Gangumalla Constructions, Hyd, Hyderabad V. ITO, Ward-4(2), Hyderabad, Hyderabad

ITA 868/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2229 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: T CHAITANYA KUMAR
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH SMC-B', HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 868/HYD/2017 ASSESSMENT YEAR: 2006-07 GANGUMALLA CONSTRUCTIONS, HYDERABAD PAN AADF 8167 B VS. INCOME-TAX OFFICER, WARD 4(2), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: SHRI T. CHAITANYA KUMAR REVENUE BY: SMT. N. SWAPNA DATE OF HEARING: 28/12/2017 DATE OF PRONOUNCEMENT: 28/12/2017 O R D E R THIS APPEAL BY THE ASSESSEE FIRM IS AGAINST THE O RDER OF CIT(A) - I, HYDERABAD, DATED 30/01/2017 FOR AY 2006 -07. 2. THE EFFECTIVE GROUNDS RAISED ARE AS UNDER: 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN NOT ALLOWING INTEREST AND REMUNERATION PAID TO PART NERS U/S 40 (B) OF THE I.T. ACT. 4. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRED IN NOT CONSIDERING THE FACT THAT THE APPELLANT FIRM DEBITED AN AMOUNT OF RS 2,10,850/- INTEREST ON PARTNERS CAPITAL AND RS 36,000/- FOR SA LARY TO WORKING PARTNERS. 2.1 GROUND NOS. 1, 2 & 5 ARE GENERAL IN NATURE. 3. BRIEFLY STATED THE FACTS ARE, THE ASSESSING OFFI CER NOTICED FROM THE RETURN OF INCOME FILED BY THE ASSE SSEE THAT THE ASSESSEE HAD COMPUTED INCOME @ 8% OF GROSS RECE IPTS OF I.T.A. NO. 868/HYD/2017 GANGUMALLA CONSTRUCTIONS, HYD. 2 RS.32,00,000/- I.E. RS.2,56,000/- FROM CIVIL CONTRA CT WORKS BUT WHILE RETURNING THE INCOME FOR TAX PURPOSE, THE PAR TNERS' SALARY OF RS. 2,10,850/- AND INTEREST ON CAPITAL BE ING RS.36,000/- WERE DEDUCTED AND OFFERED RS.9,150/- TO TAX. AO OBSERVED THAT AS PER SUB-SECTION (1) OF 44AD, THE A SSESSEE OUGHT TO HAVE DECLARED INCOME @ 8% OF GROSS RECEIPT S WHICH WORKED OUT TO RS.2,56,000/-. ALTERNATIVELY, AS PER SUB-SECTION (6) OF 44AD, WHEN THE RETURNED INCOME WAS LESS THAT 8% OF GROSS RECEIPTS, THE ASSESSEE OUGHT TO HAVE GOT ITS BOOKS AUDITED AND FILED AN AUDIT REPORT BUT THE ASSESSEE DID NOT DO SO. THEREFORE, THE ASSESSING OFFICER PROPOSED TO ES TIMATE THE INCOME AT RS.2,56,000/- I.E. 8% OF GROSS RECEIPTS, BUT, THE ASSESSEE CONTENDED THAT THE PROVISIONS OF SECTION 44AD HAVE BEEN FULLY COMPLIED WITH AND THE RETURNED INCOME OF RS.9,150/- HAD BEEN IN CONFORMITY WITH SECTION 44AD AND 40(B). 3.1 THE ASSESSING OFFICER HAD NOT ACCEPTED THE ASSE SSEE'S CONTENTION ON THE GROUND THAT IT WAS VERY CLEAR FRO M THE CONTENTS OF THE CIRCULAR NO.3, DATED 09.02.2001 THA T WHEN THE RETURNED INCOME IS LESS THAN THE ESTIMATED INCOME A S PER SUB- SECTION (1) OF SECTION 44AD I.E. 8% OF GROSS RECEIP TS, THEN THE ASSESSEE MUST HAVE MAINTAINED BOOKS, GOT AUDITED AN D SUBMITTED AN AUDIT REPORT BUT THE ASSESSEE DID NOT MAINTAIN BOOKS. THEREFORE, IN THE ABSENCE OF BOOKS OF ACCOUN TS, THE ASSESSING OFFICER ESTIMATED INCOME AT RS.2,56,OOO/- I.E. 8% OF THE GROSS RECEIPTS. AGGRIEVED, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE CIT(A). 3.2 BEFORE THE CIT(A), THE ASSESSEE SUBMITTED STAT EMENT OF FACTS, IN WHICH, IT WAS STATED THAT WHILE ARRIVIN G TAXABLE INCOME, THE FIRM HAD ESTIMATED INCOME @ 8% ON GROSS RECEIPTS OF RS.32,00,000/- U/S 44AD AND THE SAID ES TIMATED AMOUNT IS RS.2,56,000/-. FURTHER, IT WAS STATED THA T THE FIRM I.T.A. NO. 868/HYD/2017 GANGUMALLA CONSTRUCTIONS, HYD. 3 HAD CLAIMED ALLOWABLE DEDUCTIONS U/S 40(B) IN RESPE CT OF INTEREST ON PARTNERS' CAPITAL ACCOUNT OF RS. 2,10,8 50/- -AND SALARY TO WORKING PARTNER RS.36,000/- TOTALLING TO RS.2,46,850/- AND AFTER SAID DEDUCTION, THE NET TAXABLE INCOME AR RIVED AT RS.9,150/- ON WHICH TAX WAS PAID. ACCORDINGLY, THE FIRM HAD CLAIMED THE ALLOWABLE DEDUCTION IN RESPECT OF INTER EST ON PARTNERS' CAPITAL AND SALARY TO WORKING PARTNER AS PER THE TERMS OF PARTNERSHIP DEED EXECUTED ON 16.08.2001. 3.3 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AS UNDER: 6.3 BEFORE ME, THE APPELLANT DID NOT SUBMIT PARTNER SHIP DEED, PROFIT & LOSS ACCOUNT, BALANCE SHEET AND THE DETAILS OF SALARY PAID TO WORKING PARTNER AND INTER EST ON PARTNERS' CAPITAL. FIRST & FOREMOST THE PARTNERSHIP DEED IS NEEDED TO VERIFY WHETHER THE SPECIFIED CONDITION S ARE BEING ADHERED TO, FOR THE PAYMENT OF INTEREST & SAL ARY TO THE PARTNERS. IN THE ABSENCE OF THE SAME, THE QUEST ION OF LIABILITY DOES NOT ARISE. IN THE ABSENCE OF P&L A/C & BALANCE SHEET, THE PROFIT SHARING RATIO CANNOT BE CONCLUDED. IN THE ABSENCE OF ALL THESE, THE CONTENT ION OF THE APPELLANT CANNOT BE ACCEPTED AND GROUNDS DISMISSED. 3.4 STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL. 4. AFTER CONSIDERING THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE LD. CIT(A) AS WELL AS AO HAS NOT F OLLOWED THE PROVISIONS OF SECTION 44AD CORRECTLY. THE PROVISO TO SECTION 44AD(2) READS AS UNDER: ANY DEDUCTION ALLOWABLE UNDER THE PROVISIONS OF SEC TION 30 TO 38 SHALL, FOR THE PURPOSES OF SUB-SECTION (1) , BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT TO AN D NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALL OWED: PROVIDED THAT WHERE THE ASSESSEE IS A FIRM, THE SAL ARY AND INTEREST PAID TO ITS PARTNERS SHALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION (1) SUBJECT T O THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) O F SECTION 40. I.T.A. NO. 868/HYD/2017 GANGUMALLA CONSTRUCTIONS, HYD. 4 4.1 AS SEEN FROM THE PARTNERSHIP DEED PLACED ON REC ORD, THE ASSESSEE FIRM PROVIDED FOR INTEREST @ 18% ON CAPITA L AND REMUNERATION TO WORKING PARTNER AT RS. 3000/- PER M ONTH. THE PARTNERS ALSO DECLARED THE INCOMES AS SEEN IN THEI R RETURNS. THEREFORE, THE ACTION OF AO AND CIT(A) IS IN VIOLAT ION OF PROVISIONS. THEREFORE, I AM OF THE OPINION THAT ASS ESSEE IS ENTITLED TO CLAIM DEDUCTION OF THE ABOVE TWO AMOUNT S. HOWEVER, LD. CIT(A) DID NOT ALLOW THE SAME AS THE ASSESSEE HAS NOT FILED PARTNERSHIP DEED. BEFORE ME, IT WAS S TATED THAT THE SAME WAS FILED BEFORE THE AO AS WELL AS CIT(A). BE THAT AS IT MAY, I DIRECT THE AO TO EXAMINE THE PARTNERSHIP DEED AND ALLOW THE CLAIMS AS PER THE PROVISIONS OF SECTION 4 0(B) READ WITH SECTION 44AD(1). 5. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER, 2017. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH DECEMBER, 2017 KV COPY FORWARDED TO: 1. M/S GANGUMALLA CONSTRUCTIONS, C/O T. CHAITANYAKU MAR, ADVOCATE, FLAT NO. 102, GOURI APARTMENT, URDULANE, HIMAYATNAGAR, HYDERABAD. 2. ITO, WARD 4(2), HYDERABAD. + 3. CIT(A) - 1, HYDERABAD 4 PR. CIT - 1, HYDERABAD 5 THE DR, ITAT, HYDERABAD 6 GUARD FILE I.T.A. NO. 868/HYD/2017 GANGUMALLA CONSTRUCTIONS, HYD. 5 S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER