M/s. Sreeram Traders, Cuttack V. CIT, Cuttack, Cuttack

ITA 447/CTK/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5363 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 25-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUNAL SINGH
• Assessee Lawyers: S N SAHU
• Keywords: Revision of order; Depreciation; Difference of opinion; Assessment record; Change of opinion
• Section: 142(1); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ./ ITA NO. 447 / CTK /20 1 6 ( / ASSESSMENT YEAR : 20 10 - 20 1 1 ) M/S SREERAM TRADERS, ICHHAPUR, SRI BALDEV JEW, KENDRAPARA - 754211 VS. CIT, CUTTACK ./ ./ PAN/GIR NO. : A BRFS 5254 Q ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHRI S.N.SAHU, AR /REVENUE BY : SHRI KUNAL SINGH, CITDR / DATE OF HEARING : 0 3 / 10 /201 7 / DATE OF PRONOUNCEMENT 10 / 10 /201 7 / O R D E R PER SHRI PAV AN KUMAR GADALE, JM : TH E ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF CIT, CUTTACK , DATED 30.09.2014 , PASSED U/S. 263 THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 20 1 0 - 2011 , WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1. THAT THE ORDER U/S. 263 PASSED BY THE LEARNED CIT SETTING ASIDE THE ORDER OF THE ASSESSING OFFICER, R ESTORING THE FILE OF THE AO IS ILLEGAL, ARBITRARY, UNCALLED FOR AND AGAINST THE FACTS ON RECORD. 2. THAT THE LEARNED AO HAD LEGALLY COMPLETED THE ASSESSMENT AFTER DUE SCRUTINY AND EXAMINATION OF BOOKS OF ACCOUNTS PRODUCED BEFORE HIM, EVEN LEARNED CIT HA S OBSERVED THAT THERE IS NO SUPPRESSION OF ASSET, IN PARAGRAPH (II) OF HIS ORDER THEREFORE, HE WAS NOT JUSTIFIED IN SETTING ASIDE THE ORDER OF THE AO WHICH WOULD AMOUNT TO ROVING ENQUIRY WHICH IS NOT PERMISSIBLE IN LAW. 3. THAT THE PAYMENT OF SALARY T O PARTNERS OF RS. 60,000/ - WAS LAWFULLY CLAIMED TO THE PROFIT AND LOSS ACCOUNT AS THE ASSESSEE HAD SUBMITTED THE COPY OF PARTNERSHIP DEED AND ACCORDING TO CLAUSE 11 OF THE SAID DEED A RESOLUTION WAS PASSED IN THE 'RESOLUTION BOOK' DATED 04.04.2009 DULY S IGNED BY ALL THE PARTNERS TO THE EFFECT THAT REMUNERATION PAYABLE TO THREE PARTNERS IS RS. 60,000/ - AND RS. 20,000/ - FOR PER PARTNER. THEREFORE, THERE IS ABSOLUTELY NO VIOLATION OF LAW AND THE ID. CIT IS NOT JUSTIFIED IN TAKING AN ADVERSE VIEW CITING OLD C BDT ITA NO. 447 /CTK/201 4 2 CIRCULAR DT. 25.03.1996 WITHOUT SPELLING OUT AS TO WHAT IS THE EXACT CONTEST OF THE CIRCULAR. 4. THAT HAVING BEEN SATISFIED THAT THERE IS NO OMISSION OF ASSET EITHER IN THE BALANCE SHEET OR IN THE DEPRECIATION STATEMENT, THE LEARNED CIT IS NOT JUSTI FIED IN NOT ACCEPTING THE ACCOUNTS AND SETTING ASIDE THE ORDER OF THE AO ON THAT POINT. 5. THAT THE ASSESSEE HAD SUBMITTED CONFIRMATION LETTER OF TRADE CREDITORS EXCEPTING THE TWO NAMELY IMTAZ AHMAD FOR RS. 28,000/ - AND SRI SWODAGAR PRADHAN FOR RS. 30,8 63/ - ;WHICH HE FURNISHED BEFORE THE LEANED CIT AS ADMITTED IN PARAGRAPH - ILL OF HIS ORDER SINCE THE AO HAD TAKEN A POSSIBLE VIEW AFTER TEST CHECK OF LIST OF SUNDRY CREDITORS HE SAME SHOULD HAVE BEEN CONSIDERED AS NOT IN CONFORMITY WITH THE ASSESSMENT PROCED URE TO SET ASIDE THE ORDER OF THE AO. 6. THAT THE LAW IS WELL SETTLED THAT AN ORDER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE WHEN AN ITO ADOPTED OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. 7. THAT OTHER GROUNDS IF ANY WILL BE URGED AT THE TIME OF HEARING OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF RUNNING RICE MILL AND FILED THE RETURN OF INCOME ELECTRONICALLY FOR THE ASSESSMENT YEAR 20 1 0 - 2011 ON 31.07.2010 WITH TOTAL INCOME OF RS. 11,904 / - AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER AND NOTI CE U/S.143(2) & 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED. IN COMPLIANCE TO THE SAME, LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED THE RELEVANT DOCUMENTS AS REQUIRED BY THE AO. THE AO ON PERUSAL OF THE FINANCIAL STATEMENTS WAS NOT SATIS FIED WITH THE SUBMISSIONS IN RESPECT OF PURCHASE AS DISCLOSED AND MADE ADDITIONS ON ACCOUNT OF UNACCOUNT PURCHASE AND OTHER REPAIRS AND MAINTENANCE AND ESTIMATED DISALLOWANCE AND ASSESSED TOTAL INCOME OF RS. 16,97,570/ - . SUBSEQUENTLY, ITA NO. 447 /CTK/201 4 3 THE CIT FOUND THAT THE ASSESSMENT ORDER PASSED BY THE AO IS WITHOUT APPLICATION OF MIND WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE . 3. T HE ASSESSEE FIRM HAS CLAIMED PARTNERS SALARY AND ARE NOT QUANTIFIED IN THE PARTNERSHIP DEED. SIMILARLY, THE ASSESSEE PURCH ASED PLANT AND MACHINERY IN THE SAID FINANCIAL YEAR AND THE AO HAS NOT VERIFIED WHETHER PLANT AND MACHINERY WAS PUT TO USE DURING THE PERIOD. LD. CIT DEALT ON THE SUBMISSIONS OF ASSESSEE AT PAGE 3 OF THE ORDER AND THE ASSESSEE SUBMITTED CONFIRMATION LETTER S FROM TWO CREDITORS BUT THE CIT VERIFIED THE ASSESSMENT RECORDS AND THE SUBMISSIONS MADE BY THE ASSESSEE IN RESPECT OF THE CLAIM OF REMUNERATION U/S.40 (B) , AND RELIED ON THE CBDT CIRCULAR AND ALSO DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN T HE CASE OF SOOD BHANDARI & COMPANY VS. CENTRAL BOARD OF DIRECT TAXES (2012) 204 TAXMANN 340. THE CIT FURTHER OBSERVED THAT THE ASSESSEE FIRM SHOULD NOT BE ALLOWED DEDUCTION OF SALARY AND INTEREST PAID TO PARTNERS WHEN THERE IS NO AGREEMENT IN RESPECT OF QU ANTIFICATION OF SALARY OR RATE OF INTEREST ON CAPITAL CONTRIBUTION OF PARTNERS AND SUCH PAYMENT WAS LEFT TO DISCRETION OF PARTNERS AT THE END OF FINANCIAL YEAR. HENCE, THE LD. CIT FOUND THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE. 4. THE CIT VERIFIED THE LEDGER ACCOUNT COPY OF PLANT AND MACHINERY AND ADDITIONS DURING THE YEAR. THE CIT W AS SATISFIED WITH THE VALUE OF MACHINERY PURCHASED DURING THE YEAR AND OBSERVED THAT THE NEW MACHINERY MUST HAVE BEEN USED IN THE BUSI NESS AND NEEDS VERIFICATION , ITA NO. 447 /CTK/201 4 4 SIMILARLY IN RESPECT OF CONFIRMATION OF TWO CREDITORS THE LD. CIT OBSERVED IN SPITE OF NON - RECEIPT OF CONFIRMATION LETTERS FROM THE CREDITORS THE AO HAS ACCEPTED TO THE CLAIM OF THE ASSESSEE AND AO HAS NOT VERIFIED THE DE TAILS OF SUNDRY CREDITORS. CONSIDERING THE OVERALL FACTUAL ASPECTS AND THE ASSESSMENT RECORD AND THE SUBMISSIONS, THE CIT HAS SET ASIDE THE ORDER AND RESTORED TO THE FILE OF AO WITH A DIRECTION TO RE - EXAMINE THE SAME IN THE LIGHT OF THE ABOVE OBSERVATION AND PASSED THE ORDER U/S.263 OF THE ACT. 5 . AGGRIEVED BY THE CIT ORDER PASSED U/S.263 OF THE ACT, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 6 . BEFORE US, LD. AR ARGUED THE GROUNDS AND EMPHASISED THAT THE AO IN THE ORIGINAL ASSESSMENT HAS VERIFI ED THE BOOKS OF ACCOUNTS AND THERE IS NO REASON FOR CIT(A) TO JUSTIFY SETTING ASIDE T HE ORDER OF AO AND IT IS ONLY A CHANGE OF OPINION, WHEREAS IN RESPECT OF PARTNERSHIP DEED THE LD. AR FILED PAPER BOOK CONTAINING THE RESOLUTION OF FIRM DATED 4.4.2009 AND COPY OF PARTNERSHIP DEED AND CONFIRMATION OF THE CREDITORS AND SCHEDULE OF CAPITAL ACCOUNT AND PRAYED FOR ALLOWING THE APPEAL OF THE ASSESSEE. CONTRA, LD. DR SUPPORTED THE ORDERS OF CIT AND OPPOSED TO THE GROUNDS OF ASSESSEE. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS. LD. ARS CONTENTION THAT THE ORDER PASSED BY CIT IS BAD IN LAW AS THE AO HAS VERIFIED THE BOOKS OF ACCOUNTS AND FORMED THE OPINION AND ALSO VERIFIED THE DISPUTED ISSUES WHICH WAS RAISED IN THE REV ISION PROCEEDINGS. IN RESPECT OF ORDER PASSED U/S.263, WE FOUND THAT THE LD. CIT HAS ELABORATELY DISCUSSED ON THE TWIN CONDITIONS SATISFACTOR Y BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IN ITA NO. 447 /CTK/201 4 5 HIS ORDER AND THE LD. AR IN RESPECT OF PARTNERSHIP CLAIM OF REMUNERATION DREW OUR ATTENTION TO THE PAGE 3 OF THE PAPER BOOK CLAUSE 11 OF THE PARTNERSHIP DEED REGARDING THE REMUNERATION CLAUSE AND ALSO BOARD RESOLUTION DATED 4.4.2009 IN RESPECT OF REMUNERATION PAYABLE TO THE PARTNER. WE FOUND THAT THE ASSES SEE HAS NOT AMENDED THE REMUNERATION CLAUSE AFTER RESOLUTION AND HAS BEEN CLAIMING TH E SALARY WHEREAS LD. CIT DEALT ON THIS ISSUE AND OBSERVED AT PARA 5 AS UNDER : - I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE, CASE RECORD, AND THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE. MY FINDINGS ON EACH ISSUE ARE AS UNDER. PERUSAL OF THE PARTNERSHIP DEED SHOWS THAT AT CLAUSE 11 THE FOLLOWING IS NOTED. 'THAT, IT IS HEREBY AGREED THAT IN CONSIDERATION OF SERVICES SO RENDERED ALL THE PARTNERS AS MAY AGREED SHALL BE PAID MONTHLY SALARY/ REMUNERATION, AS PER PROVISION OF INCOME TAX ACT INCREASING OR REDUCING IN THE SALARY THEIR SUM AS AGREED ACCORDING TO PERMISSIONABLE LIMIT U/ S 40(B) OF THE IT ACT 1961 AS AMENDED FROM TIME TO TIME'. THUS IT COULD BE SEEN THAT NO QUANTIFICATION OF SALARY WAS MADE IN THE PARTNERSHIP DEED EXECUTED ON 28.12.2008. THE PARTNERSHIP DEED ALSO DO NOT AUTHORIZE THE PARTNERS TO DETERMINE THOUGH RESOLUTION THE REMUNERATION PAYABLE. IN THE CASE OF SOOD BHANDARI 66 COMPANY VS. CENTRAL BOARD OF DIRECT TAXES (2012). 204 TAXMA.NN 340, HON'BLE PLMIJAB AND HARYANA HIGH COURT HAS OBSERVED THAT CIRCULAR NO. 739 DATED 25.03.1996 ISSUED BY CBDT, CONSEQUENT TO AMENDMENT IN SECTION 40(B) WITH EFFECT FROM 01.04.1993 BY FINANCE ACT 1992 CLARIFACTORY IN NATU RE, THEREFORE, CANNOT BE SAID TO BE BEYOND POWERS OF CBDT CONFERRED ON IT U/S 119 OF THE ACT. IN VIEW OF THE SAID CIRCULAR, THE PAYMENT OF REMUNERATION TO PARTNERS CANNOT BE ALLOWED IF SAME HAS NOT BEEN SPECIFIED BUT HAS BEEN LET TO BE DETERMINED BY THE PA RTNERS AT END OF ACCOUNT PERIOD. THEREFORE, ASSESSEE FIRM SHOULD NOT BE ALLOWED DEDUCTION OF SALARY AND INTEREST PAID TO PARTNERS WHEN THERE IS NO AGREEMENT IN RESPECT OF QUANTIFICATION OF SALARY OR RATE OF INTEREST ON CAPITAL CONTRIBUTION OF PARTNERS AND SUCH PAYMENT WAS LEFT TO DISCRETION OF PARTNERS AT THE END OF FINANCIAL YEAR. THIS ASPECT HAS NOT BEEN EXAMINED AT ALL BY THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDING WHICH HAS MADE IN THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ITA NO. 447 /CTK/201 4 6 SIMILARLY CONFIRMATION LETTERS OF CREDITORS FILED BY THE ASSESSEE BEFORE THE TRIBUNAL WAS OBJECTED BY LD. DR AS THEY ARE NOT PROPERLY CONFIRMED THE PARTNERS AND THE AO HAS NOT VERIFIED THE USE OF PLANT AND MACHINERY . WE FOUND THE AO IN THE ORIGIN AL ASSESSMENT HAS ISSUED NOTICE AND CALLED FOR THE INFORMATION OF THE CREDITORS BUT ASSESSEE COULD NOT FILED INFORMATION AND THE LD. ARS SUBMISSIONS THAT THEY WERE FILED IN THE COURSE OF REVIS IO N A RY PROCEEDINGS . I N RESPECT OF LAST ISSUE OF CLAIM OF DEPREC IATION ON NEW ASSETS THE CIT CONSIDERED THE FINANCIAL STATEMENTS AND FOUND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON ADDITION OF NEW ASSETS WHICH WAS NOT VERIFIED BY THE AO. PRIMA FACIE THE AO IN THE ORIGINAL ASSESSMENT THOUGH MADE ADDITION S IN RESPEC T OF CERTAIN DISALLOWANCE BUT HAS NOT TOUCHED UPON THIS ASPECTS ARISING IN THE REVISONARY ORDER. WE FOUND THAT THE LD. CIT HAS DEALT ON THE DISPUTED ISSUE EXHAUSTIVELY AND CONSIDERED THE SUBMISSIONS OF THE ASSESSEE ON THE REMUNERATION TO PARTNER S , CLAIM OF D EPRECIATION OF ASSETS AND SUNDRY CREDITORS CONFIRMATION. FURTHER LD. AR PROVIDED COPY OF THE ASSESSMENT ORDER PASSED U/S.143(3)/263 OF THE ACT DATED 30.6.2015 AND EXPLAINED THAT THE AO HAS MADE ADDITION S AS PER THE DIRECTION S OF CIT IN THE DE NOVO ASSESSME NT AND THE SAME IS PENDING DISPOSAL BEFORE T HE FIRST APPELLATE AUTHORITY. CONSIDERING THE APPARENT FACTS, MATERIAL ON RECORD AND THE DISCUSSIONS MADE BY US ABOVE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF CIT AND UPHELD THE REVISION PROCEEDING S AND DISMISS THE GROUNDS OF APPEAL OF ASSESSEE. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 447 /CTK/201 4 7 O RDER PRONOUNCED IN THE OPEN COURT ON THIS 10/10 / 201 7 . . SD/ - ( N. S. SAINI ) SD/ - ( PA V AN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 10/10 /201 7 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - M/S S REERAM TRADERS, ICHHAPUR, SRI BALDEV JEW, KENDRAPARA - 754211 2. / THE RESPONDENT - CIT, CUTTACK 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GU ARD FILE. //TRUE COPY//