ACIT, Muzaffarnagar V. M/s. Ganpati Enterprises, Muzaffarnagar

ITA 4664/DEL/2011

• Counselvise Citation: 466420114 RSA 2011
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Keywords: Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'C' BEFORE SHRI C.L.SETHI,JM & SHRI A N PAHUJA,AM ITA NO.4664/DEL/2011 ASSESSMENT YEAR:-2004-05 ASSISTANT CIT,CIRCLE-1, MUZAFFARNAGAR V/S M/S GANPATI ENTERPRISES, 842, SOUTH CIVIL LINES, MUZAFFARNAGAR. (PAN: AAFFG 3043C) [APPELLANT] [RESPONDENT] ASSESSEE BY :- NONE REVENUE BY:- MS.Y.S. KAKKAR, DR DATE OF HEARING 26-12-2011 DATE OF PRONOUNCEMENT 26-12-2011 O R D E R A N PAHUJA: THIS APPEAL FILED ON 24.10.2011 BY THE REVENUE AGAINST AN ORDER DATED 20-07-2011 OF THE LD. CIT(AP PEALS)- MUZAFFARNAGAR, FOR THE ASSESSMENT YEAR 2004-05, R AISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ALLOWED THE APPEAL FOLLOWING THE DECISION OF IT AT IN I.T.A. NO.2868/D/2008 AND 1993/D/2009 DATED 30.07.2010 IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07 RESPECTIVELY DIRECTING THE ASSESSING OFFICER TO TRE AT THE STATUS AS PARTNERSHIP FIRM INSTEAD OF AOP TAKEN BY THE ASSESS ING OFFICER. ON THE SAME ISSUE, THE REVENUE HAD PREFERRED APPEAL BEFORE THE HONBLE ALLAHABAD HIGH COURT FOR ADJUDICATION ON TH E GROUND AS TO WHETHER THE ITAT WAS JUSTIFIED IN LAW IN ALLOWIN G/ THE STATUS AS FIRM INSTEAD OF AOP TAKEN BY THE A.O. FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RANGILA RA M & OTHERS VS. CIT 254 ITR 230 (S.C.) AND IGNORING THE FACTS R EPORTED IN THE CASES OF M.M. EPOH 67 ITR 106 (S.C.) AND ALSO M.S. KOTHARI 149 ITR 567 (RAJ.) AND S.K. BOSE 150 ITR 626 (CAL.) AND IN THE CASE OF BRIJ BMOHAN SINGH & CO. VS. CIT (S.C.) (200 1) 167 CTR 185. HENCE, THE DECISION OF CIT(A) IS NOT ACCEPTAB LE IN THIS YEAR ALSO. ITA NO.4664 /DEL/2011 2 2 2. THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER RESTORED. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF ` `12,89,030/- FILED ON 31 ST OCTOBER, 2004 BY THE ASSESSEE, CARRYING ON LIQUOR BUSINESS IN THE STATUS OF REGISTERED FIRM, WAS PROC ESSED U/S 143(1) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). SUBSEQUENTLY, KEEPING IN VIEW PAST HISTORY OF THE ASSESSEE, THE ASSESSING OFFICE R (A.O. IN SHORT) REOPENED THE ASSESSMENT U/S 147 OF THE ACT AFTER RECORDING THE R EASONS, IN WRITING, WITH THE SERVICE OF A NOTICE U/S 148 OF THE ACT ISSUED ON 4 TH MAY, 2006. LATER, THE REASSESSMENT WAS COMPLETED IN THE STATUS OF AOP A ND THE AO DISALLOWED SALARY AND INTEREST PAID TO THE PARTNERS, HOLDING THAT THE PARTNERSHIP FIRM WAS NOT GENUINE. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDI NGS OF THE AO. HOWEVER, ON FURTHER APPEAL, THE ITAT VIDE THEIR ORDER DATED 15 TH MAY, 2009 IN I.T.A. NO.3901/D/2007 QUASHED THE REASSESSMENT PROCEEDINGS , THE AO HAVING ISSUED NOTICE U/S 148 OF THE ACT TO THE PARTNERSHIP FIRM A ND NOT TO THE AOP, WITH THE FOLLOWING OBSERVATIONS:- . WE HAVE CONSIDERED THE RIVAL SUBMISSION. AT T HE OUTSET, IT IS NOTICED FROM THE COPY OF REASONS RECORDED AND THE N OTICE ISSUED U/S 148 THAT IN THE REASONS ITSELF, THE ASSESSING AUTHO RITY HAS HELD THAT THE STATUS OF THE ASSESSEE SHALL BE TREATED AS AOP. BUT IN THE NOTICE ISSUED U/S 148, THE NOTICE HAS BEEN ISSUED I N THE STATUS OF THE FIRM. THIS IS BECAUSE THE PAN ACCOUNT NUMBER A S MENTIONED IN THE NOTICE IS THAT OF THE FIRM. THUS, IT IS NOTICE D THAT THE ASSESSMENT HAS BEEN REOPENED BY ISSUING THE NOTICE U/S 148 AND THE ASSESSMENT HAS BEEN DONE IN THE CASE OF AN AOP. IN THESE CIRCUMSTANCES, THE ASSESSMENT AS COMPLETED BY THE A SSESSING AUTHORITY IN THE STATUS OF AOP CANNOT STAND AND THE SAME IS LIABLE TO BE ANNULLED. HERE, WE MAY MENTION THAT WE ARE NOT GIVING ANY FINDING IN REGARD TO THE NOTICE ISSUED U/S 148 AS T HE NOTICE HAD BEEN ISSUED IN THE STATUS OF THE FIRM. IF THE ASSESSING AUTHORITY WISHES TO ASSESS THE AOP, IT WAS INCUMBENT UPON HIM TO ISSUE THE NOTICE IN THE STATUS OF AN AOP, AS HE HAS ALREADY RECOGNIZED THE EXISTENCE OF THE AOP IN THE REASONS RECORDED. IN THESE CIRCUMST ANCES, THOUGH WE ARE NOT GIVING ANY FINDING IN REGARD TO THE REOP ENING OF THE ASSESSMENT, THE ASSESSMENT IN THE CASE OF THE ASSES SEE AOP STANDS QUASHED, AS THERE IS NO NOTICE U/S 148 IN TH E STATUS OF AOP. 2.1 IN VIEW OF AFORESAID FINDINGS OF ITAT, THE AO INITIATED THE PROCEEDINGS U/S 148 OF THE ACT WITH THE SERVICE OF NOTICE ISSUED ON 25 TH MARCH, 2010 TO M/S ITA NO.4664 /DEL/2011 3 3 GANAPATI ENTERPRISES (AOP) AND TO EACH OF ITS MEMBE RS. THOUGH THE ASSESSEE RAISED OBJECTIONS AGAINST ISSUANCE OF NOTICE U/S 14 8 OF THE ACT , THEY DID NOT FILE ANY RETURN IN THE STATUS OF AOP. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE EXCISE DEPARTMENT GRANTED L ICENSE TO THE INDIVIDUAL ONLY AND NOT TO THE ASSESSEE FIRM, WHICH CARRIED ON THE BUSINESS IN VIOLATION OF EXCISE POLICY OF THE STATE OF U.P. IN THE LIGHT OF HIS OW N FINDINGS IN THE PRECEDING YEARS, THE AO ASSESSED THE ASSESSEE IN THE STATUS OF AOP A ND DISALLOWED SALARY AND INTEREST PAID TO THE PARTNERS AMOUNTING TO ` `4,31,000 + ` ` 6,38,013= ` 10,70,013/-. 3. ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE DEC ISION DATED 30 TH JULY, 2010 OF THE ITAT IN I.T.A. NO.2868/D/08 AND 1933/D/2009 IN ASSESSMENT YEARS 2005- 06 AND 2006-07 AND DECISION IN I.T.A. NO.404/D/2007 FOR ASSESSMENT YEAR 2003- 04 ASSESSED IN THE STATUS OF PARTNERSHIP FIRM, CON CLUDED AS UNDER:- THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OBS ERVED THAT IN THE APPELLANT'S CASE FOR THE A.Y. 2005-06 AND 2006-07 T HE ISSUE OF ALLOWABILITY OF INTEREST AND SALARIES TO THE PARTNE RS IN VIEW OF THE STATUS OF THE FIRM I.E. WHETHER IT IS TO BE ASSESSE D/ACCEPTED AS AOP OR FIRM, HAS ALREADY BEEN DECIDED IN FAVOUR OF THE APPELLANT I.E. THE STATUS HAS BEEN ACCEPTED AS PARTNERSHIP FIRM VIDE I TAT'S ORDER IN ITA NO.2868/DE1/08 AND 1933/DEL/09 DATED 30.07.20I0 AND ALSO IN THE CASE OLD FIRM OF THE ASSESSEE I.E. M/S GANAPATI AND COMPANY IN A.Y. 2003-04 VIDE ITA NO.404/DEL/07. THE FOLLOWING OBSERVATION HAS BEEN MADE BY THE HON'BLE ITAT IN THEIR FINDING ON T HE COMBINED GROUNDS OF APPEAL: '..WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND MERI T IN THE ARGUMENT OF THE LEARNED COUNSEL. FROM 1.4.1994 SECT IONS 184/185 HAVE BEEN AMENDED AND THE EARLIER PROCEDURE OF EXAM INING GENUINENESS OF FIRM HAS BEEN DISPENSED WITH. AS PE R THE AMENDED LAW, THE FIRM SHALL BE ALLOWED REGISTRATION IF A CE RTIFIED COPY OF A DEED, DULY SIGNED BY ALL THE PARTNERS SHOWING THE S HARES OF THE PARTNERS IS FILED, THE FIRM IS ALLOWED TO BE REGIST ERED.U.P. EXCISE POLICY DOES NOT PROHIBIT CONSTITUTION OF PARTNERSHI P FIRM CARRYING LIQUOR BUSINESS, SO ALSO LICENSES OBTAINED BY INDIV IDUALS CAN BE CONVERTED INTO PARTNERSHIP FIRM ON COMPLIANCE OF CE RTAIN REQUIREMENTS. IN VIEW OF THESE FACTS AND LEGAL PRO POSITIONS, THE ASSESSEE FIRM HAVING CONSTITUTED SPECIFIC CLAUSE 11 AS MENTIONED ABOVE, IT CANNOT BE HELD THAT IT IS A NON-GENUINE O R ILLEGAL FIRM. EARLIER SUPREME COURT CASES ARE NOT APPLICABLE TO A SSESSEE'S CASE ITA NO.4664 /DEL/2011 4 4 IN VIEW OF THE AMENDMENT IN SECTIONS 184/185 W.E.F. 1.04.1994, AS MENTIONED ABOVE. IN VIEW THEREOF, WE HOLD THAT TH E ASSESSEE FIRM IS ELIGIBLE FOR REGISTRATION U/S 184/185 AND CONSEQ UENTLY ELIGIBLE FOR DEDUCTION U/S 40(B) IN RESPECT OF SALARY, INTEREST AS PER LAW. IN ARRIVING AT THIS VIEW, WE ALSO FIND SUPPORT BY THE ORDER OF ITAT, BANGALORE BENCH IN THE CASE OF DCIT VS. H.E.D. BROS . CO. (SUPRA), WHICH IS TO BE FOLLOWED BY US. THIS GROUND OF ASSES SEE FOR ALL THE ASSESSMENT YEARS IN QUESTION IS ALLOWED ' THE OBSERVATION AND FINDINGS OF THE HONBLE ITAT A RE MUTATES MUTANDIS APPLICABLE IN APPELLANTS CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF THE ORDER OF HONBLE ITAT, THE STATUS OF THE ASSESSEE SHOULD BE A PARTNERSHIP FIRM AND THERE REMAINS NO ADDITION ON ACCOUNT OF SALARY AND INTERE ST PAID TO THE PARTNERS. THEREFORE, THERE IS NO GROUND LEFT FOR M AKING THE ABOVE MENTIONED ADDITION ON ACCOUNT OF SALARIES AND INTER EST PAID TO THE PARTNERS OF THE FIRM OF THE APPELLANT. THE SAME IS HEREBY DIRECTED TO BE DELETED. GROUND OF APPEAL NO.3 IS ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A).AT THE OUTSET, THE LD. DR SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION DATED 30 TH JULY, 2010 IN THE ASSESSEES OWN CASE FOR ASSESSME NT YEARS 2005-06 AND 2006-07 IN I.T.A. NO. 2868/D/08 AND 193 7/D/2009.ON THE OTHER HAND, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR A NY REQUEST FOR ADJOURNMENT WAS FILED NOR IT IS KNOWN AS TO WHETHER OR NOT THE ASSESSEE HAS PREFERRED ANY APPEAL AGAINST THE FINDINGS OF LEARNED CIT(A), UPHO LDING THE VALIDITY OF REOPENING OF THE ASSESSMENT. 5. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FA CTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FINDINGS OF THE LEARNED CIT(A), THE STATUS OF THE ASSESSEE AS FIRM HAS BEEN ACCEPTED ON THE BASIS OF DECISION DATED 30 TH JULY, 2010 IN THE ASSESSEES OWN CASE FOR THE AYS 2005-06 AND 2006-07. THOUGH IT IS MENTIONED IN THE GROUNDS OF APPEAL THAT THE ASSESSE E HAS PREFERRED APPEAL BEFORE THE HONBLE ALLAHABAD HIGH COURT AGAINST THE DECISION OF THE ITAT, THE SAME IS STATED TO BE PENDING. IN THESE CIRCUMSTANC ES, ESPECIALLY WHEN THE FACTS IN THE YEAR UNDER CONSIDERATION ARE PARALLEL TO THE FACTS OBTAINING IN THE AYS 2005-06 AND 2006-07 WHEREIN STATUS OF THE ASSESSEE HAS BEEN TREATED AS FIRM AND NOT AOP WHILE THE REVENUE HAVE NOT BROUGHT TO O UR NOTICE ANY CONTRARY DECISION NOR PLACED ANY MATERIAL BEFORE US, CONTR OVERTING THE AFORESAID FINDINGS ITA NO.4664 /DEL/2011 5 5 OF THE LEARNED CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO S. 1 & 2 IN THE APPEAL ARE DISMISSED. 6. IN RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT SOON AFTER THE H EARING SD/- SD/- (C.L.SETHI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO: 1. M/S. M/S GANPATI ENTERPRISES, 842, SOUTH CIVIL L INES, MUZAFFARNAGAR, MUZAFFARNAGAR 2. ASSTT. CIT, CIRCLE-1, MUZAFFARNAGAR 3. CIT CONCERNED 4. CIT(A)- MUZAFFARNAGAR. 5. DR, ITAT, DELHI BENCH-C, NEW DELHI 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, NEW DELHI