The DCIT, Circle-6, Surat V. M/s. Om Terrace, Surat

ITA 440/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60329 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH
• Keywords: Business income; Income from undisclosed sources; Deemed to accrue or arise in india
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND A. MOHAN ALANKAMON Y, AM) ITA NO.440/AHD/2012 A. Y.: 2008-09 THE D. C. I. T., CIRCLE-6, SURAT, ROOM NO.612, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. OM TERRACE, NR. BHANABHAI COLLEGE, UDHNA MAGDALLA ROAD, SURAT 395 007 PA NO. AABFO 3935 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. L. YADAV, SR. DR RESPONDENT BY SHRI RASESH SHAH, AR DATE OF HEARING: 19 -04-2012 DATE OF PRONOUNCEMENT: 11-05-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A )-IV, SURAT DATED 20-10-2011 IN APPEAL NO. CAS-IV/239/10-11, FOR ASSE SSMENT YEAR 2008-09, CHALLENGING THE DELETION ON ACCOUNT OF DIS ALLOWANCE OF EXCESS CLAIM OF REMUNERATION OF RS.23,98,795/- MADE BY THE AO. 2. THE ASSESSEE IS A FIRM FILED ITS RETURN OF INCOM E ON 24-12-2008 DECLARING TOTAL INCOME OF APPROXIMATELY RS.77 LACS. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S 143(3) OF THE IT ACT PURSUANT TO SURVEY CONDUCTED U/S 133A OF THE ACT ON 13- 02-2008. DURING THE COURSE OF SURVEY, A STATEMENT W AS RECORDED U/S 133 OF THE ACT. ONE OF THE PARTNERS OF THE FIRM ADM ITTED THAT THE ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 2 ASSESSEE FIRM HAD UNACCOUNTED INCOME OF RS.65 LACKS OVER AND ABOVE THE REGULAR BUSINESS PROFITS SHOWN IN THE BOO KS OF ACCOUNTS. HOWEVER, IN THE RETURN OF INCOME FILED BY THE ASSES SEE FIRM THIS AMOUNT OF RS.65 LACS WAS NOT SEPARATELY SHOWN AS UNDISCLOSED INCOME DECLARED DURING THE COURSE OF SURVEY INSTE AD SHOWN AS PROFITS EARNED DURING THE YEAR AND CORRESPONDINGLY DECLARED HUGE EXPENDITURE OF RS.52,25,613/- UNDER THE HEAD PARTN ERS SALARY. THE LEARNED AO OPINED THAT THE UNACCOUNTED INCOME OFFER ED DURING THE COURSE OF SURVEY WAS IN THE NATURE OF DEEMED INCOME AND, THEREFORE, CORRESPONDING DEDUCTIONS WHICH WERE OTHERWISE APPLI CABLE TO INCOME UNDER ANY OTHER HEAD SHALL NOT BE APPLICABLE. IN RE SPONSE TO THE SAME, THE ASSESSEE VIDE LETTER DATED 25-11-2012 STA TED THAT THE DISCLOSURE OF RS.65 LACKS WAS MADE ON ACCOUNT OF WI THDRAWALS OF PARTNERS OUT OF UNRECORDED INCOME OF THE ASSESSEE F IRM RECEIVED FROM FLAT HOLDERS AND, THEREFORE THE DISCLOSURE IS ONLY ON ACCOUNT OF UNRECORDED BUSINESS INCOME OF THE ASSESSEE. IT WAS FURTHER STATED THAT PARTNERS OF THE ASSESSEE FIRM HAD MENTIONED TH E SAME IN THE STATEMENT BEFORE THE REVENUE AND THE SAME WAS ACCEP TED AND NO FURTHER INCRIMINATING DOCUMENTS WAS FOUND TO SHOW T HAT THE INCOME OFFERED WAS NOT BUSINESS INCOME. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE LEARNED AO ALLOWED REMUNERATION TO TH E PARTNERS OF RS.28,26,818/- AS AGAINST THE ALLOWABLE CLAIM OF R EMUNERATION OF RS. 52,25,611/- U/S. 40(B) OF THE ACT AND THE PARTNERS HIP DEED. THE LEARNED AO PLACED RELIANCE ON THE FOLLOWING DECISIO NS IN ARRIVING AT HIS CONCLUSION FOR DISALLOWING RS. 23,98,795/-: ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 3 (I) M/S. WHILELINE CHEMICALS VS ITO ITA NO.3509/A HD/2004 DATED 30-08-2005, ITAT AHMEDABAD BENCHES (II) FAKIR MOHD HAJI HASSAN VS CIT, (2001) 247 ITR 290 (GUJ.) 3. THE MATTER TRAVELED BEFORE THE LEARNED CIT(A). T HE LEARNED CIT(A) AFTER ANALYZING THE WRITTEN SUBMISSION OF TH E APPELLANT AND THE CASE LAWS RELIED UPON BY THE LEARNED AO DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: 3. I HAVE GONE THROUGH THE FACTS OF THE CASE. I FI ND THAT THE DECISION IN THE CASE OF FAKIR MOHD HAJI HASAN 247 I TR 290 (GUJ.), RELIED UPON BY THE A. O. TO HOLD THAT INCOM E UNDER THE DEEMING PROVISIONS DO NOT FALL UNDER ANY HEAD OF IN COME WAS DISAPPROVED BY THE SAME COURT IN THEIR SUBSEQUENT D ECISION IN THE CASE OF RADHE DEVELOPERS INDIA LTD. 329 ITR 1 ( GUJ.) AND IT WAS HELD THAT THE ACT DOES NOT ENVISAGE TAXING ANY INCOME UNDER ANY HEAD NOT SPECIFIED IN SECTION 14. THE REA SONABILITY OR OTHERWISE OF PARTNERS REMUNERATION IS DECIDED BY SP ECIFIC PROVISIONS OF SECTION 40(B). IN THE STATEMENT OF TH E APPELLANT, THE INCOME WAS DISCLOSED AS ARISING OUT OF THE BUSI NESS AND THE SOURCE WAS GIVEN AS ON MONEY RECEIVED FROM FLAT H OLDERS. THIS SHOWS THAT THE UNACCOUNTED INCOME HAD THE NATU RE OF BUSINESS INCOME. FURTHER, THE A. O. HAS NOT SHOWN T HAT THE ASSESSEE WAS CARRYING ANY ACTIVITY OTHER THAN BUSIN ESS. HENCE THE INCOME DECLARED DURING SURVEY WAS REQUIRED TO B E TREATED AS BUSINESS INCOME. IT IS THEREFORE HELD THAT THE U NACCOUNTED INCOME DECLARED IN SURVEY, WHICH IN THE CASE OF THE ASSESSEE IS BUSINESS INCOME, WAS REQUIRED TO BE CONSIDERED U/S 40 (B) FOR DETERMINATION OF PARTNERS REMUNERATION. NO DISALLO WANCE FROM PARTNERS REMUNERATION WAS THEREFORE WARRANTED. IN ANY CASE, THE WHOLE EXERCISE OF DISALLOWING PARTNERS REMUNER ATION IS TAX NEUTRAL AS ONLY THE AMOUNT ALLOWED AS DEDUCTION IS REQUIRED TO BE TAXED IN THE HANDS OF THE PARTNERS. FURTHER, THE RELIANCE OF THE A. O. ON THE DECISION IN THE CASE OF M/S. WHITE LINE CHEMICALS IS MISPLACED AS THE DECISION IN THAT CASE WAS RENDERED AFTER UPHOLDING THE REJECTION OF BOOKS FOR ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 4 DISCREPANCIES FOUND AND FOR THE PURPOSE OF ESTIMATI ON OF INCOME AFTER SUCH REJECTION. THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE FROM PARTNERS REMUNERATION IS THEREFO RE DELETED. 4. THE LEARNED DR FORCEFULLY SUBMITTED THAT THE SAL ARY OF THE PARTNERS WAS DELIBERATELY DEBITED TO THE PROFIT AND LOSS OF THE APPELLANT IN ORDER TO COVER UP THE UNDISCLOSED INCO ME AGREED BY ONE OF THE PARTNERS OF THE FIRM DURING THE COURSE OF SU RVEY. FURTHER, HE SUPPORTED THE ORDER OF THE LEARNED AO AND PRAYED TH AT THE SAME MAY BE SUSTAINED. THE LEARNED AR RELIED UPON THE ORDER OF THE LEARNED CIT(A) AND FURTHER PLACED ON RECORD THE ORDERS OF THE ITAT, AHMEDABAD BENCHES IN ITA NO. 556/AHD/2008 DATED 05 -06-2009 IN THE CASE OF M/S. ARIHANT ENTERPRISE VS DCIT, CIR-3, SURAT AND ITA NO.1901/AHD/2009 DATED 25-09-2009 IN THE CASE OF SH REE KHODIYAR CORPORATION VS ACIT, CIR-3, SURAT WHEREIN IT WAS HE LD THAT THE ASSESSING OFFICER DOES NOT HAVE ANY POWER TO GO INT O THE QUESTION OF REASONABLENESS OF REMUNERATION PAID TO A WORKING PA RTNER WHILE EXAMINING AS TO WHETHER OR NOT THE REMUNERATION PAI D EXCEEDS THE LIMITS PRESCRIBED IN SECTION 40 (B) OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE FACTS OF THE CASE ARE THAT ONE OF TH E PARTNERS OF THE APPELLANT HAD AGREED DURING THE COURSE OF SURVEY TH AT THE FIRM WAS IN RECEIPT OF INCOME TO THE EXTENT OF RS.65 LACKS WHIC H WERE NOT ACCOUNTED. SUBSEQUENTLY, THE FIRM HAD DISCLOSED THI S AMOUNT IN ITS PROFIT & LOSS ACCOUNT, BUT HAD DEBITED THE PROFIT & LOSS ACCOUNT WITH SALARY PAID TO THE PARTNERS TO THE EXTENT OF RS.52, 25,613/- WORKED OUT AS PER THE PARTNERSHIP DEED OF THE FIRM AND IN ACCO RDANCE WITH THE ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 5 PROVISIONS OF SECTION 40(B) OF THE ACT. THE LEARNED AO DISALLOWED AN AMOUNT OF RS.23,98,795/- BY HOLDING THAT THE AMOUN T OF RS.65,00,000/- DISCLOSED DURING THE COURSE OF THE S URVEY TO BE TREATED SEPARATELY AS DEEMED INCOME AND THE ALLO WABLE SALARY TO BE WORKED OUT ON THE BALANCE PROFIT IN ACCORDANCE W ITH THE PARTNERSHIP DEED AND PROVISIONS OF 40(B) OF THE ACT . AT THE OUTSET, WE MUST SAY THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISIONS RENDERED BY ITAT AHMEDABAD BENCHES IN THE FOLLOWING TWO CASES- (I) ITA NO.556/AHD/2008 DATED 05-06-2009 M/S.ARIH ANT ENTERPRISE VS DCIT, CIR-3, SURAT WHEREIN IT WAS HELD BY THE IT AT AHMEDABAD D BENCH AS UNDER: 7.3 THE LD. CIT(A) IN THE IMPUGNED ORDER HAS ALSO D RAWN SUPPORT FROM A DECISION OF THE ITAT IN THE CASE OF WHITELINE CHEMICALS (SUPRA) HOLDING THAT INCOME WHICH IS DISC LOSED IN COURSE OF THE SURVEY WOULD HAVE TO BE SHOWN IN THE RETURN IN ADDITION TO NORMAL CURRENT YEARS PROFIT AND CONCLU DED THAT THE ASSESSEE COULD NOT HAVE CREDITED THE SUM TO THE PRO FIT AND LOSS ACCOUNT AND CLAIMED DEDUCTION BY WAY OF REMUNERATIO N TO PARTNERS. WE ARE NOT INCLINED TO ACCEPT THIS CONCLU SION OF THE LD. CIT(A) SINCE THE PARTNER OF THE FIRM CLEARLY STATED IN HIS STATEMENT DURING THE COURSE OF SURVEY THAT THE AMOU NT OF UNDISCLOSED INCOME OF RS.65 LACS HAS BEEN GENERATED ON ACCOUNT OF EXTRA WORK DONE BY THE FIRM, OVER AND AB OVE THE SPECIFICATION GIVEN FOR THE CONSTRUCTION OF ROW HOU SES AND ON- MONEY RECEIVED ON SALE OF PLOTS WHILE BOOKING THE R OW HOUSE AND SALE OF LAND ON BEHALF OF THE LANDLORD. THERE I S NO MATERIAL BEFORE US CONTROVERTING THE AVERMENTS IN THE SAID S TATEMENT. ONCE THE AMOUNT HAS BEEN ASSESSED AS BUSINESS INCOM E, REMUNERATION ADMISSIBLE TO PARTNERS IN TERMS OF THE PARTNERSHIP DEED HAS TO BE ALLOWED IN ACCORDANCE WITH AND WITHI N THE LIMITS STIPULATED UNDER THE PROVISIONS OF SEC. 40(B) OF TH E ACT. ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 6 7.4 HOWEVER, WE FIND THAT THE AO DISALLOWED REMUNER ATION PAID TO SMT. JIGNABEN M. SHAH, INTER ALIA ON THE GR OUND THAT SHE IS NOT A WORKING PARTNER. THE LD. CIT(A) HAS NOT RECORDED ANY FINDINGS ON THIS ASPECT NOR THE LD. AR ON BEHAL F OF THE ASSESSEE PLACED BEFORE US ANY MATERIAL SUGGESTING T HAT SMT. JIGNABEN M SHAH IS ACTIVELY ENGAGED IN CONDUCTING T HE AFFAIRS OF THE BUSINESS OF THE FIRM. EVEN A COPY OF PARTNER SHIP DEED HAS NOT BEEN PLACED BEFORE US. SINCE, IN TERMS OF T HE PROVISIONS OF SEC. 40 (B) OF THE ACT, DEDUCTION ON ACCOUNT OF REMUNERATION TO A WORKING PARTNER ALONE IS ADMISSIBLE IN TERMS O F THE STIPULATIONS IN PARTNERSHIP DEED SUBJECT TO THE LIM ITS PRESCRIBED IN THE AFORESAID PROVISIONS, WE HAVE NO ALTERNATIVE BUT TO RESTORE THE ISSUE OF DEDUCTION OF REMUNERATION TO S MT. JIGNABEN M SHAH TO THE FILE OF THE AO WITH THE DIRECTIONS TO ALLOW SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THAT SMT. JIGNABEN M SHAH IS A WORKING PARTNER WITHIN THE MEA NING OF EXPLANATION 4 TO SEC. 40(B) OF THE ACT AND THEREAFT ER DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW. 7.5 IN VIEW OF THE FOREGOING AND SUBJECT TO OUR DIR ECTIONS IN PARA 7.4 ABOVE, WE SET ASIDE THE IMPUGNED ORDERS OF REVENUE AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALL OW DEDUCTION OF REMUNERATION TO PARTNERS IN TERMS OF PROVISIONS OF SECT. 40(B) OF THE ACT WITHOUT HAVING RECOURSE TO PROVISIONS OF SEC. 40(2) (A) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1 IS DISPOSED OF. (II) ITA NO. 1901/AHD/2009 DATED 25-09-2009 SHREE KHODIYAR CORPORATION VS ACIT, CIR-3, SURAT ITAT AHMEDABA D D BENCH ON AN IDENTICAL ISSUE HELD AS UNDER: 3. IN FURTHER APPEAL BEFORE US, THE ASSESSEE HAS PLACED RELIANCE ON THE ORDER OF THE AHMEDABAD D BENCH IN ITA NO.556/AHD/2008 (AY 2004-05), DATED 5-6-2009 IN THE CASE OF M/S. ARIHANT ENTERPRISE, SURAT VS DCIT TO CONTEND T HAT THE VIEW TAKEN BY THE INCOME-TAX AUTHORITIES IS WRONG. FROM THE COPY OF THE ORDER PLACED BEFORE US, WE FIND THAT IN PARAGRA PH 7.2 OF THE ORDER THE TRIBUNAL HAS CONSIDERED THE ISSUE. THE TR IBUNAL HAS ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 7 REFERRED TO THE JUDGMENT OF THE HONBLE GUJARAT HIG H COURT IN YOGANAND TEXTILES (2002 ITR 869) AND THE EARLIER OR DER OF THE AHMEDABAD BENCH IN THE CASE OF CHHAJED STEEL CORPOR ATION (69 TTJ 232) AND HELD THAT WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSING OFFICER DOES NOT HAVE ANY POWER TO GO INTO THE QUESTION OF REASONABLENESS OF REMUNERATION PAID TO A WORKING PARTNER WHILE EXAMINING AS TO WHETHER OR NOT THE REMUNERATION PAID EXCEEDS THE LIMITS PRESCRIBED IN SEC. 40(B) OF THE ACT. THIS VIEW OF OURS IS SUPPORTED BY THE DECISION OF A CO-ORDINATE BENCH IN THE CASE OF CHHA JED STEEL CORPORATION (SUPRA). IN THIS VIEW OF THE MATTER, THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSEE, W HICH IS THE SAME AS IN THE PRESENT CASE, AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. SINCE OUR COORDINATE BENCHES HAD DECIDED THE ISS UE OF GRANTING DEDUCTION IN RESPECT OF SALARY WORKED OUT AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT AND IN ACCOR DANCE WITH THE PARTNERSHIP DEED FROM THE UNDISCLOSED INCOME DISCLO SED DURING THE COURSE OF SURVEY CONSIDERING THE SAME AS BUSINESS I NCOME AS CITED IN THE DECISIONS SUPRA, WE DO NOT HAVE ANY HESITATI ON TO UPHOLD THE DECISION OF THE LEARNED CIT(A) IN THIS CASE BEFORE US BECAUSE THE FACTS ARE IDENTICAL. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED ORDER PRONOUNCED IN THE OPEN COURT ON 11-05-2012 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER ITA NO.440/AHD/2012 (AY: 2008-09) THE DCIT, CIR-6, SURAT VS M/S. OM TERRACE 8 LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD