KARNAVVAT & CO, MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 5675/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0700 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO.5675/MUM/2012 / ASSESSMENT YEAR 2008-09 M/S.KARNAVAT & CO., 2A KITAB MAHAL, 1 ST FLOOR, 192 DR.D.N.ROAD, MUMBAI 400 001. / VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIR.11(2), MUMBAI. ./ ./ PAN/GIR NO. : AAAFK 1143L ( / APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY SHRI SUNIL HIRAWAT RESPONDENT BY SHRI NEIL PHILIP ! ' / DATE OF HEARING : 28/05/2015 ! ' / DATE OF PRONOUNCEMENT : 28/05/2015 / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-3,MUMBAI DATED 6/7/2012 FOR AS SESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERR ED IN NOT CONSIDERING THE INTEREST RECEIVED OF RS.2,08,513/- BEING THE AMOUNT ELIGIBLE FOR CALCULATING PARTNERS' REMUNERATION UNDER THE PROVISIONS OF SECTION 40(B) OF THE ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE CONSI DERED THE INTEREST RECEIVED OF RS.2,08,S13/- FOR THE AMOUNT ELIGIBLE FOR CALCULATI NG PARTNERS' REMUNERATION. 2. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERR ED IN NOT CONSIDERING THE MISCELLANEOUS INCOME OF RS.26,534/- BEING THE AMOUN T ELIGIBLE FOR CALCULATING PARTNERS' REMUNERATION UNDER THE PROVISIONS OF SECTION 40(B) OF THE ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE CONSI DERED THE MISCELLANEOUS INCOME OF RS.26,534/- FOR THE AMOUNT ELIGIBLE FOR CALCULATING PARTNERS' REMUNERATION. . / ITA NO.5675/MUM/2012 / ASSESSMENT YEAR 2008-09 2 3. WITHOUT PREJUDICE TO GROUND OF APPEAL NO.1 ABOV E, THE LEARNED CIT(A) HAD FAILED TO APPRECIATE THAT NO NET AMOUNT OF INTEREST WAS RECEI VED BY THE APPELLANT, SO AS TO EXCLUDE THE SAME FROM AMOUNT ELIGIBLE FOR CALCULATING PARTN ERS' REMUNERATION UNDER THE PROVISIONS OF SECTION 40(B) OF THE I.T.A ACT. 4. WITHOUT PREJUDICE TO GROUND OF APPEAL NO.1 & 3 ABOVE, THE LEARNED CIT(A) HAD FAILED TO APPRECIATE THAT GROSS INTEREST OF RS.2,08,513/- IS FORMING PART OF BUSINESS INCOME OF THE APPELLANT. 5. WITHOUT PREJUDICE TO GROUND OF APPEAL NO.2 ABOVE , THE LEARNED CIT(A) HAD FAILED TO APPRECIATE THAT MISCELLANEOUS INCOME OF RS.26,534/- IS FORMING PART OF THE BUSINESS INCOME OF THE APPELLANT. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE PRE SENT APPEAL REVOLVE AROUND THE QUESTION THAT AMOUNT OF (I) RS. RS.26,53 4/- REPRESENTING MISCELLANEOUS INCOME AND (II) RS.2,08,513/- REPRESE NTING INTEREST INCOME IS ELIGIBLE FOR COMPUTING BOOK PROFIT AS PER EXPLANATI ON 3 TO SECTION 40(B) OF INCOME TAX ACT, 1961 (THE ACT). EXPLANATION-3 DEFI NED BOOK PROFIT FOR CLAUSE (V) OF THE SECTION 40(B), WHICH PRESCRIBE THE LIMIT OF PAYMENTS OF REMUNERATION TO PARTNERS. THE AO HAS EXCLUDED THESE AMOUNTS WHILE COMPUTING THE LIMIT OF REMUNERATION ALLOWABLE OUT OF THE INCOME OF THE FI RM. IT IS THE CASE OF THE ASSESSEE THAT AS PER EXPLANATION-3, THE BOOK PROFIT HAS TO BE TAKEN AS NET PROFIT SHOWN IN THE P&L ACCOUNT AND COMPUTED IN THE MANNER LAID DOWN IN CHAPTER-IV-D AS INCREASED BY AGGREGATE AMOUNT OF RE MUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM, IF SUCH A MOUNT WAS DEDUCTED WHILE COMPUTING NET PROFIT. LD. AR HAS SUBMITTED BEFORE US THE P&L ACCOUNT, COMPUTATION OF ASSESSABLE INCOME AND COPY OF ANNEXU RE-3 TO FORM NO.3CD, WHEREBY FOR THE PURPOSE OF ALLOWABILITY OF REMUNERA TION TO THE PARTNERS AS PER PROVISIONS OF SECTION 40(B), BOOK PROFIT HAS BEEN COMPUTED. FOR THE SAKE OF COMPLETENESS THE AFOREMENTIONED ANNEUXRE-3 TO FORM 3CD IS REPRODUCED BELOW: ANNEXURE-3 TO THE FORM NO.3CD: WORKING OF REMUNERATION ALLOWABLE TO PARTNERS U/S.4 0(B) BOOK PROFIT: SURPLUS AS AND INCOME EXPENDITURE ACCOUNT: 1,100,643 . / ITA NO.5675/MUM/2012 / ASSESSMENT YEAR 2008-09 3 ADD: DISALLOWABLES/CONSIDERED SEPARATELY I) REMUNERATION PAID TO PARTNERS 2,187,584 II) OTHER DISALLOWABLES (AS PER COMPUTATION TOTAL INCOME) 1,265,447 3,453,031 4 ,553,674 LESS: ALLOWABLE /EXEMPT (AS PER COMPUTATION OF TOTAL INCOME 391,373 BOOK PROFIT 4,162,3 01 == ======= ON THE FIRST RS.100,000 OF THE BOOK 90% OF THE SAME 90,000 ON THE NEXT RS.100,000 OF THE BOOK PROFIT 60% OF TH E SAME 60,000 ON THE BALANCE RS.39,62,301/-OF THE BOOK PROFIT 40% OF THE SAME 1,584,920 MAXIMUM REMUNERATION DEDUCTIBLE U/S.40(B) RS. 1,734,920 ========= FIRM HAS PAID REMUNERATION TO PARTNERS AMOUNTING TO RS.21,87,584/-. HOWEVER, MAXIMUM REMUNERATION TO PARTNERS WILL BE ALLOWED U/ S.40(B) RS.17,34,920/-. HENCE REMUNERATION TO PARTNERS WILL BE INADMISSIBLE U/S. 40(B) AMOUNTING TO RS.4,52,664/- (21,87,584 17,34,920) 3. IN THE COMPUTATION OF INCOME, THE INCOME SHOWN AS PER PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.11.00.643/-, INTER-ALIA, FO LLOWING ADJUSTMENTS HAVE BEEN MADE WHICH RELATES TO PARTNERS REMUNERATION AN D OTHER DISALLOWANCES: (I) AMOUNT ADDED AS PARTNERS REMUNERATION INADMISSIBLE U/S.40(B)(AS PER ANNEXURE-3 ATTACHED WITH FORM NO.3CD) 4,5 2,664 17,18,111 28,18, 754 AND AMOUNT READ AS UNDER: LESS: ALLOWED/CONSIDERED SEPARATELY: (I) DEPRECIATION ALLOWABLE AS PER IT ACT, 1961 (REFER ANNEXURE-2 . / ITA NO.5675/MUM/2012 / ASSESSMENT YEAR 2008-09 4 ATTACHED WITH FORM NO.3CD) 3,89,795 (II) DIVIDEND BEING EXEMPT U/S.10(33) 1,350 TOTAL : 3,91,145 4. IN THE COMPUTATION OF INCOME NET INCOME ARRIVED BY THE ASSESSEE IS A SUM OF RS.24,27,610/-. 5. IN VIEW OF THE ABOVE FACTUAL ASPECTS, IT IS THE CLAIM OF THE ASSESSEE THAT THE BOOK PROFIT HAS BEEN CALCULATED BY THE FIRM AS PER PROVISIONS OF EXPLANATION -3 TO CLAUSE (V) OF SECTION 40(B) AND A TOTAL SUM OF RS.21,87,584/- WAS DEBITED TO THE P&L ACCOUNT, AFTER CLAIMING REMUNERATION PAY ABLE AT A SUM OF RS.17,34,920/-, BALANCE AMOUNT OF RS.4,52,664/- WAS ADDED IN THE COMPUTATION OF INCOME. HE SUBMITTED THAT RETURN OF INCOME OF RS.24,27,610/- PLUS REMUNERATION OF RS.17,34,920/- COMES TO A SUM OF RS.41,62,530/-, WHICH IS NOT IN ACCORDANCE WITH THE BOOK PROFIT COMPUTED BY THE ASSESSEE IN ANNEXURE-3. THUS, IT WAS PLEADED BY LD. AR THAT CL AIM OF THE ASSESSEE HAS WRONGLY BEEN REJECTED BY LD. CIT(A) AND RELIEF SHOU LD BE GRANTED TO THE ASSESSEE. 6. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE BOOK PROFIT HAS BEEN COMPUTED BY T HE ASSESSEE AS PER PROVISIONS OF SECTION 40(B). EXPLANATION-3 DOES NO T MAKE ANY DIFFERENCE BETWEEN THE MISCELLANEOUS INCOME AND INCOME EARNED AS INTEREST, AS IT REFERS TO NET PROFIT SHOWN IN THE P&L ACCOUNT, WHICH IS CO MPUTED IN THE MANNER LAID DOWN IN CHAPTER-IV-D, WHICH IS REPRESENTING PROFIT S AND GAINS OF BUSINESS OR PROFESSION. AFTER GOING THROUGH THE COMPUTATION O F INCOME, AND ANNEXURE-3, WE ARE OF THE OPINION THAT THE BOOK PROFIT HAS BEEN COMPUTED BY THE ASSESSEE AS PER PROVISIONS OF EXPLANATION-3 AND AO HAS ALSO STATED THE COMPUTATION OF INCOME AFTER CONSIDERING THE INCOME RETURNED BY THE ASSESSEE. NO PART OF THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED OTHER THA N INCOME FROM BUSINESS OR . / ITA NO.5675/MUM/2012 / ASSESSMENT YEAR 2008-09 5 PROFESSION. IN THIS VIEW OF THE SITUATION, WE HOLD THAT REMUNERATION PAYABLE TO PARTNERS CANNOT BE REDUCED BY A SUM OF RS.94,018/- AS HAS BEEN DONE BY THE AO AND SUCH ADDITION MADE BY THE AO IS DELETED. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/05/20 15 () * + 28/05/2015 SD/- SD/- ( , / RAJENDRA) ( . . / I.P. BANSAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER ( MUMBAI; * DATED 28/05/2015 ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. .! ( ) / THE CIT(A)- 4. .! / CIT 5. /0 !12 , ' 12 , ( / DR, ITAT, MUMBAI 6. 3 / GUARD FILE. / BY ORDER, /! ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ( / ITAT, MUMBAI . . ./ VM , SR. PS