS TURNOVER H AS TO BE READ WITH THE CLAIM THERETO IN THE PROFIT & LOSS ACCOUNT ITA NO.412/CTK/2010 4 WHEN THE DISALLOWANCE THEREIN MAY BE RESTRICTED FROM 89% ALLOWABLE . THE PROVISIONS RELATING TO DISALLOWANCE OF SALARY AND INTEREST TO PARTNERS HAD BEEN MADE SPECIFIC WHEN AN ASSESSMENT PASSE D U/S.144 OR ON THE BASIS OF FINDING UNDER THE PROVISIONS OF SECTION 184(5 ) . HAVING FOUND SO, THE ASSESSING OFFICER DID NOT PASS ASSESSMENT U/S.144 THEREFORE CLEARLY ESTABLISHE D THE FINDING OF THE TRIBUNAL THAT DEPRECIATION, INTEREST AND SALARY TO THE PART NERS ARE TO BE ALLOWED FOR CONSIDERATION UNDER THE DEEMING PROVISIONS OF SECTION 44AD WHEN THE NP HAS BEEN ESTIMATED AT 8% FROM THE BUSINESS OF A CONTRACTOR AND DEPRECIATION AND SALARY AND INTEREST TO THE PARTNERS ARE DEEMED TO HAVE BEEN ALLOWED. 6. IN THI S VIEW OF THE MATTER, WE ARE INCLINED TO HOLD THAT THE INTEREST AND SALARY TO PARTNERS WAS A CLAIM MADE WHEN THE ESTIMATION OF NP WAS ON THE BASIS OF GROSS TURNOVER WAS ALREADY DEEMED TO HAVE BEEN ALLOWED WHICH HAS NOT BEEN ADDRESSED BY THE ASSESSING OFFIC ER OR THE LEARNED CIT(A) IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT AND IS DIRECTED TO BE ALLOWED THERE FROM BEING 11% OF THE GROSS TURNOVER. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 5 TH AUGUST, 2011 S D/ - S D/ - ( K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 5 TH AUGUST, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.D.D.PATI & OTHERS, M - 80, OS HB COLONY, NAGESWR, TANGI, BHUBANESWAR 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER,