Goel Jewellers Overseas Corp, New Delhi V. ACIT, Circle-51(1), New Delhi

ITA 5075/DEL/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4181 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 23-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J C KOCHAR
• Keywords: Opportunity of being heard; Set aside
• Section: 40A(3); 143(3); 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.5074 & 5075/DEL/2018 ASSESSMENT YEARS: 2012-13 & 2013-14 GOEL JEWELLERS OVERSEAS CORP., 2213, GURUDWARA ROAD, KAROL BAGH, NEW DELHI. PAN: AAGFG6440E VS. JCIT, SPECIAL RANGE-17, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.C. KOCHAR, CA REVENUE BY : SHRI AMIT JAIN, SR.DR DATE OF HEARING : 12.03.2019 DATE OF PRONOUNCEMENT : 14.03.2019 ORDER THE ABOVE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 24 TH MAY, 2018 OF THE CIT(A)-17, NEW DELHI, RELATING TO ASSESSMENT YEARS 2012-13 AND 2013-14, RESPECTIVELY. 2. SINCE COMMON GROUNDS ARE RAISED BY THE ASSESSEE IN BOTH THE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 3. FIRST WE TAKE UP ITA NO.5074/DEL/2018 FOR ASSESS MENT YEAR 2012-13. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PART NERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORTING AND TRADING OF GOLD, DIAMONDS AND SILVER ORNAMENTS AND JEWELLERY. IT FILED ITA NOS.5074 & 5075/DEL/2018 2 ITS RETURN OF INCOME ON 21 ST SEPTEMBER, 2012 DECLARING AN INCOME OF RS.37,03,58 9/-. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER PASS ED U/S 143(3) ON 9 TH MARCH, 2015, MADE CERTAIN ADDITIONS ONE OF WHICH WAS AN AMOUNT O F RS.6 LAKHS WHICH WAS MADE UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT O N ACCOUNT OF CASH PAYMENTS MADE AGAINST THE SALARY TO THE PARTNERS. THE ASSESSEE F ILED AN APPEAL BEFORE THE CIT(A) WHO DECIDED THE SAME AGAINST THE ASSESSEE. ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL, VIDE ORDER DATED 2 ND NOVEMBER, 2016, VIDE ITA NO.3029/DEL/2016, RESTORE D THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLO WING OBSERVATIONS:- 6. I HAVE CONSIDERED THE SUBMISSION OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD IN THE PRESENT CASE IT IS N OT CLEAR AS TO WHETHER THE AMOUNT CONSIDERED BY THE AO IN VIOLATION OF THE PRO VISIONS OF SECTION 40(A)(3) OF THE ACT ON ACCOUNT OF PARTNERS SALARY WERE THE WIT HDRAWALS BY THE PARTNERS OR NOT. IN MY OPINION, THIS ISSUE REQUIRES FRESH ADJUD ICATION AT THE LEVEL OF THE AO. THEREFORE, THE IMPUGNED ORDER IS SET ASIDE ON THIS ISSUE AND THE MATTER IS RESTORED TO THE FIE OF THE AO TO BE ADJUDICATED A F RESH IN ACCORDANCE WITH LAW AFTER PROVIDING A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE 4. SUBSEQUENTLY, THE ASSESSING OFFICER IN THE SET A SIDE PROCEEDINGS, AGAIN, REPEATED THE ADDITION. WHILE DOING SO, HE HELD THA T THE PAYMENT OF RS.25,000/- PER MONTH MADE TO EACH OF THE TWO PARTNERS (TOTALING TO RS.6 LAKHS) WAS ON ACCOUNT OF SALARY EXPENDITURE AND SUCH PAYMENTS WERE WITHDRAWA LS OUT OF CAPITAL INTRODUCED BY THE PARTNERS. THEREFORE, THE PROVISIONS OF SECTION 40A(3) ARE STILL APPLICABLE IF SUCH PAYMENTS HAVE BEEN MADE OUT OF THE OPENING BALANCE WHICH COMPRISED SALARY CREDITED IN THE PRECEDING YEARS. 5. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER. ITA NOS.5074 & 5075/DEL/2018 3 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE ID. CIT (APPEALS) ERRED IN HOLDING THAT THE CASH WITHDRAWAL S OF TWO PARTNERS @ RS.25,000 PER MONTH, AGGREGATING RS. 6,00,000, FROM THEIR CURRENT CAPITAL ACCOUNTS REPRESENTED SALARY PAID TO THE PARTNERS AN D WAS RIGHTLY DISALLOWED BY THE AO U/S 40A(3) OF THE INCOME TAX ACT, 1961. 2. THAT THE ID. CIT(A) ERRED IN NOT CONSIDERING THAT A T ANY RATE, SINCE THERE WAS NO DOUBT ABOUT THE IDENTITY OF THE PAYEE AND GE NUINESS OF THE EXPENDITURE, NO DISALLOWANCE U/S 40A(3) COULD BE MADE AND IN THIS R EGARD THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F ATTAR SINGH GURMUKH SINGH VS. INCOME TAX OFFICER, LUDHIANA ETC. (1991) 191 ITR 667 AND MANY HIGH COURTS AND DIFFERENT BENC HES OF THE TRIBUNAL WERE IGNORED. 3. THAT THE ID. CIT(A) ERRED IN NOT APPRECIATING THAT THE PURPOSE OF SECTION 40A(3) IS TO PREVENT TAX EVASION AND IN THIS CASE, THERE COULD BE NO TAX EVASION AS THE SALARY TO PARTNERS CLAIMED AS DEDUCTION BY THE FIRM HAD ALREADY SUFFERED TAX IN THE HANDS OF THE PARTNERS. 4. THE ID. CIT(A) ERRED IN NOT APPRECIATING THAT A PA RTNERSHIP FIRM IS NOT A SEPARATE LEGAL ENTITY AND EVERY PARTNER IS AN AGENT OF THE FIRM (SECTION 18 OF THE PARTNERSHIP ACT, 1932) AND HENCE ANY PAYMENT MADE B Y THE FIRM TO A PARTNER IS A PAYMENT TO ITSELF AND THEREFORE NOT AMENABLE TO THE PROVISIONS OF SECTION 40A(3). 5. THAT THE IMPUGNED ORDER SUFFERS FROM THE VICE OF NO N-APPLICATION OF AS THE ID. CIT(A) HAS RECORDED A FINDING THAT THE SALARY IS CREDITED EVERY MONTH TO THE CURRENT ACCOUNT OF THE PARTNER AND THERE ARE CA SH WITHDRAWALS ON THE SAME DATE OR IMMEDIATE NEXT DATE WHEN THE SALARY IS CRED ITED, WHICH IS CONTRARY TO FACTS AND THE FINDINGS OF THE ASSESSING OFFICER, WH O HAS INCORPORATED THE LEDGER ACCOUNTS OF THE CURRENT ACCOUNTS OF THE PARTNERS IN THE ASSESSMENT ORDER. 7. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE PROVISIONS OF SECTION 40A(3) APPLIES ONLY TO EXPENDITURE WHERE PA YMENT HAS BEEN MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR DRAFT. HOWEVER, SALARY PAID BY A FIRM TO ITS PARTNER IS NOT AN EXPENDITURE, BUT, APPROPRIATION O F PROFIT. RELYING ON VARIOUS DECISIONS, HE SUBMITTED THAT SALARY PAID TO PARTNER S IN CASH EXCEEDING RS.20,000/- WILL ITA NOS.5074 & 5075/DEL/2018 4 NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE G ROUNDS RAISED BY THE ASSESSEE BE ALLOWED. 8. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE, IN THE INSTANT CASE, I S MAINTAINING A FIXED CAPITAL ACCOUNT AND CURRENT ACCOUNT OF THE PARTNERS IN THE BOOKS OF THE PARTNERSHIP FIRM. IN THE COPY OF THE CURRENT ACCOUNT ALL THE PARTNERS SALARY IS CRE DITED EVERY MONTH AND THERE ARE CASH WITHDRAWALS ON THE SAME DATE OR IMMEDIATE NEXT DATE WHEN THE SALARY IS CREDITED. THEREFORE, THE ACT OF PASSING AN ENTRY IN THE CURRE NT ACCOUNT WILL NOT CHANGE THE CHARACTER OF THE PAYMENT MADE SINCE IN THIS CASE SA LARY HAS BEEN CREDITED TO THE PARTNERS ACCOUNT AND CASH HAS BEEN WITHDRAWN ON IM MEDIATE BASIS. THEREFORE, IN ABSENCE OF ANY EVIDENCE SUBMITTED BY THE ASSESSEE T O SHOW THAT THE CASH PAYMENTS WERE IN LIEU OF CASH DRAWINGS THE ORDER OF THE CIT( A) BEING IN ACCORDANCE WITH LAW SHOULD BE UPHELD. 9. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I FIND THE TRIBUNAL, IN THE FIRST ROUND OF LITIGATION, HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH CERTAIN DIRECTIONS. IT IS AN ADMITTED FACT THAT THE SALARY OF THE PARTNERS ARE C REDITED TO THE CURRENT ACCOUNT OF THE PARTNERS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE PARTNERSHIP FIRM. ALTHOUGH THE PARTNERS HAVE WITHDRAWN CASH FROM THE PARTNERSHIP F IRM IN EXCESS OF RS.20,000/- AT A TIME, HOWEVER, THE SAME, IN MY CONSIDERED OPINION, WILL NOT ATTRACT THE MISCHIEF OF THE ITA NOS.5074 & 5075/DEL/2018 5 PROVISIONS OF SECTION 40A(3) OF THE ACT SINCE IT IS DRAWING BY THE PARTNERS, AFTER SALARY IS CREDITED TO THE CURRENT ACCOUNT. THE PROVISIONS OF SECTION 40A(3), IN MY OPINION, WILL NOT BE APPLICABLE TO CASH DRAWINGS BY THE PART NERS FROM THEIR RESPECTIVE CURRENT ACCOUNT. I, THEREFORE, SET ASIDE THE ORDER OF THE C IT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE BY THE ASSESSING OFFICE R. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. ITA NO.5075/DEL/2018 (A.Y.: 2013-14) 10. AFTER HEARING THE RIVAL SUBMISSIONS MADE BY BOT H THE SIDES, I FIND THE GROUNDS RAISED BY THE ASSESSEE IN THE IMPUGNED APPEAL ARE I DENTICAL TO THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.5074/DEL/2018. I HAVE ALREADY D ECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. FOLLOWING THE SA ME REASONINGS, THE GROUNDS RAISED BY THE ASSESSEE IN THE INSTANT CASE ARE ALSO ALLOWE D. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 4.03.2019. SD/- ( R.K. PANDA) ACCOUNTANT MEMFBE R DATED: 14 TH MARCH, 2019 DK ITA NOS.5074 & 5075/DEL/2018 6 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI