Horizon Motors, Kheda V. The Dy.CIT.,Kheda Circle, Nadiad

ITA 556/AHD/2012

• Counselvise Citation: 55620514 RSA 2012
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Business income
• Section: 143(3); 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER HORIZAN MOTORS, HADIAD PAN: AABFH7495R (APPELLANT) VS DCIT, KHEDA CIRCLE, NADIAD (RESPONDENT) REVENUE BY : S H RI R.K. GUPTA , SR. D . R. ASSESSEE BY: S H RI P.M. MEHTA , A.R. DATE OF HEARING : 26 - 10 - 2 015 DATE OF PRONOUNCEMENT : 30 - 11 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE TWO ASSESSEE S APPEAL S FOR A.Y. 2 0 06 - 07 & 20 08 - 09, ARISE FROM SEPARATE ORDER S OF THE CIT(A) - IV, BARODA DATED 08 - 12 - 2011 I N APPEAL NO. CAB/IV - N - 102/2010 - 11 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 AND 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 555 & 556 / A HD/20 12 A Y 200 6 - 07 & 2008 - 09 I.T.A NO S . 555 & 556 /AHD/20 12 A.Y. 2006 - 07 & 2008 - 09 PAGE NO HORIZAN MOTORS VS. DCIT 2 2. THE ASSSESSEE RAISES TWO SUBSTANTIVE GROUNDS IN FO RMER AYS APPEAL ITA 555/AHD/2012 INTER ALIA CHALLENGING THE CIT(A) S ORDER AFFIRMING DISALLOWANCE OUT OF REMUNERATION PAID TO WORKING PARTNERS US 40(B)(V)(2) AMOUNTING TO RS. 2,36,874/ - . ITS SECOND SUBSTANTIVE GROUND CHALLENGES VALIDITY OF REOPENING. THI S LATTER GROUND IS SNOT PRESSED IN THE COURSE OF HEARING. ASSESSEE S LATTER APPEAL ASSAILS CORRECTNESS OF THE ABOVE STATED SECTION 40(B)(V)(2) IDENTICAL DISALLOWANCE OF RS. 3,23,807/ - . BOTH PARTIES ARE IN UNISON THAT FACTS AND THE ISSUE INVOLVED ARE IDEN TICAL IN THE TWO IMPUGNED ASSESSMENT YEARS. WE TAKE UP ITA 555/AHD/2012 FOR ASSESSMENT YEAR 2006 - 07 AS THE LEAD CASE ACCORDINGLY. 3. THE ASSESSEE - FIRM IS A DEALER OF HERO HONDA MOTOR C YCLES AND SERVICE WORK. IT FILED ITS RETURN ON 31/12/2006 ADMITTING INCOME OF RS. 28,07,510/ - . THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 21/07/2008 ASSESSING TAXATION INCOME AS RS. 28,32,510/ - . THEREFORE, HE FORMED REASONS TO BELIEVE THAT ASSESSEE S INCOME LIABLE TO THE TAXED HAD ESCAPED ASSESSMENT. THIS C ULMINATED IN ISSUANCE OF SECTION 148 NOTICE DATED 25/02/2010. THE ASSESSEE S RETURN IN RESPONSE THERETO CAME ON 17 - 03 - 2010 STATING THE ABOVE DETERMINED INCOME OF RS. 28,32,510/ - . 4. THE ASSESSING OFFICER TOOK UP REASSESSMENT. HE CAME ACROSS ASSESSEE S P & L ACCOUNT CREDITING BANK FDR INTEREST OF RS. 4,45,190/ - , DEBENTURE INTEREST OF RS. 1,46,995/ - ; TOTALING TO RS. 5,92,185/ - . THE SAME HAD ALSO BEEN INCLUDED IN P & L ACCOUNT FOR I.T.A NO S . 555 & 556 /AHD/20 12 A.Y. 2006 - 07 & 2008 - 09 PAGE NO HORIZAN MOTORS VS. DCIT 3 REMUNERATION. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS GROSS INTERE ST SUM HAD TO BE DEDUCTED FOR THE PURPOSE OF COMPUTING BOOK PROFITS. AND ALSO THAT ASSESSEE S PARTNER S REMUNERATION WAS EXCESSIVE TO THE TUNE OF RS. 2,36,874/ - . WE ACCORDINGLY SOUGHT TO DISALLOW THIS SAME. 5. THE ASSESSEE S REPLY CAME AS 23 - 06 - 2010 INT ER ALIA REFERRING TO BOOK PROFITS DEFINITION SAYING AN ADJUSTMENT TO BE REQUIRED AS SPECIFIED U/S. 28 TO 44. AND CONSEQUENTLY , INCOME CHARGEABLE TO TAX THE HEAD HOUSE PROPERTY, CAPITAL GAINS AND OTHER SOURCES WOULD NOT FORM PA R T OF BOOK PROFITS . IT EMP HASIZED THAT THE ABOVE SAID INTEREST INCOME WAS VERY MUCH PART AND PARCEL OF BUSINESS INCOME BUT COULD NOT BE ADDED BACK IN BOOK PROFITS. RELEVANT CLAUSES IN PARTNERSHIP DEED WERE QUOTED. ASSESSEE STATED THAT IS ONLY BUSINESS ACTIVITY WAS ONLY OF MOTOR C YCLE TRADING. AND ANY ACTIVITY RELATED OR ANCILLARY THREATS IN THE LINE OF MAIN BUSINESS WAS PART AND PARCEL OF BUSINESS INCOME TO BE ASSESSED AS SUCH. IT FURTHER HIGHLIGHTED ITS CAPITAL, BANK F D LIMIT & CURRENT LIABILITY FIGURES AGAINST FIXED ASSETS, CU RRENT ASSETS INCLUDING STOCK IN HAND AND CLAIMED REMAINING BALANCE AS BUSINESS INVESTMENT BECAUSE OF SURPLUS FUNDS TO BE INVESTED IN ORDER TO AVOID THE SAME LYING IDLE. A FURTHER CLARIFICATION ALSO CAME THAT THESE SURPLUS FUNDS FETCHED FD INTEREST OF RS. 4,45,190/ - . IT ALSO CLAIMED TO HAVE TAKEN AN OVERDRAFT THEREUPON PAYING INTEREST OF RS. 3,80,895/ - . THE ASSESSEE ACCORDINGLY JUSTIFIED ITS ACTION IN TREATING THE ABOVE STATED INTEREST SUM AS BUSINESS INCOME AS WELL AS ITS CORRESPONDING PARTNERS REMUNER ATION. THE ASSESSING OFFICER RELIED UPON SECTION I.T.A NO S . 555 & 556 /AHD/20 12 A.Y. 2006 - 07 & 2008 - 09 PAGE NO HORIZAN MOTORS VS. DCIT 4 40(B)(V)(2) OF THE AC T THAT ONLY BUSINESS IN COME IS TO BE COMPUTED. WE OPINED THAT ALL OTHER INCOMES UNDER THE HEADS HOUSE PROPERTY, CAPITAL GAINS & OTHER SOURCES CREDITED TO P & L AC COUNT HAD TO BE DED UCTED FROM NET PROFITS TO COMPUTE BOOK PROFITS. HE AC CORDINGLY EXCLUDED ASSESSEE S INTEREST INCOM E OF RS. 5,92,185/ - F R O M BOOK PROFITS AND COMPUTED CONSEQUENTIAL EXCESS REMUNERATION TO PARTNERS OF RS. 2,36,874/ - RESULTING IN THE IMPUGNED DISALLOWANCE IN REASSESSMENT FRAMED ON 27 - 06 - 2010. 6. THE CIT(A) HAS UPHELD ASSESSING OFFICER' ACTION IN MAKING THE IMPUGNED DISALLOWANCE. THIS LEAVES ASSESSEE AGGRIEVED. 7. WE HAVE HEARD BOT H THE PARTIES. RELEVANT FACTS NARRATED HEREINABOVE ARE NOT REPEATED FOR THE SAKE OF BREVITY. THERE IS NO DISPUTE ABOUT THE FACT THAT ASSESSEE S P & L ACCOUNT HAS BEEN CREDITED WITH THE INTEREST INCOME IN QUESTION OF RS. 5,92,185/ - . BOTH THE AUTHORITIES BELOW HAVE DEDUCTED THE SAME FROM BOOK PROFITS AS WELL AS REMUNERATION TO PARTNERS ON THE GROUND THAT THE SAME IS NOT BUSINESS INCOME RESULTING IN THE IMPUGNED SECTION 40(B)(V) (2) DISALLOWANCE OF RS . 2,36,876/ - . THERE IS NO QUARREL THAT ASSESSEE S INTEREST INCOME HAS ARISEN FROM PARKING OF SURPLUS FUND S . THE ASSESSING OFFICER TREATED THIS INTEREST SUM AS BUSINESS INCOME IN REGULAR ASSESSMENT FRAMED ON 21/07/2008. HE HAS NOWHERE DISTURBED THIS CRUCIAL VIEW AND MERELY EXCLUDES THE SAME FROM NET PROFITS IN COMPUTING BOOK PROFITS AS WELL PARTNER S REMUNERATION. A CO - ORDINATE BEN CH OF THE TRIBUNAL IN AKSHAR ASSOCIATES VS. ACIT ITA I.T.A NO S . 555 & 556 /AHD/20 12 A.Y. 2006 - 07 & 2008 - 09 PAGE NO HORIZAN MOTORS VS. DCIT 5 2583/AHD/2011 DECIDED ON 15/09/2015 DELETED IDENTICAL DISALLOWANCE BY FOLLOWING HON BLE JURISDICTIONAL HIGH COURT S DECISION CIT VS. JJ INDUSTRIES (2013) 358 ITR 531 HOLDING THAT FOR THE PURPOSE OF ASCER TAINING CEILING ON THE BASIS OF BOOK PROFITS, THE PROFIT SHALL BE THAT STATED IN P & L ACCOUNT. WE DRAW SUPPORT THEREFROM AND CONCLUDE THAT ASSESSEE S INCOME CANNOT BE NOTIONALLY EXCLUDED FOR THE PURPOSE OF DETERMINING ALLOWABLE DEDUCTION OF PARTNER S REM UNERATION U/S. 40(B). THE REVENUE FAILS TO POINT OUT ANY DISTINCTION ON FACTS OR LAW. WE ACCORDINGLY ACCEPT ASSESSEE S FORMER GROUND ON MERITS & DELETE T HE IMPUGNED SECTION 40(B)(V)(2) DISALLOWANCE OF RS. 2,36,874/ - . F ORMER APPEAL ITA 555/AHD/2012 IS A LLOWED ON MERITS. 8. SAME ORDER TO FOLLOW ITA 556/AHD/2012 9. ASSESSEE S APPEAL ITA 555/AHD/2012 IS ALLOWED ON MERITS AND ITA 556/AHD/2012 IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 30 - 11 - 2015 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 30 /11 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUAR D FILE. I.T.A NO S . 555 & 556 /AHD/20 12 A.Y. 2006 - 07 & 2008 - 09 PAGE NO HORIZAN MOTORS VS. DCIT 6 BY ORDER/ , / ,