Shakti Enginneering Works, Kanpur Dehat V. Income Tax Officer-3(5), Kanpur

ITA 687/LKW/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6025 (ITAT-LUCKNOW)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 26-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAKESH GARG SHRI RAJESH TIW
• Section: 144

Judgement Text

I.T.A. NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER I.T.A.NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 M/S SHAKTI ENGINEERING WORKS, AHROLI TURN, MAIN ROAD, PUKHARAYAN, KANPUR DEHAT. PAN:AAXFS 8036 K VS. INCOME TAX OFFICER-3(5), KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER PARTHA SARATHI CHAUDHURY: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FRO M THE ORDER OF LEARNED CIT(A)-I, KANPUR DATED 22/08/2017 AS PER TH E GROUNDS OF APPEAL ON RECORD. 2. AT THE TIME OF HEARING THE LEARNED A.R. SUBMITTE D THAT THE CRUX OF THE GRIEVANCE IS THE DENIAL OF DEDUCTION U/S 40(B) OF T HE I.T. ACT IN RESPECT OF INTEREST AND SALARY PAYABLE TO PARTNERS ESPECIALLY WHEN THE BOOKS OF ACCOUNT HAVE BEEN ACCEPTED AND THERE IS NO CHANGE IN THE CO NSTITUTION OF PARTNERSHIP FIRM. IN THIS CASE THE ASSESSING OFFIC ER HAS APPLIED 5% NET PROFIT WITHOUT ALLOWING SALARY AND INTEREST TO PART NERS. IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT GIVEN A NY BASIS FOR APPLYING SUCH HIGHER RATE WHEREAS THE FACT IS THAT THE ASSES SEES PROFIT BEFORE SALARY AND INTEREST REMAINS APPROXIMATELY 2.5% SINCE THE A SSESSEE IS APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI RAJESH TIWARI, D.R. DATE OF HEARING 23/07/2018 DATE OF PRONOUNCEMENT 27/07/2018 I.T.A. NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 2 MANUFACTURING TROLLY PARTS USED FOR AGRICULTURE SEC TOR. THE LEARNED CIT(A) HAD CALLED FOR A REMAND REPORT AND THE RELEVANT PAR T IS AS FOLLOWS: IN THIS CASE A REMAND REPORT HAS BEEN CALLED FROM AO AND AO HAS SUBMITTED HIS 'REPORT VIDE LETTER DATED 20.07.2 017 AS UNDER: 'REMAND REPORT U/S 25(1) OF THE INCOME-TAX ACT. 196 1. IN THE CASE OF M/S SHAKTI ENGINEERING WORKS FOR ASSESSMENT YEAR- 2013-14 - REGARDING- KINDLY REFER TO YOUR LETTER F.NO.CIT(A)-I/55/ITO-3( 5)/KNP/2016- 17/17-18/31 DATED 26,05.2017 REQUIRING THE UNDERSIG NED TO FURNISH THE REMAND REPORT ON THE PETITION DATED 19. 05.2017 FILED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE BEFORE YOUR GOOD- SELF. IN THE CASE UNDER CONSIDERATION, DURING THE COURSE OF ASSESSMENT PROCEEDING, SEVERAL OPPORTUNITIES WERE P ROVIDED TO. ASSESSEE TO PRODUCE BOOKS OF ACCOUNT BUT ASSESSEE F AILED TO PRODUCE BOOKS OF ACCOUNT. FURTHER, SHOW CAUSE NOTIC E U/S 144 OF THE INCOME TAX ACT, 1961 DATED 22.01.2016 AND 03 .03.2016 FIXING THE DATE OF COMPLIANCE ON 08, 0%. 2016 AND 1 1.03.2016 RESPECTIVELY WERE ALSO ISSUED BUT UNFORTUNATELY THE SE NOTICES ALSO WENT UNATTENDED. LOOKING TO THE REPEATED NON-COMPLIANCE OF THE NOTIC ES ALONG WITH THE SHOW CAUSE NOTICES U/S 144 ISSUED FROM THE OFFICE OF ITO-3(5) AND AFTER CONSIDERING THE FACTS AND CIRCUM STANCES OF THE CASE ASSESSING OFFICER HAD NO OPTION BUT TO COM PLETE THE ASSESSMENT BY INVOKING THE PROVISION U/S 144 OF THE INCOME TAX ACT, 1961. ACCORDINGLY, ASSESSMENT PROCEEDINGS WAS COMPLETED U/S 144 ON TOTAL INCOME OF RS.5,28,03Q/- BY DETERMINING @5% OF GROSS RECEIPTS/THE TURNOVER I.E. RS.1,05,60,650/-. NOW, ASSESSEE HAS FILED APPEAL BEFORE YOUR HONOUR A ND YOUR HONOUR HAS REMANDED THE CASE TO THE UNDERSIGNED AND DIRECTED TO FURNISH REMAND REPORT ON HIS ACCOUNTS AS ALSO AP PLICABILITY OF SECTION 40(B) OF THE INCOME TAX ACT, 1961. ACCORDINGLY, A LETTER DATED 15.06.2017 WAS ISSUED B Y THIS OFFICE TO ASSESSEE TO PRODUCE BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS AND OTHER RELEVANT DOCUMENTS PERTAINS TO T HE FIRM FOR THE FINANCIAL YEAR 2012-13 RELEVANT TO ASSTT. YEAR 2013-14 I.T.A. NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 3 FIXING THE DATE OF COMPLIANCE ON 21.06.2017. IN RES PONSE PERUSAL OF THE OFFICE RECORDS SHOWS THAT DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ITO 3(5), COPY OF PARTNERSHI P DEED WAS FIFED AND THE SAME IS PLACED ON RECORD. CLAUSE 7 & 8 OF THE PARTNERSHIP DEED, DEALS REGARDING INTEREST AND REMU NERATION AND THE SAME ARE BEING RE-PRODUCED HEREUNDER: '... 7. THAT INTEREST ON CAPITAL SHALL BE ALLOWED U P TO MAXIMUM @18% PER ANNUM OR AT ANY OTHER RATES AS MUTUALLY AGREED UPON FROM TIME TO TIME BY THE PARTN ERS. 8. THAT BOTH OF THE PARTNERS ARE WORKING PARTNER O F THE FIRM, WHO SHALL DEVOTE THEIR TIME AND ATTENTION TO THE BUSINESS OF PARTNERSHIP. IT IS HEREBY AGREED THAT I N CONSIDERATION OF DEVOTING THEIR TIME AND ATTENTION TO THE BUSINESS OF THE PARTNERSHIP FIRM/ THEY SHALL BE ENT ITLED REMUNERATION/ SALARY LINKED WITH THE BOOK PROFIT OF THE FIRM WHICH SHALL BE CALCULATED ON THE FALLOWING BAS IS:- (A) IN CASE OF LOSS - NIL (B) IN CASE OF BOOK PROFIT BEING RS. 50000/- OR LESS 100% OF THE BOOK PROFIT (C) IN CASE OF BOOK PROFIT EXCEEDS RS.50000/- BUT DOES NOT EXCEED RS.75000/- 90% OF THE BOOK PROFIT (D) IN CASE OF BOOK PROFIT EXCEEDS RS.75000/- BUT DOES NOT EXCEED RS.150000/- 60% OF EXCESS OVER 150000/- (E) IN CASE OF BOOK PROFIT EXCEEDS RS.150000/- 40% OF THE EXCESS OVER 150000/- FOR THE PURPOSE OF THIS CLAUSE THE EXPRESSION 'BOOK PROFIT' SHALL MEAN BOOK PROFIT AS DEFINED IN SECTION 40(B) OF THE INCOME TAX ACT, 1961 OR ANY SUCH STATUTORY MODIFICA TION OR REENACTMENT THEREOF FOR THE TIME BEING IN FORCE...' FURTHER CORRIGENDUM OF THIS DEED WAS MADE ON THE 1S T DAY OF JULY, 2010; THE RELEVANT PART OF THIS CORRIGENDUM I S REPRODUCED HEREUNDER: A) IN CASE OF LOSS -NIL B) ON THE FIRST RS.300000.00 ON THE BOOK PROFIT -RS .150000.00 OR AT THE RATE OF 90% OF THE BOOK PROFIT WHICHEVER IS MORE; C) ON THE BALANCE OF BOOK PROFIT -AT THE RATE OF 60 %. I.T.A. NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 4 3. THE LEARNED CIT(A), AFTER CONSIDERING THE REMAND REPORT, FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE, UPHELD TH E ORDER OF THE ASSESSING OFFICER. THE BASIC REASON BY THE LEARNED CIT(A) WA S THAT IN ORDER TO GET DEDUCTION U/S 40(B) OF THE ACT, THE PARTNERSHIP DEE D IS REQUIRED TO BE FILED TO ASCERTAIN THE GENUINENESS OF THE EXISTENCE OF TH E PARTNERSHIP BUSINESS AND TO ASCERTAIN THE SHARE OF EACH OF THE PARTNERS. THE LEARNED CIT(A) GOES ON TO ANALYZE SECTION 185 READ WITH SECTION 184 OF THE ACT WHEREIN IT IS STATED THAT IF A FIRM DOES NOT COMPLY WITH THE PROV ISIONS OF SECTION 184 FOR ANY ASSESSMENT YEAR THEN THE FIRM SHALL BE SO ASSES SED THAT NO DEDUCTION BY WAY OF ANY PAYMENT OF INTEREST, SALARY, COMMISSI ON BY WHATEVER NAME CALLED, MADE BY SUCH FIRM OF ANY PARTNER OF SUCH FI RM SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD INCO ME FROM BUSINESS OR PROFESSION. 4. WE HAVE PERUSED THE CASE RECORD, ANALYZED THE FA CTS AND CIRCUMSTANCES OF THE CASE AND WE FIND THAT IN THE O RDER OF LEARNED CIT(A) ITSELF HE ADMITS THAT THE ASSESSEE HAS FILED A CERT IFIED COPY OF PARTNERSHIP DEED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LEARNED CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE ON THE GROUND OF NON FILING OF THE COPY OF CHANGED PARTNERSHIP DEED. AT THE TIME OF HEARIN G BEFORE US, WE HAD ASKED LEARNED A. R. WHETHER THERE WAS ANY CHANGE IN THE CONSTITUTION OF THE PARTNERSHIP DEED AND HE ANSWERED IN NEGATIVE AN D STATED THAT THE ORIGINAL PARTNERSHIP DEED WAS FILED WITH THE REVENU E AUTHORITIES. THIS FACT IS EVEN COMING OUT FROM THE ORDER OF LEARNED CIT(A). THE LEARNED D.R. CONCEDED TO THE FACT THAT THE ASSESSEE HAD COMPLIED WITH THE RELEVANT PROVISIONS OF I.T. ACT AND HAD FILED THE COPY OF PA RTNERSHIP DEED ALONG WITH THE RETURN. LEARNED D. R. ALSO ADMITTED THAT THERE WAS NO CHANGE IN THE PARTNERSHIP DEED AND IF THERE IS NO CHANGE THE ASSE SSEE IS NOT REQUIRED TO FILE THE PARTNERSHIP DEED AGAIN. IN VIEW OF THE MA TTER, WE HOLD THAT THE ADDITION SUSTAINED BY LEARNED CIT(A) IS UNREASONABL E AND ARBITRARY AND BAD I.T.A. NO.687/LKW/2017 ASSESSMENT YEAR:2013-14 5 IN LAW. WE, THEREFORE, SET ASIDE THE ORDER OF LEAR NED CIT(A) AND DELETE THE ADDITION AND ALLOW THE APPEAL OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 27/07 /2018) SD/. SD/. ( T. S. KAPOOR ) (PART HA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:27/07/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T.