GEET MEDICALS, Jaipur V. ITO, Jaipur

ITA 701/JPR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1964 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P P MEENA JCIT DHK
• Assessee Lawyers: TANUJ AGARWAL
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard; Principle of natural justice; Non-deduction of tax; Difference of opinion; Change of opinion
• Section: 143(3); 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 701/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12. M/S GEET MEDICALS BUDHWAR BUILDING (BASEMENT), FILM COLONY, CHAURA RASTA, JAIPUR. CUKE VS. ITO, WARD-1(2) JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAAFG 8495 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI TANUJ AGARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI P.P. MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.10.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 25/10/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 09-05-2016 PERTAINING TO THE ASSESSMENT YEAR 2011-12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSL Y ERRED IN SUSTAINING A DISALLOWANCE OF RS. 3,18,253/- U/S/ 40 (A)(IA) OF THE INCOME-TAX ACT, 1961, FOR NON DEDUCTION OF TAX AT S OURCE ON INTEREST PAID TO FINANCIAL INSTITUTIONS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSL Y ERRED IN SUSTAINING A DISALLOWANCE OF RS. 2,36,916/- U/S 40( B)(II) OF INCOME-TAX ACT, 1961, IN RESPECT OF REMUNERATION PAID TO PARTN ER SHRI RAJIV JAIN. 2 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSL Y ERRED IN SUSTAINING AN ADDITION RS.20 000/- ON ACCOUNT OF IN TEREST INCOME FROM M/S YASH PHARMA. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW AND IN THE PRINCIPLES OF NATURAL JUSTICE, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN NOT ALLOWING SUFFICI ENT OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND ALSO TO FURNISH AD DITIONAL DOCUMENTS/EVIDENCES FOR ADJUDICATION IN THE INTERES T OF JUSTICE. 5. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, MODIFY, SUBSTITUTE OR DELETE ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) R EAD WITH SECTION 144 OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 28.01.2014. WHILE FRAMING THE ASSESSMENT, TH E ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE PROFIT. AFTER REJECTING BOOKS OF ACCOUNTS THE ASSESSING OFFICER MADE LUMP-SUM ADDITION OF RS. 50, 000/-. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE INTERES T PAYMENT TO FINANCIAL INSTITUTIONS NAMELY M/S CHOLAMANDLAM DBS FINANCE LT D. OF RS. 2,14,225/- AND M/S FUTURE MONEY OF RS. 1,04,028/- NO TAX WAS DEDUCTED ON THESE AMOUNTS. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF RS. 3,18,253/- AND ADDED SAME TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXCESSIVE SALARY TO PART NERS AMOUNTING TO RS. 236916/-. THE AO ALSO MADE ADDITION OF RS. 20,000/- ON ACCOUN T OF NON-DISCLOSURE OF INCOME RECEIPT FROM YASH PHARMA. FURTHER THE AO MADE ADHO C DISALLOWANCE OF EXPENDITURE AT 10% ON TELEPHONE EXPENSES, CAR RUNNING MAINTENAN CE EXP., RUNNING & 3 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. MAINTENANCE OF VEHICLES, DEPRECIATION ON CARS. AGAI NST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. THEREBY, THE LD. CIT(A) DELETED THE A DDITION OF RS. 50,000/- MADE ON ACCOUNT OF LUMP-SUM DISALLOWANCE. FURTHER, THE LD. CIT(A) CONFIRMED THE ADDITION ON ACCOUNT OF NON-DEDUCTION OF TAX EXCESSIVE PAYMEN T OF SALARY. FURTHER CONFIRMING THE ADDITION MADE ON ACCOUNT OF NON-DISCLOSURE OF R ECEIPT FROM YASH PHARMA. AGAINST THIS, THE ASSESSEE PREFERRED THE PRESENT AP PEAL BEFORE THIS TRIBUNAL. 3. GROUND NO. 1 IS AGAINST NON-DEDUCTION OF TAX IN RESPECT OF THE INTEREST PAID TO FINANCIAL INSTITUTIONS. 3.1 LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS AS MADE IN THE WRITTEN BRIEF. 3.2 ON THE CONTRARY, LD. D/R OPPOSED THE SUBMISSION S. 3.3 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, LD. COUNSEL F OR THE ASSESEE SUBMITTED THAT THE FINANCIAL INSTITUTIONS HAVE DISCLOSED THIS RECEIPT IN THEIR RETURN OF INCOME. THIS FACT REQUIRES TO BE VERIFIED AT THE END OF THE AO. WE TH EREFORE, SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER RECIPIENT HAS PAID TAX ON SUCH RECEIPT. IN CASE, THE RECIPIENT HAS PAID TAXES AND DISCLOSED RECEIPTS IN THEIR RESPECTIVE INCOME TAX RETURN THE AO WOULD DELETE THE DISALLOWANCE. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 4. GROUND NO. 2 IS AGAINST SUSTAINING THE DISALLOWANCE OF RS. 2,36 ,916/- IN RESPECT OF REMUNERATION PAID TO PARTNER SHRI RAJIV JAIN. 4 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. 4.1 LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS AS MADE IN THE WRITTEN BRIEF AND HE SUBMITTED THAT AUTHORITIES BEL OW WERE NOT JUSTIFIED IN MAKING THE ADDITION. HE SUBMITTED THAT AS PER CLAUSE 13 O F THE PARTNERSHIP DEED, THE PROFITS RATIO OF THE PARTNERS WAS 50%. IN SUPPORT OF THIS, HE DREW OUR ATTENTION TO THE PARTNERSHIP DEED AND ENCLOSED AT THE PAPER BOOK. 4.2 PER CONTRA LD. D/R OPPOSED THE SUBMISSION AND S TATED THAT THERE IS NO AMBIGUITY IN LAW, THE REMUNERATION TO PARTNERS ARE ALLOWABLE AS PER DEED OF PARTNERSHIP. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . LD. CIT(A) IN PARA 3.4.2 HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER:- 3.4.2. DETERMINATION :- (I) THE APPELLANT FIRM IS CONSTITUTED BY TWO PARTMERS I.E. SH. RAJEEV JAIN AND SH. SANJEEV JAIN AND IT PAID REMUNERATION OF RS . 6 LAC TO ONLY ONE PARTNER SH. RAJEEV JAIN. THE TOTAL REMUNERATION AS PER THE PARTNERSHIP DEED DATED 07.12.2004 PAYABLE TO THE PARTNERS WORKED OUT TO RS . 7,26,168/- BY THE AO IN THE ASSESSMENT ORDER. THE AO, IN VIEW OF THE TERMS AND CONDITIONS OF PARTNERSHIP DEED DETERMINED THE REMUNERATION PAYABL E TO EACH PARTNER AT RS. 3,63,084/- I.E. 50% OF RS. 7,26,168/- AND THUS DISA LLOWED THE EXCESS CLAIM OF RS. 2,36,916/-(6,00,000- 3,63,084) U/S 40(B) (II) O F THE ACT. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS THE CONTE NTION OF THE APPELLANT THAT AS PER PARTNERSHIP DEED, IT HAS BEEN AGREED AM ONGST THE PARTNERS THAT THE SALARY SHALL BE GIVEN TO THE PARTNERS LOOKING A FTER THE AFFAIRS OF THE FIRM AND WHO ARE KNOWN AS WORKING PARTNERS IN THE MANNER AS AGREED BETWEEN THEM. SHRI RAJIV JAIN HAS BEEN PAID RS.6,00,000/- A S REMUNERATION AS WORKING PARTNER AS HE WAS ACTIVELY ENGAGED IN THE AFFAIRS O F THE ABOVE MENTIONED FIRM AS IN THE PAST YEARS WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN 5 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. ASSESSMENT PROCEEDINGS OF THE EARLIER YEARS AND THE RE IS CHANGE OF OPINION BY THE AO. (III) I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPEL LANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT WOULD B E RELEVANT TO REPRODUCE HERE THE PROVISION OF SECTION 40(B) OF THE ACT AS U NDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 19[38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION', (B) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH, EXPLANATION 4.FOR THE PURPOSES OF THIS CLAUSE, 'WO RKING PARTNER' MEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING TH E AFFAIRS OF THE BUSINESS OR PROFESSION OF THE FIRM OF WHICH HE IS A PARTNER;] (IV) THUS, ANY PAYMENT OF REMUNERATION TO ANY PARTNER W HO IS A WORKING PARTNER, WHICH IS NOT AUTHORIZED BY, OR IS NOT IN ACCORDANCE WITH, TH E TERMS OF THE PARTNERSHIP DEED CANNOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION'. (V) AS PER CLAUSE 13 OF THE PARTNERSHIP DEED, THE PROF IT SHARING RATIO BETWEEN THE TWO PARTNERS WAS 50% EACH. IT IS EVIDENT FROM C LAUSE NO. 6 OF THE PARTNERSHIP DEED THAT THE TOTAL ALLOWABLE REMUNERAT ION SHALL BE SHARED AMONGST THE WORKING PARTNERS IN THEIR PROFIT SHARIN G RATIO OR AS BEING MUTUALLY AGREED AMONGST THEM. THUS BOTH SHRI RAJEEV JAIN AND SHRI SANJIV JAIN WERE HAVING 50% SHARE EACH IN THE ALLOWABLE REMUNERATION I.E. RS. 3,63,084/- EACH. AS PER PROVISIONS OF SECTION 40(B) OF THE ACT , THE REMUNERATION WHICH IS PAID TO A WORKING PARTNER AND, IS NOT AUTHORIZED BY , OR IS NOT IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED CANNOT BE A LLOWED AS A DEDUCTION. (VI) THE APPELLANT FIRM HAS PAID REMUNERATION OF RS. 6 LAC TO SHRI RAJEEV SAIN WHICH IS NOT IN ACCORDANCE WITH THE TERMS OF THE PA RTNERSHIP DEED. DURING THE 6 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. APPELLATE PROCEEDINGS, THE AR PLACED RELIANCE ON TH E DECISION OF HON'BLE ITAT, AMRITSAR IN THE CASE OF ITO VS. J.M.P ENTERPR ISES [2006] 101 ITD 324 (ASR.). THE SAID JUDGMENT IS OF NO HELP TO THE APPE LLANT AS IN THAT CASE, THE REMUNERATION WAS PAID TO 4 PARTNERS OUT OF THE 5 WO RKING PARTNERS BUT WITHIN THE PERMISSIBLE LIMIT OF RS. 1.20 LAC OF EACH PARTN ER AND THE REMUNERATION PAYABLE TO THE FIFTH PARTNER WAS NOT DISTRIBUTED AM ONGST THE FOUR OTHER PARTNERS. IN THE INSTANT CASE, UNDER CONSIDERATION , PART OF THE SHARE OF REMUNERATION WAS ALSO GIVEN TO THE OTHER PARTNER. (VII) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS H ELD THAT THE AO WAS JUSTIFIED IN RESTRICTING REMUNERATION PAID TO SHRI RAJEEV JAIN AT RS. 3,63,024/- AND MAKING ADDITION OF RS. 2,39,916/- TO THE INCOME OF THE APPELLANT FIRM. HENCE, THIS GROUND OF APPEAL IS HEREBY REJECTED . THE ABOVE FINDING ON FACT IS NOT CONTROVERTED BY TH E ASSESSEE. SINCE THE PARTNERSHIP DEED ALLOWS EXPENDITURE OF REMUNERATION PAID TO THE PARTNERS IN THE RATIO AS RECORDED IN THE PARTNERSHIP DEED PAYING LESS TO ONE PARTNER AND PAYING IN EXCESSIVE OF THE RATIO SO FIXED, IN OUR CONSIDERED VIEW WOULD NOT HELP THE ASSESSEE. THE ONLY EXPLANATION OF THE ASSESSEE IS THAT THE OT HER PARTNER HAS NO OBJECTION TO THIS EFFECT. IN OUR VIEW, THERE IS NO AMBIGUITY IN TO THE PROVISIONS, IF ANY REMUNERATION IS PAID IN EXCESS OF THE AMOUNT MENTIO NED OR THE PERCENTAGE MENTIONED IN THE PARTNERSHIP DEED THAT IS NOT ALLOW ABLE EXPENDITURE. THEREFORE, WE DO NOT SEE ANY INFIRMITY INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AFFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 5. GROUND NO. 3 WAS SUSTAINING THE ADDITION OF RS. 20,000 ON ACCOU NT OF INTEREST INCOME FROM M/S YASH PHARMA. 7 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. 5.1 LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS AS MADE IN THE WRITTEN BRIEF. HE SUBMITTED THAT THE AMOUNT IS OFF ERED FOR TAXATION ON RECEIPT BASIS THIS BEING REVENUE NEUTRAL WOULD NOT MAKE ANY DIFFE RENCE. THEREFORE, HE URGED THAT THE ADDITION MAY BE DELETED. 5.2 ON THE CONTRARY LD. D/R SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS. THE LD. CI T(A) HAS GIVEN A FINDING ON FACT IN PARA 3.5.2 AS UNDER:- 3.5.2 DETERMINATION: (I) THE AO NOTED THAT THE APPELLANT HAS SHOWN INTER EST INCOME OF RS. 60,000/- FROM M/S YASH PHARMA WHEREAS AS PER 26AS STATEMENT, THE APPELLANT HAS RECEIVED RS. 80,000/- AND THE APPELLANT HAS CLAIMED CREDIT OF TDS ON INTEREST INCOME OF RS. 80,000/- IN ITS RETURN OF INCOME AND CONSEQUENTLY THE AO MADE ADDITION OF RS. 20,000/- TO THE INCOME OF THE APPEL LANT. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS THE C ONTENTION OF THE APPELLANT THAT DURING THE YEAR UNDER CONSIDERATION, IT HAS NO T RECEIVED ANY SUCH INCOME IN ITS BANK ACCOUNT AND SAME HAS BEEN RECEIVED IN N EXT ASSESSMENT YEAR WHICH HAS BEEN DECLARED IN HIS RETURN OF INCOME AND PAID INCOME TAX DUE ON INCOME DECLARED. (III) I HAVE DULY CONSIDERED THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AND THE MATERIAL PLACED ON RECORD. AS PER TAX AUDIT REPORT, THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. THEREFORE, THE COMMISSION OF RS. 20,000/- WAS ACCRUED TO THE APPEL LANT DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE APPELLANT HAS CLA IMED CREDIT FOR TDS ON THE ENTIRE AMOUNT OF RS. 80,000/- AND NOT ON RS. 60,000 /-. IT IS, THEREFORE, HELD THAT THE AO WAS JUSTIFIED IN MAKING ADDITION OF RS. 20,000/- TO THE INCOME OF THE APPELLANT AND THUS THE ADDITION OF RS. 20,000/- IS HEREBY SUSTAINED. 8 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR. THIS FINDING ON FACT IS NOT CONTROVERTED BY THE LD. COUNSEL FOR THE ASSESSEE. SINCE THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING. HENCE, THE RECEIPT IS REQUIRES TO BE TAX ON ACCRUAL BASIS. THEREFORE, WE DO NOT SEE ANY INFIRMITY FINDING INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AF FIRMED. THIS GROUND OF ASSESSEES APPEAL IS DISMISSED. 6. IN RESPECT OF GROUND NOS. 4 & 5, NO ARGUMENTS WERE ADDRESSED. THEREFORE, BOTH THESE GROUNDS ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, THE 25TH D AY OF OCTOBER 2017. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 25/10/2017. POOJA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S GEET MEDICALS, JAIPUR. 2. THE RESPONDENT ITO, WARD-1(2), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 701/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 9 ITA NO.701/JP/2016. M/S GEET MEDICALS, JAIPUR.