DCIT, Ludhiana V. M/s Kumar Builders, Ludhiana

ITA 520/CHANDI/2010

• Counselvise Citation: 52021514 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Set aside
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.520/CHD/2010 ASSESSMENT YEAR: 2006-07 DCIT, C-II, V M/S KUMAR BUILDERS, LUDHIANA. 298 ISLAMIA SCHOOL ROAD, LUDHIANA. PAN: AAJFM-2533P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI RESPONDENT BY : NONE DATE OF HEARING : 09.02.2012 DATE OF PRONOUNCEMENT : 15.02.2012 ORDER PER MEHAR SINGH, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) LUDHIANA PASSED U/S 250 (6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT') DAT ED 24.02.2010 RELATING TO ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT-III ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.17,416/- WHICH REPRESENTS THE INCOME ON ACCOUNT OF INTEREST ON FDR AND INTEREST ON INCOME TAX REFUND NOT DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. 2. THAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN ALLOWING THE STATUS OF FIRM TO THE ASSESSEE AS AGAINST THE STATUS OF AOP AS ADOPTED BY THE AO, THEREBY ALLOWING THE EXPENDITURE OF SALARY AND INTEREST PAID TO THE PARTNERS. 2 3. WHILE ALLOWING THE STATUS OF FIRM, THE LD. CIT(A) ERRED IN LAW IN IGNORING THE FACTS THAT THERE WAS CHANGE IN THE PROFIT SHARING RATIO AMONGST THE PARTNERS BESIDES THE AMOUNT OF SALARY TO BE PAID TO THE WORKING PARTNERS. THIS CHANGE NECESSITATED THE EXECUTION OF A REVISED INSTRUMENT OF PARTNERSHIP AS PER THE PROVISIONS OF SECTION 184(3) OF THE INCOME-TAX ACT,1961. A CERTIFIED COPY OF THIS DOCUMENT WAS REQUIRED TO BE FURNISHED ALONGWITH THE RETURN OF INCOME AS PER THE PROVISIONS OF SECTION 184(4) OF THE INCOME-TAX ACT,1961 WHICH THE ASSESSEE FAILED TO FURNISH. AS THE ASSESSEE HAD FAILED TO COMPLY WITH THE PROVISIONS OF SECTION 184 OF THE INCOME-TAX ACT THE AO RIGHTLY DISALLOWED THE EXPENDITURE ON ACCOUNT OF INTEREST AND REMUNERATION PAID TO THE PARTNERS AS PER THE PROVISIONS OF SECTION 185 OF THE ACT. 4. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. REVENUE CONTENDED THAT WHILE ALLOWING STATUS OF A FIRM, LD. CIT(A) ERRED IN LAW IN IGNORING THE FACTS THAT THERE WAS CHANGE IN THE PROFIT SHARING RATIO AMONGS T THE PARTNERS BESIDES THE AMOUNT OF SALARY TO BE PAI D TO THE WORKING PARTNERS. CERTIFIED COPY OF THE PARTNE RSHIP DEED WAS REQUIRED TO BE FURNISHED ALONGWITH THE RET URN OF INCOME U/S 184(4) OF THE ACT. THE ASSESSEE FAIL ED TO DO SO. THEREFORE, THE AO RIGHTLY DISALLOWED THE EXPENDITURE ON ACCOUNT OF INTEREST AND REMUNERATION PAID TO THE PARTNERS AS PER THE PROVISIONS OF SECTI ON 185 OF THE ACT. 4. IN THE COURSE OF APPELLATE PROCEEDINGS, LD. 'DR' PLACED RELIANCE ON THE DECISION OF CHENNAI BENCH IN THE CASE OF DAWOOD SONS V ACIT (2009) 123 TTJ 698 (CHENNAI). 3 5. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, SUBMISSIONS MADE BY LD. 'DR', RELEVANT RECORD AND T HE CASE LAWS CITED BY LD. 'DR'. IN THE PRESENT CASE, ASSESSEE HAD NOT SUPPLIED CERTIFIED COPY OF THE REV ISED INSTRUMENT OF PARTNERSHIP DEED ALONGWITH THE RETURN OF INCOME. THE AO DENIED THE STATUS TO THE ASSESSEE AS FIRM AND ASSESSED THE ASSESSEE, IN THE STATUS OF AO P AND DISALLOWED CONSEQUENTIAL CLAIM MADE BY THE ASSESSEE. LD. CIT(A), ALLOWED THE APPEAL OF THE AS SESSEE AND DIRECTED THE AO, TO ASSESS THE ASSESSEE IN THE STATUS TO THE ASSESSEE OF A FIRM. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE AO HIMSELF ADMITTED THAT DEED WAS DULY SUBMITTED BEFORE THE COMPLETION OF ASSESSMENT. HENCE, IN THE LIGHT OF THE DECISION OF THE HON'BLE ITAT DELHI BENCH IN THE CAS E OF ISHAR DASS SAHNI & SONS V DCIT 77 ITD 256, THE BENEFIT OF INTEREST ON THE SALARY IS REQUIRED TO BE ALLOWED TO THE PARTNERS. LD. CIT(A) ALLOWED THE APP EAL OF THE ASSESSEE, AS IS EVIDENT FROM PARA 5.1 AND 5.2 O F THE ORDER, WHICH IS REPRODUCED HEREUNDER : 5.1 I HAVE ANALYSED THE MATTER AND FIND THAT THE LD. 'AR' HAS APTLY RELIED ON THE CASE OF ISHAR DASS SAHNI & SONS V DCIT 68 TTJ (DEL) 125 FOR DENYING THE STATUS OF FIRM. THE AO HAS PASSED THE ORDER U/S 185 OF THE ACT STATING THAT AS THE ASSESSEE DID NOT ATTACH CERTIFIED COPY OF THE REVISED PARTNERSHIP DEED ALONGWITH THE RETURN OF INCOME, AND HENCE THE PROVISIONS OF SECTION 185 BECAME APPLICABLE AND ACCORDINGLY HE DENIED THE STATUS OF THE FIRM TO THE 4 ASSESSEE. THE HEAD NOTE OF THE DECISION IN THE CASE OF ISHAR DASS SAHNI READS AS UNDER: FIRM- ASSESSMENT REQUIREMENT TO FILE CERTIFIED COPY OF DEED OF PARTNERSHIP ALONGWITH THE RETURN-IS DIRECTORY AND NOT MANDATORY-OBJECT OF FILING A CERTIFIED COPY IS TO VERIFY THE EXISTENCE OF THE PARTNERSHIP WITH THE PARTNERS SHARES SPECIFIED THEREIN-IF THE CERTIFIED COPY OF THE INSTRUMENT IS AVAILABLE BEFORE THE AO WHEN HE FRAMES THE ASSESSMENT ON MERITS, THE OBJECT OF LEGISLATURE IS ACHIEVED-USE OF WORD SHALL DOES NOT MAKE THE PROVISION MANDATORY-PROVISIONS OF SECTION 184(2) WHEN CONSIDERED AS A WHOLE CLEARLY SHOW THAT THE EXPRESSION CAN BE CONSTRUED AS MAY-ASSESSEE FILED A PHOTO COPY OF THE PARTNERSHIP DEED ALONGWIT H THE RETURN-CERTIFIED COPY FURNISHED BEFORE THE AO DURING THE COURSE OF ASSESSMENT-AO NOT JUSTIFIED IN TREATING THE ASSESSEE AS AN AOP AND NOT A FIRM. 5.2 FOLLOWING THIS JUDGMENT, I HOLD THAT THE APPELLANT SHOULD BE ASSESSED IN THE STATUS OF THE FIRM AND NOT IN THE STATUS OF AOP AS DONE BY THE AO. THE GROUND OF APPEAL IS ALLOWED. 6. WE ARE OF THE CONSIDERED OPINION THAT THE REQUIREMENT OF PROVISIONS OF SECTION 184(2) STANDS SUBSTANTIALLY COMPLIED WITH IN THE PRESENT CASE. T HE STATUTORY CONDITIONS, AS LAID DOWN IN THE SAID PROVISIONS, ARE NOT MANDATORY IN NATURE, AS HELD IN THE DECISION OF THE TRIBUNAL RELIED UPON BY THE ASSESSE E AND APPRECIATED BY THE CIT(A). THE PROVISIONS OF SE CTION 184 ARE DIRECTORY IN NATURE AND STAND COMPLIED WITH , THE MOMENT ASSESSEE MAKES A SUBSTANTIAL COMPLIANCE OF SUCH PROVISIONS. THE ASSESSEE, IN THE PRESENT CASE HAD FILED CERTIFIED COPY OF THE REVISED PARTNERSHIP BEF ORE THE 5 COMPLETION OF ASSESSMENT. IN VIEW OF THIS, WE DO NO T FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) AN D HENCE, THE SAME ARE UPHELD AND APPEAL OF THE REVENU E IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEB.,2012. SD/- SD/- (H.L.KARWA) (MEHAR S INGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 15 TH FEB.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), CIT,DR ASSISTANT REGISTRAR ITAT, CHANDIGARH