ITO, Kota V. M/S SURGICAL HOUSE, Kota

ITA 554/JPR/2012

• Counselvise Citation: 55423114 RSA 2012
• Duration Of Justice: 3 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA J
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 554/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2005-06 THE ITO WARD- 2 (1) KOTA CUKE VS. M/S. SURGICAL HOUSE BEHIND CENTRAL BANK OF INDIA, ARYA SAMAJ ROAD, RAMPURA, KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAYFS 6536 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY :SHRI RAJ MEHRA, JCIT-DR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : NONE LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/10/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 16/10/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. LD. CIT(A), KOTA DATED 30-03-2012 FOR THE ASSESSMEN T YEAR 2005-06 RAISING THEREIN FOLLOWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- (I) GRANTING STATUS OF FIRM TO THE ASSESSEE IN SPIT E OF THE FACT THAT A CERTIFIED COPY OF PARTNERSHIP DEED HAS NOT FURNISHED ALONGWITH RETURN OF INCOME WHICH IS MANDATORY AS PER SECTION 184(2) OF THE I.T. ACT, 19 61. ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 2 (II) DELETING DISALLOWANCE OF RS. 8,23,506/- ON ACCOUNT OF CLAIM OF INTEREST AND REMUNERATION PAID TO PARTNERS TREATING STATUS OF FIRM (III) RESTRICTING DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSE FROM RS. 81,366/- TO RS. 31,366/- . 2.1 THE NOTICE WAS SENT TO THE LAST KNOWN ADDRESS O F THE ASSESSEE THROUGH REGISTERED A/D BUT THE SAME HAS BEEN RETURN ED BY THE POSTAL AUTHORITY WITH THE REMARKS THAT THERE IS NO FIRM E XIST IN THIS NAME. THEREFORE, THE BENCH DECIDED TO PROCEED IN THE MATT ER EX-PARTE AS PER THE MATERIALS AVAILABLE ON RECORD AT THE TIME OF HEARIN G OF THE APPEAL. 3.1 NOW WE TAKE UP THE GROUND NO. 1 AND GROUND NO. 2 OF THE REVENUE. THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE DERIVES INCOME FROM BUSINESS OF WHOLESALE DEALERSHIP OF SURGICAL I TEMS AND MEDICINES. THE ASSESSEE FILED ITS RETURN OF INCOME OF RS.50,86 8/- ON 31-10-2005 WHICH WAS SCRUTINIZED U/S 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE AS SESSEE HAD CLAIMED ITS STATUS AS FIRM AS PER RETURN OF INCOME BUT TH E NECESSARY REQUIREMENT I.E. CERTIFIED COPY OF PARTNERSHIP DEED TO CLAIM TH E STATUS AS FIRM HAS NOT BEEN ACCOMPANIED AS IT WAS MANDATORY ON THE PART OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, THE ASSESSEE WAS ASKED BY THE A O TO EXPLAIN AS TO WHY THE ASSESSEES STATUS SHOULD NOT BE TAKEN AS AOP. H OWEVER, THE ASSESSEE ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 3 VIDE ITS LETTER DATED 5-09-2007 HAS SUBMITTED THAT IT HAS FILED THE CERTIFIED COPY OF THE PARTNERSHIP DEED DURING THE COURSE OF A SSESSMENT PROCEEDINGS TO JUSTIFY ITS CLAIM AS A FIRM AND IN SUPPORT, THE ASSESSEE CITED THE FOLLOWING DECISIONS. (1) M/S. ISHAR DAS SAHANI & SONS VS. DCIT (2000) 68 TTJ 125 (DEL.) (2) SONA TRACTOR VS. AO , 3 SOT 576 (AMRITSAR) THE AO HOWEVER, FELT IT NECESSARY TO QUOTE THE FOLL OWING RELEVANT PROVISIONS OF SECTION 184(2) OF THE ACT BEFORE DECI DING THE ISSUE: A CERTIFIED COPY OF THE INSTRUMENT OF PARTNERSHIP REFERRED TO IN SUB-SECTION (1) SHALL ACCOMPANY THE RETURN OF INCOME OF THE FIRM OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1993 IN RESPECT OF WHICH ASSESSMENT AS A FIRM IS F IRST SOUGHT. EXPLANATION FOR THE PURPOSE OF THIS SUB-SECTION, THE COPY OF THE INSTRUMENT OF PARTNERSHIP SHALL BE CERT IFIED IN WRITING BY ALL THE PARTNERS (NOT BEING MINORS) OR, WHERE THE RETURN IS MADE AFTER THE DISSOLUTION OF THE FIRM, B Y ALL PERSONS (NOT BEING MINORS) WHO WERE PARTNERS IN THE FIRM IMMEDIATELY BEFORE ITS DISSOLUTION AND BY THE LEGAL REPRESENTATIVE OF ANY SUCH PARTNER WHO IS DECEASED. THE AO OBSERVED THAT THE EXPRESS READING OF THE ABO VE PROVISIONS CLEARLY SPECIFY THAT THE SUBMISSIONS OF CERTIFIED COPY OF T HE PARTNERSHIP DEED ALONG WITH THE RETURN OF INCOME IS MANDATORY TO CLA IM THE STATUS OF FIRM IF IT IS RELEVANT TO THE YEAR OF EXECUTION OF PARTN ERSHIP DEED AND IT HAS NOT BEEN DONE BY THE ASSESSEE. THUS THE AO IN VIEW OF T HE ABOVE ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 4 DELIBERATIONS OBSERVED THAT ASSESSEES CLAIM OF THE STATUS AS FIRM IS NOT TENABLE IN THE EYES OF LAW AND THE AO AFTER REJECTI NG THE CLAIM OF STATUS AS FIRM HAS TAKEN THE STATUS OF THE ASSESSEE AS AOP AS PER ACT AND DISALLOWED THE CLAIM OF INTEREST AND REMUNERATION O F TWO PARTNERS OF RS. 7,02,094 + RS. 1,21,412 = RS. 8,23,506/-. 3.2 THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) WHO HAS DIRECTED THE AO TO TREAT THE ASSESSEE AS PARTNERSHI P FIRM AND ALLOW THE REMUNERATION TO THE PARTNERS AND INTEREST TO CAPITA L TO PARTNERS BY OBSERVING AS UNDER:- 4.12 THE AO TREATED THE ASSESSEE AS AOP AS THE ASSESSEE FAILED TO SUBMIT CERTIFIED COPY OF PAR TNERSHIP DEED ALONGWITH RETURN OF INCOME. THE ASSESSEE PLACE D ITS RELIANCE ON THE JUDGEMENT OF HON'BLE ITAT (68 TTJ 125, DELHI). I HAVE GONE THROUGH THE AOS FINDINGS, ASSESSEE'S SUBMISSION AND THE JUDGMENT OF HON'BLE ITAT . IN VIEW OF THE JUDGEMENT OF HON'BLE ITAT, I AM OF THE OPINION THAT IT WOULD BE SUFFICIENT THAT THE ASSESS EE FILES CERTIFIED COPY OF PARTNERSHIP DEED DURING THE COURS E OF ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO TREAT T HE ASSESSEE AS PARTNERSHIP FIRM AND ALLOW THE REMUNERA TION TO THE PARTNERS AND INTEREST TO CAPITAL TO PARTNERS. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 5 3.3 THE LD. DR RELIED ON THE ORDER OF THE AO AND AR GUED THAT AS PER SECTION 184(2), THE ASSESSEE HAS TO ACCOMPANY THE C ERTIFIED COPY OF PARTNERSHIP DEED ALONGWITH THE RETURN. FROM THE SID E OF ASSESSEE, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY WRITTEN REPLY HAS BEEN FILED 3.4 WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI ALS AVAILABLE ON RECORD. IT IS NOT UNDER DISPUTE THAT THE ASSESSEE H AS FURNISHED A CERTIFIED COPY OF THE PARTNERSHIP DEED DURING THE COURSE OF A SSESSMENT PROCEEDINGS. IT IS ALSO NOT UNDER DISPUTE THAT THE AO HAS NOT FO UND ANY INFIRMITY OR ILLEGALITY IN THE PARTNERSHIP DEED. ONLY DISPUTE I S REGARDING THE POINT OF TIME WHEN THE ASSESSEE WAS REQUIRED TO FILE THE CER TIFIED COPY OF THE PARTNERSHIP DEED IN COMPLIANCE WITH SECTION 184(2) OF THE ACT. WHETHER THE CERTIFIED COPY OF THE PARTNERSHIP DEED WAS REQU IRED TO BE FILED ALONG WITH THE RETURN OF INCOME OR WHETHER THE SAME COULD BE FILED BEFORE THE AO BEFORE HE CONCLUDES THE ASSESSMENT PROCEEDINGS. IT IS NOTED THAT THE ABOVE ISSUE IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH IN THE CASE OF ISHAR DAS SAHNI & SONS VS. DCIT, 77 ITD 256 (DEL), WHEREIN IT HAS BEEN HELD AS UNDER:- AS PER THE AMENDED PROVISION OF SECTION 184 THE R EQUISITE CONDITION FOR ASSESSMENT AS A FIRM ARE AS UNDER :- (1) THE PA RTNERSHIP IS EVADED BY AN INSTRUMENT [S.184(1)(I)]. THIS CONDITION IS IDENTIC AL WITH THE CONDITION AS PRESCRIBED IN PRE-1993 S. 184(I)(II). THE INDIVIDUA L SHARES OF THE PARTNERS ARE SPECIFIED IN THE INSTRUMENT [S. 184(I)(II)]. THIS C ONDITION IS A REPRODUCTION OF S. 184(I)(II) OF PRE-1993 SECTION. (III). A CERTIFIED COPY OF THE INSTRUMENT OF PARTNERSHIP SHALL ACCOMPANY THE RETURN OF INCOME OF THE FIRM OF THE PREVIOUS ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 6 YEAR RELEVANT TO ASSESSMENT YEAR 1993-94 OR ANY SUB SEQUENT ASSESSMENT YEAR, IN RESPECT OF WHICH ASSESSMENT IS A FIRM IS FIRST SOUGHT [S. 184(2)]. THE CONDITIONS AT (I) AND (II) ABOVE GO TO THE VERY ROO T OF ADOPTION OF STATUS AS A FIRM. IF THESE CONDITIONS ARE NOT SATISFIED, THE OB JECT OF THE LEGISLATURE IN GRANTING STATUS AS FIRM WOULD BE DEFEATED AND THERE FORE, THESE ARE MANDATORY CONDITIONS. INSOFAR AS CONDITIONS AT (III) ABOVE IS CONCERNED, FILING A CERTIFIED COPY OF THE INSTRUMENT, IS ON THE FACT OF IT A MAND ATORY CONDITION BECAUSE WITHOUT THAT IT CANNOT BE VERIFIED THAT THE CONDITI ON AT (I) IS REALLY SATISFIED. THE OBJECT OF FILING A CERTIFIED COPY APPEARS TO BE TO VERIFY THE EXISTENCE OF THE PARTNERSHIP WITH THE PARTNERS SHARES SPECIFIED THE REIN. THIS DOCUMENT IS RELEVANT FOR THE PURPOSES OF ASSESSMENT AS A FIRM. THEREFORE, IF THE CERTIFIED COPY OF THE INSTRUMENT IS AVAILABLE BEFORE THE ASSE SSING OFFICER WHEN HE SITS DOWN FOR FRAMING THE ASSESSMENT ON MERITS, THE OBJE CT OF THE LEGISLATURE IS ACHIEVED BECAUSE IT IS AT THAT STAGE THAT THE COMPL IANCE OF THE REQUIREMENTS OF SECTION 184(2) IS TO BE ASCERTAINED. IF THAT WAS SO , THE REQUIREMENT OF THE CERTIFIED COPY ACCOMPANYING THE RETURN DOES NOT SEE M TO BE OF SUCH A COMPELLING NATURE THAT IT MAY LEAD TO DENIAL OF THE STATUS OF A FIRM IN CASES WHERE COMPLIANCE OF THE REQUIREMENT OF THE PROVISIO N IS MADE BEFORE THE COMPLETION OF THE ASSESSMENT AND THE UNCERTIFIED AND CERTIFIED COPIES ARE FOUND TO BE IDENTICAL. DOING SO WOULD BE TAKING A T OO TECHNICAL VIEW OF THE LEGAL REQUIREMENT. IT IS WELL SETTLED THAT IN INTER PRETING THE LAW, ONE OF THE FACTORS TO BE TAKEN INTO ACCOUNT IS THE PURPOSE FOR WHICH THE LAW HAS BEEN LAID DOWN. THE WORDS OF A STATUTE TAKE THEIR COLOUR FROM THE OBJECT BEHIND IT. THE OBJECT OF SECTION 184(2) IS TO ENSURE THAT ONLY THE PROPERLY CONSTITUTED FIRMS ARE ASSESSED AS FIRMS AND AS LONG AS THIS OBJECTIVE IS FULFILLED BEFORE THE ASSESSMENT IS FINALISED, THE PURPOSE OF THE STATUTE IS SERVED. HENCE, DENYING THE STATUS OF FIRM TO THE ASSESSEE IN THE INSTANT CASE MERELY ON THE GROUND THAT THE CERTIFIED COPY OF THE PARTNERSHIP DEED WAS NOT ENCL OSED WITH THE RETURN, THOUGH GIVEN LATER AT THE TIME OF ASSESSMENT, WOULD BE UNJ USTIFIED.- STATE OF TAMIL NADU VS. KODAI KANAL MOTOR UNION (P) LTD. AIR 1986 SC 1973 APPLIED. [EMPHASIS SUPPLIED] THEREFORE, BY FOLLOWING THE COORDINATE BENCH IN TH E CASE OF ISHAR DAS SAHNI & SONS VS. DCIT (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). WE THEREFORE UPHOLD THE STATUS OF THE A SSESSEE AS A FIRM AS THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SE CTION 184(2) OF THE ACT. CONSEQUENT THERETO, THE DISALLOWANCE OF RS. 8 ,23,506/- ON ACCOUNT OF CLAIM OF INTEREST AND REMUNERATIONS PAID TO PAR TNERS DOESNT STAND AND ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 7 THE SAME SHOULD BE ALLOWED IN THE HANDS OF THE ASSE SSEE TAXED IN THE STATUS OF THE FIRM. THUS, GROUND NO. 1 AND 2 RAISED BY THE REVENUE ARE DISMISSED. 4.1 GROUND NO 3. OF THE REVENUE IS FOR RESTRICTING THE DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSE FROM RS. 81,336/- TO RS. 31,366/-. 4.2 BRIEF FACTS RELEVANT FOR THIS GROUND ARE THAT T HE ASSESSEE HAD CLAIMED RS. 97,992/- ON ACCOUNT OF TELEPHONE AND MO BILE EXPENSES. HOWEVER, ON SCRUTINY OF THE RECORD, THE AO OBSERVED THAT PHONES/ MOBILES ARE NOT RELATED TO THE BUSINESS OF THE ASSE SSEE AND THEY ARE NEITHER IN THE NAME OF THE PARTNERS NOR INSTALLED IN THE BU SINESS PREMISES OF THE ASSESSEE AND THUS DISALLOWED THE EXPENSES TO THE EX TENT OF RS. 81,336/- BY ADDING THEM TO THE INCOME OF THE ASSESSEE. 4.3 THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) ON THIS ISSUE WHO AFTER CONSIDERING THE ARGUMENTS OF BOTH T HE PARTIES RESTRICTED THE ADDITION TO THE EXTENT OF RS. 31,336/- BY OBSER VING AS UNDER:- 4.42. THE ASSESSING OFFICER DISALLOWED TELEPHONE EXPENSES OF RS. 81,336/-ON THE GROUND THA T THE TELEPHONES WERE NOT IN THE NAME OF THE ASSESSEE. ON E OF THE MOBILE WAS IN THE NAME OF SURAJ MEDICAL (PROP. LUCK Y BATLA). SIMILARLY, OTHER TELEPHONES WERE ALSO NOT I N THE NAME OF ASSESSEE. THE TELEPHONES WERE IN THE NAME O F PERSONS WHO WERE DOING THEIR OWN BUSINESS AND PRIMA RY USE OF TELEPHONE WAS OBVIOUSLY FOR THEIR OWN PURPOSES. HOWEVER, IN MY OPINION, THE DISALLOWANCE HAS TO BE REASONABL E. ITA NO. 554/JP/2012 THE ITO, WARD- 2 (1), KOTA VS. M/S. SURGICAL HOUSE, KOTA 8 IN MY VIEW, A DISALLOWANCE OF RS. 50,000/- IS REASONABLE. THE ASSESSING OFFICER IS DIRECTED TO DE LETE BALANCE DISALLOWANCE OF RS. 31,366/-. THIS GROUND OF APPEAL IS, THEREFORE, PARTLY ALLOWED . 4.4 WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI ALS AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) HAS TAKEN INTO CONSIDERATION ALL THE ASPECTS AS TO RESTRICTION OF THE DISALLOWANCE AND T HUS WE CONCUR WITH THE FINDING OF THE LD. CIT(A) ON THIS ISSUE WHICH IS S USTAINED. THUS GROUND NO. 3 OF THE REVENUE IS DISMISSED. 5.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 /10/20 15. SD/- SD/- VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 16/10/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ITO, WARD- 2 (1), KOTA 2. IZR;FKHZ@ THE RESPONDENT- M/S. SURGICAL HOUSE, KOTA 3. VK;DJ VK;QDRVIHY ) @ CIT(A), JAIPUR 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.554/JP/2012 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR