DCIT, Chandigarh V. M/s Ajay Sangari & Co., Chandigarh

ITA 860/CHANDI/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5678 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 27-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Assessee Lawyers: S K MUKHI
• Keywords: Business income; Business expenditure; Tax effect
• Section: 143(3); 40(b); 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH , . '.., # $, %& BEFORE: SH. SANJAY GARG, JM & DR. B.R.R. KUMAR, AM ITA NO. 860/CHD/2015 ASSESSMENT YEAR : 2009-10 THE DCIT CIRCLE 3(1), CHANDIGARH M/S AJAY SANGARI & CO. #1240, SECTOR 22-B CHANDIGARH PAN NO: AABFA7186L APPELLANT RESPONDENT !' ASSESSEE BY : SHRI. S.K. MUKHI #!' REVENUE BY : SMT. CHANDRAKANTA $ %! & DATE OF HEARING : 04/09/2018 '()*! & DATE OF PRONOUNCEMENT : 29/11/2018 %'/ ORDER PER DR. B.R.R. KUMAR, A.M: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A)-1, CHANDIGARH DT. 24/09/2015. 2. IN THE PRESENT APPEAL REVENUE HAS RAISED THE FOL LOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION BY HOLDING THAT PART NERS REMUNERATIONS WERE ALLOWABLE ON THE NET PROFIT EVEN IF THE SAME INCLUD ED INCOME FROM OTHER SOURCES, EVEN THOUGHT THE EXPLANATION (3) TO SECTION 40(B) O F THE I.T. ACT CLEARLY PROVIES THAT THE BOOK PROFIT IS TO BE CALCULATED IN THE MAN NER LAID DOWN IN CHAPTER IV D WHEREAS THE INCOME FROM OTHER SOURCES IS COMPUTED I N THE MANNER AS LAID DOWN IN CHAPTER IV F. 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CA NCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. IT WAS ARGUED BY THE LD. DR THAT OWING TO THE AU DIT OBJECTION THE CASE CANNOT BE COVERED BY THE CIRCULAR NO. 21 OF 2015 DT . 10/12/2015. HENCE THE CASE HAS BEEN RECALLED AND BEING DECIDED ON MERITS. 2 4. AS TAKEN FROM THE ORDER OF THE LD. CIT(A) AND FR OM THE RECORDS THE BRIEF FACTS OF THE ISSUE ARE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 30.11.2011. THE ASSESSING OFFICER ISSUED A NOTICE U/S 154/155 ON 15.11.2012 TO RECTIFY THE APPARENT MISTA KE IN THE ASSESSMENT ORDER. AS PER THE NOTICE ISSUED THE DETAILS OF MISTAKE APP ARENT FROM RECORD WAS GIVEN AS 'THE ASSESSEE HAS CLAIMED & ALLOWED SALARY TO PA RTNERS AMOUNTING TO RS. 19,50,878/- ON THE BASIS OF BOOK PROFITS OF RS. 47, 45,944/'-. THE ASSESSEE HAS INCLUDED INCOME OF RS. 21,77,434/- RECEIVED AS INTE REST ON CAPITAL WITHDRAWN BY THE PARTNERS. THE INTEREST INCOME ON CAPITAL WAS NO T CHARGEABLE TO TAX AS BUSINESS INCOME BUT AS INCOME FROM OTHER SOURCES. A S SUCH THE AMOUNT WAS REQUIRED TO BE DEDUCTED FROM BOOK PROFITS FOR CALCU LATION OF SALARY ALLOWABLE TO PARTNERS. THE SALARY ALLOWABLE AFTER DEDUCTING THE INCOME FROM OTHER SOURCES WORKS OUT TO RS. 10,79,904/- CALCULATED ON BOOK PRO FIT OF RS. 25,68,810/- (RS. 47,45,944/- - 21,77,434/-). THE SALARY EXCESS ALLOW ED BY THE PARTNERS RS. 8,70,974/- (RS. 10,79,904/- - RS. 19,50,878/-) IS UNDER ASSESS MENT. TAX EFFECT OF THIS OMISSION IS RS. 2,69,130/- BESIDES LEVY OF INTEREST UNDER SECTI ON 234D IS RS. 86,121/-.' 5. ORDER U/S 154 WAS PASSED ON 22.03.2013 DISALLOWI NG EXCESS SALARY PAID TO THE PARTNERS OF RS. 8,70,974/-. A SUBMISSION DATED 10.09.2015 WAS FILED DURING THE COURSE OF APPELLATE PROCEEDINGS, WHICH IS CONSIDERE D. 6. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE PARTNERS HAD WITHDRAWN EXCESS TO THEIR CAPITAL ACCOUNT AND INTEREST IS REC OVERED FROM PARTNERS. THE INTEREST EARNED AS SUCH FROM THE PARTNERS GETS ADJU STED AGAINST THE INTEREST PAID ON BORROWINGS AND, THEREFORE, THE BUSINESS EXPENSES IS REDUCED AND INCOME UNDER THE HEAD 'BUSINESS AND PROFESSION' INCREASES. THE EXPENSES FOR PAYMENT TO PARTNERS FOR INTEREST AND SALARY ARE COVERED U/S 40(B)(V) OF THE ACT AND NOT U/S 57 OF THE ACT. THE ASSESSING OFFICER HAS WRONGLY TR EATED THE INTEREST RECOVERED FROM PARTNERS AMOUNTING TO RS. 21,77,434/-AS INCOME FROM OTHER SOURCES INSTEAD 3 OF BUSINESS INCOME AND RECOMPUTED THE BOOK PROFIT A ND HAS DISALLOWED THE EXCESS SALARY PAID TO THE PARTNERS. IN, SUPPORT ITS PLEA, THE APPELLANT HAS RELIED UPON THE DECISION OF THE HON'BLE CALCUTTA HIGH COUR T IN THE CASE OF MD. SERAJUDDIAN AND BROS. VS. CIT REPORTED AS (2012) 82 CCH 0098 KOLHC/(2012) 80 DTR 0046/(2012) 210 TAXMAN 0084. RELIANCE WAS ALSO PLACED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT, REPORTED IN [2002] 255 ITR 273 (SC). 7. THE LD. CIT(A) CONSIDERED THE DECISION OF HON'B LE CALCUTTA HIGH COURT IN THE CASE OF MD. SERAJUDDIAN AND BROS. VS. CIT WHERE IN IT WAS HELD AS UNDER ' THE SAID CHAPTER NOWHERE PROVIDED THAT METHOD OF AC COUNTING FOR THE PURPOSES OF ASCERTAINING NET PROFIT SHOULD BE THE O NLY INCOME FROM BUSINESS ALONE AND NOT FROM OTHER SOURCES. S. 29 PR OVIDE HOW THE INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION SH OULD BE COMPUTED AND THIS HAD TO BE DONE AS PROVIDED U/S 30 TO 43D. BY V IRTUE OF S. 5 OF THE SAID ACT THAT TOTAL INCOMES OF ANY PREVIOUS YEARS INCLUD ES ALL INCOME FROM WHATEVER SOURCE DERIVED. THUS FOR THE PURPOSE OF S. 40(B)(V) READ WITH EXPLANATION THERE CANNOT BE SEPARATE METHOD OF ACCO UNTING FOR ASCERTAINING NET PROFIT AND/ OR BOOK-PROFIT. THE SA ID SECTION NOWHERE PROVIDES THAT THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT IS NOT THE PROFIT COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION' 8. IT WAS HELD FINALLY THAT EVEN IF THE INCOME FROM OTHER SOURCES IS INCLUDED IN THE PROFIT & LOSS ACCOUNTS TO ASCERTAIN THE NET PRO FIT QUA BOOK PROFIT FOR COMPUTATION OF THE REMUNERATION OF THE PARTNERS, TH E SAME CANNOT BE DISCARDED. 9. WE HAVE GONE THROUGH THE FACTS ON RECORD AND ALS O ARGUMENT OF BOTH THE PARTIES AND WE ARE IN AGREEMENT WITH THE FINDIN G THAT THE METHOD OF COMPUTATION OF INCOME SHOULD BE THE ON THE SIMILAR LINES FOR DETERMINATION OF NET PROFIT AND AS WELL AS DETERMINATION OF BOOK PRO FIT AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. HENCE THE APPEAL OF THE REVEN UE IS HEREBY DISMISSED. 4 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- . '.., # $, (SANJAY GARG ) ( DR. B.R.R. KUM AR, AM) / JUDICIAL MEMBER %& / ACCOUNTANT MEMBER AG DATE: 29/11/2018 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE