M/s. Kathiawadi Hotel, Valsad V. The Income tax Officer. Ward-2, Valsad

ITA 827/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0368 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 22-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: ANKIT TALSANIA
• Keywords: Set aside
• Section: 40(b)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI P. K. BANSAL, AM AND MAHAVIR SINGH, JM) ITA NO. 827/AHD/2007 A. Y.: 2003-04 M/S. KATHIAWADI HOTEL, OPP. ART GLASS FACTORY, N.H. NO. 8, ABRAMA, VALSAD PA NO. AAFFK 5274 M VS THE INCOME TAX OFFICER, WARD - 2, VALSAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ANKIT TALSANIA, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER P. K. BANSAL: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), VALSAD DATED 29-11 -2006 RELATING TO ASSESSMENT YEAR 2002-03. 2. GROUNDS NO.1 AND 2 ARE NOT PRESSED AND HENCE STA NDS AS NOT PRESSED. 3. GROUND NO.4 OF THE APPEAL IS GENERAL IN NATURE A ND HENCE REQUIRES NO SEPARATE ADJUDICATION BY US. 4. GROUND NO. 3 OF THE APPEAL READS AS UNDER: [3] LEARNED CIT (APPLS) WRONGLY INTERPRETED ADDIT IONAL GROUND OF ENHANCED REMUNERATION TO WORKING PARTNERS WHICH WAS ALTERNATIVE FOR CONFIRMING THE ADDITION MADE BY THE ITO. 5. BRIEF FACTS OF THE CASE ARE THAT A SURVEY U/S 13 3A OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT AT THE BUSINESS PREMI SES OF THE ASSESSEE IN WHICH TWO RECEIPTS SHOWING AMOUNT OF RS.2,00,000 /- AND RS.1,00,000/- PAID IN CASH BY SMT. NARMADABEN D. JO SHI TO PARAM ITA NO.827/AHD/2007 KATHIAWADI HOTEL 2 ASSOCIATES WAS FOUND. IN ADDITION TWO VOUCHERS OF RS.19,000, RS.16,000 AND RECEIPT OF RS.19,000/- AS DETAILED IN THE ASSES SMENT ORDER WERE FOUND. ONE OF THE PARTNERS ADMITTED A SUM OF RS.3,5 4,000/- AS UNEXPLAINED INCOME/ INVESTMENT, BUT THE SAID INCOME WAS NOT OFFERED IN THE RETURN FILED BY THE ASSESSEE. THE AO MADE THE A DDITION OF RS. 3,54,000/-. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION VIDE ORDER DATED 12-12-2005. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL VIDE ORDER DATED 4-5-2006 SET ASIDE TH E ASSESSMENT AND RESTORED THE MATTER BACK TO THE FILE OF THE CIT(A) WITH A DIRECTION TO PROVIDE REASONABLE OPPORTUNITY OF HEARING IN RESPEC T OF THE REMAND REPORT SUBMITTED BY THE AO TO THE ASSESSEE. THE CIT (A) ACCORDINGLY GAVE COPY OF THE REMAND REPORT THE TO THE ASSESSEE AND I NVITED SUBMISSIONS OF THE ASSESSEE. THE SUBMISSIONS OF THE ASSESSEE WERE NOTED BY THE CIT(A) UNDER PARA 4 OF HIS ORDER AND AFTER CONSIDERING THE SAME CONFIRMED THE ADDITION POINTING OUT THAT THE ADDITION HAS NOT BEE N MADE MERELY ON THE BASIS OF THE STATEMENT OF ONE OF THE PARTNERS, BUT THERE ARE EVIDENCES FOUND AT THE TIME OF SURVEY SHOWING THE UNDISCLOSED INVESTMENT OF THE INCOME OF THE ASSESSEE. ON THE ISSUE OF REMUNERATIO N BEING ALLOWED TO THE PARTNERS ON THE INCOME HAS BEEN WORKED OUT AFTE R MAKING THE SAID ADDITION. THE CIT(A) AGAIN DECIDED THE MATTER AGAIN ST THE ASSESSEE AND REJECTED THE ADDITIONAL GROUND OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y CONSIDERED THE SAME. ALTHOUGH THE LEARNED DR BEFORE US VEHEMENTLY CONTENDED THAT THE SALARY TO THE PARTNERS SHOULD BE ALLOWED ON THE INC OME AS MAY BE ARRIVED AT AFTER MAKING ADDITION OF RS.3,54,000/-. BUT WHEN WE WENT THROUGH THE PROVISIONS OF THE INCOME TAX ACT ESPECIALLY THE PROVISIONS OF SECTION 40B READ WITH EXPLANATION 3, WE NOTED THAT WE CANNO T ACCEPT THE PLEA OF THE ASSESSEE. SECTION 40B NO DOUBT ALLOWED THE REMU NERATION TO A WORKING PARTNER WHICH IS AUTHORIZED BY AND IN ACCOR DANCE WITH THE TERMS OF PARTNERSHIP DEED AND RELATED TO THE PERIOD DURIN G THE ASSESSMENT YEAR ITA NO.827/AHD/2007 KATHIAWADI HOTEL 3 PROVIDED THE AGGREGATE OF SUCH REMUNERATION SHOULD NOT EXCEED THE LIMIT AS HAS BEEN LAID DOWN U/S 40 (B) (V) (2) OF THE ACT . BUT THE QUESTION BEFORE US IS WHETHER THE LIMIT AS HAS BEEN PRESCRIB ED U/S 40 (B) (V) (2) OF THE ACT BE APPLIED TO T4HE ASSESSED INCOME OR TO TH E BOOK PROFIT; WHETHER THE ASSESSED INCOME WILL BE THE BOOK PROFIT. EXPLAN ATION 3 TO SECTION 40(B) DEFINES THE BOOK PROFIT FOR THE PURPOSE OF TH OSE CLAUSES TO MEAN THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FO R THE RELEVANT PREVIOUS YEAR COMPUTED IN THE MANNER LAID DOWN IN CHAPTER XI V D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCT ED WHILE COMPUTING THE NET PROFIT. THE WORK MAY COMPUTE IN THE MANNE R LAID DOWN IN CHAPTER XIV D IS VERY IMPORTANT. CHAPTER XIV D LA YS DOWN THE PROVISIONS HOW THE INCOME UNDER THE HEAD PROFIT & G AINS OF THE BUSINESS OR PROFESSION HAS TO BE COMPUTED. WE WOULD HAVE AGR EED WITH THE CONTENTION OF THE LEARNED DR IF THE NET PROFIT AS S HOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS HEAR WOULD N OT HAVE BEEN QUALIFIED WITH THE WORD COMPUTED IN THE MANNER LAID DOWN IN CHAPTER XIV D. IN VIEW OF THIS FACT, WE ARE OF THE VIEW THAT IF WE WI LL GIVE THE MEANING TO THE BOOK PROFIT TO MEAN THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT, THE EMBARGO PUT UNDER THE EXPLANATION COMPUTED IN THE MANNER LAID DOWN IN CHAPTER XIV D WILL BECOME REDUNDANT. WE CA NNOT INTERPRET THE EXPLANATION 3 IN THIS MANNER. THEREFORE, WE ARE O F THE VIEW THAT THE BOOK PROFIT FOR THE PURPOSE OF COMPUTATION OF THE L IMIT OF THE REMUNERATION ALLOWABLE TO THE PARTNERS WILL BE THE BOOK PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT AFTER MAKING THE ADJUS TMENT FOR THE INCOME COMPUTED UNDER THE HEAD PROFIT & GAINS OF THE BUSIN ESS. WE HAVE ALSO GONE THROUGH THE CASE LAWS AS HAS BEEN CITED BY THE LEARNED AR OF THE ASSESSEE BEFORE US IN THE CASE OF ITO VS JAMNADAS 9 9 TTJ 197 (RAJKOT). IN OUR OPINION, THIS CASE LAW WILL NOT ASSIST THE A SSESSEE BECAUSE IN THIS CASE WE NOTED THAT THE ASSESSEE HIMSELF HAS DECLARE D EXCESS STOCK DIFFERENCE DURING THE SURVEY AS HIS INCOME AND CRED ITED TO PROFIT & LOSS ITA NO.827/AHD/2007 KATHIAWADI HOTEL 4 ACCOUNT. DUE TO THIS AGREED NET PROFIT AS PER THE P ROFIT & LOSS ACCOUNT HAS GONE INCREASED BY THE SAID UNDISCLOSED INCOME. IN THE CASE OF THE ASSESSEE, THE ADDITION MADE HAS NOT BEEN CREDITED B Y THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT. IN VIEW OF OUR AFORESAID DI SCUSSIONS, WE ACCEPT THE CONTENTION OF THE ASSESSEE AND DIRECT THE AO TO ALL OW THE REMUNERATION TO THE PARTNERS OUT OF THE INCOME AS HAS BEEN ASSES SED UNDER THE HEAD INCOME FROM BUSINESS IN THE CASE OF THE ASSESSEE SU BJECT TO RESTRICTIONS AS LAID DOWN U/S 40 (B) (V) (2) OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.10.09 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P. K. BANSAL) ACCOUNTANT MEMBER DATE : 9/10/09 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD