A ANANDKUMAR, SALEM V. ACIT CIRCLE 2, SALEM

ITA 573/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5593 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 16-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K RAGHU
• Keywords: Presumptive income; Business income
• Section: 44AD; 40(b)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH : CHENNAI . , . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.573/CHNY/2018 / ASSESSMENT YEAR : 2012-13 MR.A.ANANDKUMAR, NO.184/385, BAZAR STREET, SALEM-636 001. (PAN:ABQPK0805N) VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, SALEM. ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI K.RAGHU, C.A. /RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT. /DATE OF HEARING : 24.01 . 201 9 /DATE OF PRONOUNCEMENT : 30 .01 . 201 9 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: IN THIS APPEAL FILED BY THE ASSESSEE, AGAINST ORDER DATED 22.12.2017 OF COMMISSIONER OF INCOME TAX(APPEALS), SALEM, IS AGGRIEVED ON DENIAL OF HIS CLAIM FOR ESTIMATING INC OME UNDER SECTION 44AD OF THE INCOME-TAX ACT (IN SHORT THE ACT), ON REMUNERATION AND INTEREST RECEIVED FROM FIRMS. ITA NO.573/2018 :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE HAD RECEIVED R EMUNERATION AND INTEREST FROM PARTNERSHIP FIRMS NAMELY M/S. KUMBAKO NAM JEWELLERS, M/S. ANS GUPTA & SONS AND M/S.ANS GUPTA JEWELLERS DURI NG THE PREVIOUS IMPUGNED ASSESSMENT YEAR AGGREGATING TO 58,53,000 /-. WHILE FILING RETURN FOR THE IMPUGNED ASSESSMENT YEAR, ASSESSEE HAD APPLIED PRESUMPTIVE RATE AT 8% UNDER SECTION 44AD OF THE AC T AND RETURNED 4,68,240/- AS INCOME FROM THE ABOVE MENTIONED REMU NERATION AND INTEREST. ASSESSING OFFICER WAS OF THE OPINION THAT SECTION 44AD COULD BE AVAILED ONLY BY ELIGIBLE ASSESSEE ENGAGED IN ELIGI BLE BUSINESS. ACCORDING TO HIM, ASSESSEE WAS NOT DOING ANY BUSINESS INDEPE NDENTLY BUT WAS ONLY A PARTNER IN THE FIRMS. FURTHER, AS PER LD. ASSESSI NG OFFICER, ASSESSEE HAD NO TURNOVER AND RECEIPTS ON ACCOUNT OF REMUNERATION AND INTEREST FROM THE FIRMS COULD NOT BE CONSTRUED AS GROSS RECEIPTS MENTIONED UNDER SECTION 44AD OF THE ACT. HE THEREFORE DENIED ASSESS EE THE BENEFIT OF SECTION 44AD OF THE ACT AND BROUGHT TO TAX THE ENTI RE AMOUNT OF REMUNERATION AND INTEREST FROM THE FIRMS. ASSESSEE S APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS) DID NOT MEET W ITH ANY SUCCESS. 3. NOW, BEFORE US, LD. AUTHORIZED REPRESENTATIVE ST RONGLY ASSAILING THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT SECTION 28(V) OF THE ACT, CLEARLY SPECIFIED THAT INTEREST, SALARY, BONUS , COMMISSION OR REMUNERATION RECEIVED OR DUE TO A PARTNER OF A FIRM , FROM SUCH FIRM, HAD ITA NO.573/2018 :- 3 -: TO BE ASSESSED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. AS PER LEARNED AR, SECTION 44AD ENAB LED AN ASSESSEE HAVING TURNOVER OR GROSS RECEIPTS FROM ELIGIBLE BU SINESS, TO APPLY PRESUMPTIVE RATE OF 8%. ACCORDING TO HIM, BY VIRTUE OF EXPLANATION TO SECTION 44AD, ELIGIBLE BUSINESS INCLUDED ANY BUSINE SS OTHER THAN THE BUSINESS OF PLYING, HIRING OR LEASING UPTO TEN GOOD S CARRIAGES. CONTENTION OF THE LEARNED AR WAS THAT REMUNERATION AND INTERES T BEING CONSIDERED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION BY V IRTUE OF SECTION 28(V) OF THE ACT, IT BECAME AN ELIGIBLE BUSINESS. ACCORDING TO HIM, GROSS RECEIPTS OF THE ASSESSEE FROM INTEREST AND REMUNERATION WAS BELOW 1 CRORE, FOR THE IMPUGNED ASSESSMENT YEAR AND THEREFORE ASSESSEE WAS ELIGIBLE FOR APPLYING PRESUMPTIVE RATE OF 8% ON SUCH RECEIPTS FO R ESTIMATING THE INCOME. RELIANCE WAS PLACED ON THE JUDGEMENT OF HON BLE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS.CIT (289 IT R 298) (SC) AND AN ORDER OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF SAGAR DUTTA VS.DCIT IN ITA NO.692/KOL/2012 DATED 03.05.2013. 4. PER CONTRA, LEARNED DR STRONGLY SUPPORTED ORDERS OF LOWER AUTHORITIES. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED MAT ERIAL ON RECORD. CLAIM OF THE ASSESSEE IS THAT INTEREST AND SALARY R ECEIVED BY HIM FROM ITA NO.573/2018 :- 4 -: FIRMS IN WHICH, HE WAS A PARTNER HAD TO BE CONSTRUE D AS BUSINESS INCOME BY VIRTUE OF SECTION 28(V) OF THE ACT AND HE NCE ASSESSEE IS ELIGIBLE FOR APPLYING PRESUMPTIVE INTEREST RATE UND ER SECTION 44AD OF THE ACT. SECTION 28(V) OF THE ACT IS REPRODUCED HEREUNDER:- PROFITS AND GAINS OF BUSINESS OR PROFESSION. 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (I)XXXXXX (II) XXXXX (III) XXXXXX (IV) XXXXX (V) ANY INTEREST, SALARY, BONUS, COMMISSION OR REM UNERATION, BY WHATEVER NAME CALLED, DUE TO, OR RECEIVED BY, A PARTNER OF A FIRM FROM SUCH FIRM : PROVIDED THAT WHERE ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, OR ANY PART THEREOF HAS NOT B EEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SECTION 40, THE INCOME UNDER TH IS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT NOT SO ALLOWED TO BE DEDUC TED IT IS INTERESTED TO NOTE THAT THE PROVISO TO CLAUSE (V) SPECIFICALLY MENTIONS CLAUSE (B) OF SECTION 40 OF THE ACT. IN OTHER WORD S, ONLY REMUNERATION AND SALARY, RECEIVED FROM A FIRM, TO THE EXTENT ELI GIBLE UNDER CLAUSE (B) OF SECTION 40 OF THE ACT, WOULD BE CONSIDERED AS P ROFITS AND GAINS OF BUSINESS OR PROFESSION, OF THE RECIPIENT PARTNER. IT WOULD BE APPOSITE TO HAVE A LOOK AT SECTION 40(B) OF THE ACT, INSOFAR AS IT CONCERNS REMUNERATION AND INTEREST PAYABLE TO PARTNERS CONCE RNED. ITA NO.573/2018 :- 5 -: SECTION 40(B) IS REPRODUCED HEREUNDER : AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION ':- (A) XXXXXXX (B) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH, (I) ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REM UNERATION, BY WHATEVER NAME CALLED (HEREINAFTER REFERRED TO AS 'REMUNERATION') TO ANY PARTNER WHO IS NOT A WORKING PARTNER; OR (II) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS NOT AUTHORISED BY, OR IS NOT IN ACCORDANCE WITH, TH E TERMS OF THE PARTNERSHIP DEED; OR (III) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WH O IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS AUTHORISED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED, BUT WHICH RELATES TO ANY PERIOD ( FALLING PRIOR TO THE DATE OF SUCH PARTNERSHIP DEED) FOR WHICH SUC H PAYMENT WAS NOT AUTHORISED BY, OR IS NOT IN ACCORDANCE WITH , ANY EARLIER PARTNERSHIP DEED, SO, HOWEVER, THAT THE PERIOD OF A UTHORISATION FOR SUCH PAYMENT BY ANY EARLIER PARTNERSHIP DEED DO ES NOT COVER ANY PERIOD PRIOR TO THE DATE OF SUCH EARLIER PARTNERSHIP DEED; OR (IV) ANY PAYMENT OF INTEREST TO ANY PARTNER WHICH I S AUTHORISED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNER SHIP DEED AND RELATES TO ANY PERIOD FALLING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FAR AS SUCH AMOUNT EXCEEDS T HE AMOUNT CALCULATED AT THE RATE OF TWELVE PER CENT SI MPLE INTEREST PER ANNUM; OR (V) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, WHICH IS AUTHORISED BY, AND IS IN ACCORDAN CE WITH, THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PE RIOD FALLING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FAR A S THE AMOUNT OF SUCH PAYMENT TO ALL THE PARTNERS DURING T HE PREVIOUS YEAR EXCEEDS THE AGGREGATE AMOUNT COMPUTED AS HEREUNDER : (A) ON THE FIRST RS. 3,00,000 OF THE BOOK-PROFIT OR IN CASE ITA NO.573/2018 :- 6 -: OF A LOSS (B) ON THE BALANCE OF THE BOOK-PROFIT PROVIDED THAT IN RELATION TO ANY PAYMENT UNDER THIS CLAUSE TO THE PARTNER DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1993, THE TERMS OF THE PARTNERSHIP DEED MAY, AT ANY TIME DURING THE SAID P REVIOUS YEAR, PROVIDE FOR SUCH PAYMENT. 6. WHAT WE CAN UNDERSTAND FROM SECTION 40 IS THAT I T IS CLOTHED IN A NEGATIVE LANGUAGE. IT SAYS THAT CERTAIN AMOUNTS SHA LL NOT BE DEDUCTED WHILE COMPUTING INCOME UNDER THE HEAD PROFITS & GA INS OF BUSINESS OR PROFESSION. HOWEVER, IT EXEMPTS FROM THE RIGORS OF SUCH PROHIBITION, PAYMENT OF SALARY, BONUS, COMMISSION AND INTEREST T O THE EXTENT SPECIFIED IN SUB-CLAUSE (IV) AND (V) OF SUB-SECTION (B) THEREOF. INTENTION OF THE ABOVE SECTION, IN OUR OPINION, IS THAT PARTN ER SHOULD NOT BE DISENTITLED FROM CLAIMING REASONABLE REMUNERATION W HERE HE IS A WORKING PARTNER AND ALSO SHOULD NOT BE DENIED REASONABLE IN TEREST ON THE CAPITAL INVESTED BY HIM IN A FIRM. IF THESE CHARGES ARE NO T MADE IN THE ACCOUNTS OF THE FIRM, THEN PRO-RATA PROFITS OF THE FIRM WOUL D BE HIGHER, RESULTING IN HIGHER TAXES TO THE FIRM. THE PAYMENTS THEREFORE H AVE TO BE CONSTRUED INDIRECTLY AS A TYPE OF DISTRIBUTION OF PROFITS OF A FIRM, FOR WHICH OTHERWISE, A FIRM WOULD HAVE BEEN TAXED. IT SEEMS T HAT LEGISLATURE IN ITS WISDOM CHOSE SUCH REMUNERATION AND INTEREST TO BE A PART OF PROFITS FROM BUSINESS OR PROFESSION. THIS BY ITSELF, IN OUR OPI NION, WOULD NOT TRANSLATE SUCH REMUNERATION AND INTEREST, TO GROSS RECEIPTS OR TURNOVER OF ITA NO.573/2018 :- 7 -: A BUSINESS OF BEING PARTNERS IN FIRMS. IN OTHER WOR DS, IT CANNOT BE CONSTRUED AS GROSS RECEIPTS OR TURNOVER OF A BUSINE SS INDEPENDENTLY CARRIED ON BY A PARTNER. 7. TO ELUCIDATE THE POSITION FURTHER, WE NEED TO HA VE A LOOK SECTION 44AD WHICH WAS SUBSTITUTED BY FINANCE (NO.2) ACT, 2009 WITH EFFECT FROM 01.04.2011. PRIOR TO THIS SUBSTITUTION, THE SA ID SECTION ALLOWED APPLICATION OF PRESUMPTIVE TAX RATE ONLY FOR BUSIN ESS OF CIVIL CONSTRUCTION OR SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION. PRESUM PTIVE TAX RATE APPLICATION WAS WIDENED TO INCLUDE ANY BUSINESS WHI CH HAD TURNOVER OR GROSS RECEIPTS OF LESS THAN ONE CRORE THROUGH SUCH SUBSTITUTION. IN THE EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO .2) ACT,2009 VIDE CIRCULAR NO.5/2010 DATED 03.06.2010, CBDT HAS EXPLA INED THE REASON FOR WIDENING. PARA NO. 21 OF THE CIRCULAR IS REPRODUC ED HEREUNDER:- 21. SPECIAL PROVISION FOR COMPUTING PROFITS AND GA INS OF BUSINESS ON PRESUMPTIVE BASIS. 21.1 THE EXISTING PROVISIONS OF THE INCOME-TAX ACT PROVIDE FOR TAXATION OF INCOME ON PRESUMPTIVE BASIS IN THE CASE OF CONSTRUC TION BUSINESS, INCOME FROM GOODS CARRIAGES AND BUSINESS OF RETAIL TRADE. SECTION 44AD PRESCRIBES A METHOD OF PRESUMPTIVE TAXATION FOR ASSESSEE ENGAG ED IN THE BUSINESS OF CIVIL CONSTRUCTION OR SUPPLY OF LABOUR FOR CIVIL CO NSTRUCTION IN WHICH A SUM EQUAL TO EIGHT PERCENT OF THE GROSS RECEIPTS IS DEE MED TO BE THE PROFITS AND GAINS FROM BUSINESS. SECTION 44AE PROVIDES PRESUMPT IVE PROVISIONS FOR THE ASSESSEE ENGAGED IN THE BUSINESS OF PLYING, HIRING OR LEASING UP TO TEN GOODS CARRIAGES IN WHICH A PRESCRIBED SUM PER VEHIC LE IS DEEMED TO BE THE PRESUMPTIVE INCOME OF THE ASSESSEE. SECTION 44AF PR ESCRIBES A METHOD OF PRESUMPTIVE TAXATION FOR RETAIL TRADE, UNDER WHICH THE PRESUMPTIVE INCOME IS COMPUTED AT THE RATE OF A SUM EQUAL TO FIVE PER CENT OF THE TOTAL TURNOVER. THERE HAS BEEN A SUBSTANTIAL INCREASE IN SMALL BUSI NESSES WITH THE GROWTH OF TRANSPORT AND COMMUNICATION AND GENERAL GROWTH O F THE ECONOMY. A LARGE NUMBER OF BUSINESSES AND SERVICE PROVIDERS IN RURAL AND URBAN AREAS WHO EARN SUBSTANTIAL INCOME ARE OUTSIDE THE TAX-NET . INTRODUCTION OF ITA NO.573/2018 :- 8 -: PRESUMPTIVE TAX PROVISIONS IN RESPECT OF SMALL BUSI NESSES WOULD HELP A NUMBER OF SMALL BUSINESSES TO COMPLY WITH THE TAXAT ION PROVISIONS WITHOUT CONSUMING THEIR TIME AND RESOURCES. A PRESUMPTIVE I NCOME SCHEME FOR SMALL TAXPAYERS LOWERS THE COMPLIANCE COST FOR SUCH TAXPAYERS AND ALSO REDUCES THE ADMINISTRATIVE BURDEN ON THE TAX MACHIN ERY. IN VIEW OF THE ABOVE, TO EXPAND THE SCOPE OF PRESUMPTIVE TAXATION TO ALL BUSINESSES, THE EXISTING SECTION 44AD HAS BEEN SUBSTITUTED BY A NEW SECTION 44AD. 21.2 THE SALIENT FEATURES OF THE NEW PRESUMPTIVE TA XATION SCHEME ARE AS UNDER: (A) THE SCHEME IS APPLICABLE TO INDIVIDUALS, HUFS A ND PARTNERSHIP FIRMS EXCLUDING LIMITED LIABILITY PARTNERSHIP FIRMS. IT I S ALSO NOT BE APPLICABLE TO AN ASSESSEE WHO IS AVAILING DEDUCTIONS UNDER SECTIONS 1OA, 1OAA, 1OB, 1OBA OR DEDUCTION UNDER ANY PROVISIONS OF CHAPTER V IA UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES IN TH E RELEVANT ASSESSMENT YEAR. (B) THE SCHEME IS APPLICABLE FOR ANY BUSINESS (EXCL UDING A BUSINESS ALREADY COVERED UNDER SEC. 44AE) WHICH HAS A MAXIMU M GROSS TURNOVER /GROSS RECEIPTS OF 40 LAKHS. (C) THE PRESUMPTIVE RATE OF INCOME IS PRESCRIBED AT 8% OF GROSS TURNOVER /GROSS RECEIPTS. (D) AN ASSESSEE OPTING FOR THE ABOVE SCHEME IS EXEM PTED FROM PAYMENT OF ADVANCE TAX RELATED TO SUCH BUSINESS UNDER THE CURR ENT PROVISIONS OF THE INCOME-TAX ACT. (E) AN ASSESSEE OPTING FOR THE ABOVE SCHEME IS EXEM PTED FROM MAINTENANCE OF BOOKS OF ACCOUNTS RELATED TO SUCH BU SINESS AS REQUIRED UNDER SECTION 44AA OF THE INCOME-TAX ACT. (F) AN ASSESSEE WITH TURNOVER BELOW RS. 40 LAKHS, W HO SHOWS AN INCOME BELOW THE PRESUMPTIVE RATE PRESCRIBED UNDER THESE P ROVISIONS, IN CASE HIS TOTAL INCOME EXCEEDS THE TAXABLE LIMIT, REQUIRED TO MAINTAIN BOOKS OF ACCOUNTS AND ALSO GET THEM AUDITED. (G) THE EXISTING SECTION 44AF IS TO BE MADE INOPERA TIVE FOR THE ASSESSMENT YEAR BEGINNING ON OR AFTER 1 ST APRIL, 2011. 21.3 APPLICABILITY THESE AMENDMENTS HAVE BEEN MAD E APPLICABLE WITH EFFECT FROM 1 ST APRIL, 2011 AND WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2011-12 AND SUBSEQUENT ASSESSMENT Y EARS. IT IS CLEAR FROM THE READING OF THE ABOVE EXPLANATO RY NOTE, THAT THE INTENTION WAS TO HELP SMALL BUSINESS TO COMPLY WITH THE TAXATION PROVISIONS. INTENTION WAS NOT AT ALL TO CONSTRUE A PARTNERS REMUNERATION ITA NO.573/2018 :- 9 -: OR INTEREST AS BUSINESS INCOME. AS FOR THE JUDGEM ENT OF HONBLE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPR A), RELIED ON BY THE LEARNED AR, THE ISSUE WAS NOT RELATED TO SECTION 44AD OF THE ACT. INSOFAR AS THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF SAGAR DUTTA (SUPRA) IS CONCERNED, THE QUESTION T HERE WAS ON LEVY OF PENALTY UNDER SECTION 271B OF THE ACT, FOR FAILURE OF FURNISHING AUDITED ACCOUNTS UNDER SECTION 44AB OF THE ACT. THIS ALSO H AS GOT NO RELEVANCE HERE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. 8. IN THE RESULT, APPEAL OF THE ASSESSEE STAND DISM ISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30TH JANUARY, 2 019, AT CHENNAI. SD/- ( . ) ( DUVVURU RL REDDY ) / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:- 30 TH JANUARY, 2019. SOMU / COPY TO: 1 . / APPELLANT 3. ( ) / CIT(A) 5. / DR 2. / RESPONDENT 4. / CIT 6. / GF