Smt. Madhu, Meerut V. ITO, Meerut

ITA 873/DEL/2015

• Counselvise Citation: 87320114 RSA 2015
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 23-11-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 12-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: V K GOEL
• Keywords: Question of law
• Section: 40A(3); 143(3); 68; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. H.S.SIDHU, JM AND SH. PRASHANT MAHARIS HI, AM ITA NO. 873/DEL/2015 ASSTT. YEAR : 2003-04 MRS MADHU C/O, VINOD KUMAR GOEL, 282, BOUNDARY ROAD, CIVIL LINES MEERUT VS ITO WARD-1(4) MEERUT (APPELLANT) (RESPONDENT) PAN NO. AFEPR6648L APPELLANT BY : SH. V.K.GOEL, ADV. RESPONDENT BY : SH. P.DAM KANU NJNA, SR. DR DATE OF HEARING : 23.11.2015 DATE OF PRONOUNCEMENT : 23.12.2015 ORDER PER PRASHANT MAHARISHI : AM ITA NO 873/DEL/2015 1. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)- MEERUT, DATED 30 TH JANUARY, 2015 RAISING FOLLOWING GROUNDS OF APPEAL : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ITO WARD 1(4) MEERUT ERRED IN LAW BY MAKING AN ADDITION OF RS. 27,92,190/- ON SUBSTANTIVE BASIS TO THE INCOME OF THE ASSESSEE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. AO ERRED IN LAW BY MAKING THE ADDITION TO THIS INCOME OF THE ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 2 ASSESSEE OF THE FIRM MESSRS MADHU AND OTHERS DULY ASSESSED AS PF AOP. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. AO PRESUMED AND MISLED HIMSELF BY CONSIDERING THE CASE LAWS OF APEX COURT AS THE ENTIRE EXCISE AMOUNT IS NOW DE POSITED ON THE DATE OF AUCTION OF THE SHOP. 4. THAT ON THE FACTS AND MERITS OF THE CASE THE ASS ESSMENT SO FRAMED IS BAD IN LAW AND NEEDS TO BE MODIFIED. 5. THAT THE ASSESSEE RESERVES THE RIGHT TO HAVE ADD ITIONS/ OR DELETIONS TO THE GROUNDS OF APPEAL IN ORDER TO HAVE JUSTICE. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN IND IVIDUAL WHO WAS GRANTED LICENSE FOR SALE OF LIQUOR BY DISTRICT EXC ISE OFFICER. HOWEVER IN AY 2002-03 , THE YEAR IN WHICH SHE WAS GRANTED LICE NSE, IT WAS SUBMITTED THAT BUSINESS OF SALE OF LIQUOR IS CAR RIED ON IN THE NAME OF THE FIRM IN NAME AND STYLE AS M/S MADHU & OTHE RS WHICH IS CONSTITUTED BY THE DEED OF PARTNERSHIP DATED 26.3.2 002. FOR THE YEAR LD AO WAS OF THE VIEW THAT THERE IS NO TRANSFER O F LICENSE FROM ASSESSEE TO THE PARTNERSHIP FIRM AND AS THE LICENSE WAS GRANTED TO THE ASSESSEE IN HIS INDIVIDUAL CAPACITY THE INCOME ARIS ING THEREFORE SHALL BE CHARGEABLE IN THE HANDS OF THE ASSESSEE INDIVIDUAL. HOWEVER THE PARTNERSHIP FIRM ALSO FILED THE RETURN OF INCOME SH OWING INCOME FROM THE BUSINESS OF SALE OF LIQUOR. THEREFORE LD AO TA XED THE INCOME OF THAT FIRM IN THE HANDS OF THE INDIVIDUAL ASSESSEE O N SUBSTANTIAL BASIS AND IN THE HANDS OF THE FIRM ON PROTECTIVE BASIS. O N APPEAL BY THE BEFORE CIT (A) , HE UPHELD THAT THE INCOME S TO BE TAXED IN THE HANDS OF THE INDIVIDUAL ON SUBSTANTIVE BASIS. ON APPEAL BEFORE CIT (A) BY THE APPELLANT INDIVIDUAL ASSESSEE, HE UPHELD TAXING OF THE INCOME IN THE ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 3 HANDS OF THE INDIVIDUAL ASSESSEE. THE PARTNERSHIP FIRM M/S MADHU & OTHERS DID NOT FILES ANY APPEAL AGAINST THE ORDER O F THE CIT (A) BEFORE HIGHER FORUMS. THEREFORE ASSESSEE HAS ACCEPTED THAT THE INCOME OF THE FIRM IS CHARGEABLE TO TAX IN THE HANDS OF THE INDIV IDUAL ON SUBSTANTIVE BASIS AND IN THE HANDS OF THE FIRM ON PROTECTIVE BA SIS. THE FIRST GROUND OF APPEAL IS THAT INCOME OF MESSRS MADHU AND OTHERS WHICH IS A REGISTERED PARTNERSHIP FIRM HAS BEEN TAXED ON SUBST ANTIVE BASIS AS INCOME OF SMT. MADHU -INDIVIDUAL. FOR THIS AO REL YING ON THE DECISION OF HONBLE SUPREME COURT IN CIT VS. FRIENDS AND COM PANY 256 ITR 177 AND MOTI LAL TAK VS. CIT IN 234 ITR 472 HELD TH AT SUCH FIRM IS ILLEGAL AS THE BUSINESS IS LICENSED ISSUED IN THE N AME OF INDIVIDUAL. THEREFORE INCOME WHICH HAS BEEN DISCLOSED IN THE HA NDS OF THE FIRM BY THE FIRM IS BELONGING TO THE ASSESSEE HERSELF. CIT (A) WHILE DECIDING THE ISSUE RELIED UP ON THE DECISION OF HONORABLE SU PREME COURT IN CASE OF CIT V RANGILA RAM & OTHER 254 ITR 230 (SC) WHE RE IN IT HAS BEEN HELD THAT FIRM IS NOT ENTITLED TO REGISTRATION AS IT SOME OF THE PARTNERS OF THE FIRM HOLD THE LICENSE TO SELL LIQUOR. 3. ON THIS GROUND NO. 1 NO ARGUMENTS WERE PLACED BY TH E AR AND LD DR RELIED ON THE ORDERS OF LOWER AUTHORITIES. 4. AS HELD BY LD. CIT (A) RELYING ON THE DECISION OF HONORABLE SUPREME COURT IN CASE OF CIT V RANGILA RAM & OTHERS WHERE HONOURABLE COURT HAS HELD THAT:- ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 4 THE PARTNERSHIP (THE ASSESSEE) DEALT IN LIQUOR. ONL Y SOME OF THE PARTNERS HELD THE LIQUOR LICENSE. OUR ATTENTION WAS DRAWN BY THE LEARNED SOLICITOR-GENER AL, APPEARING FOR THE REVENUE, TO THE JUDGMENT OF THIS COURT IN BIHARI LAL JAISWAL V. CIT [1996] 217 ITR 746 . IT WAS HELD THAT A LICENSEE COULD NOT BE PERMITT ED TO BRING IN STRANGERS INTO THE BUSINESS, WHICH WOULD M EAN THAT INSTEAD OF THE LICENSEE CARRYING ON THE BUSINESS, IT WOULD BE CARRIED ON BY OTHERS-A SITUATION NOT CONDUCIVE TO EFFECTIVE IMPLEMEN TATION OF THE EXCISE LAW AND CONSEQUENTLY DELETERIOUS TO PUBLIC I NTEREST. FOR THIS VERY REASON THE TRANSFER OR SUBLETTING OF THE LICENCE IS UNIFORMLY PROHIBITED BY SEVERAL STATE EXCISE ENACTMENTS. IT, THEREFORE, FOLLO WS THAT ANY AGREEMENT WHERE UNDER THE LICENSE IS TRANSFERRED, S UBLET OR A PARTNERSHIP IS ENTERED INTO WITH RESPECT TO THE PRIV ILEGE/BUSINESS UNDER THE SAID LICENCE, CONTRARY TO THE PROHIBITION CONTAINE D IN THE RELEVANT EXCISE ENACTMENT, IS AN AGREEMENT PROHIBITED BY LAW . ACCORDINGLY, IT WAS HELD THAT THIS NOT BEING A GENUINE AGREEMENT, IT COULD NOT BE REGISTERED UNDER THE INCOME-TAX ACT. OUR ATTENTION WAS ALSO DRAWN TO THE JUDGMENT IN CIT V. HARDIT SINGH PAL CHAND AND CO. [1979] 120 ITR 289 (P & H), WHERE (AT PAGE 291) THE RULES APPLICABLE, EVEN IN THE STATE OF HIMACHAL PRAD ESH, HAVE BEEN SET OUT, AND THERE IS NO DOUBT THAT A LIQUOR LICENSEE MAY N OT ENTER INTO A PARTNERSHIP WITHOUT PRIOR PERMISSION. THE BASIC PRINCIPLE, AS IT SEEMS TO US, IS THAT THE LIQUOR BUSINESS IS RES EXTRA COMMERCIUM. NO ONE MAY DEAL IN LIQUOR WITHOUT EX PRESS PERMISSION. IT IS ONLY THE LICENSEE WHO IS GRANTED S UCH PERMISSION. IF HE ENTERS INTO A PARTNERSHIP TO DEAL IN LIQUOR, ALL THE O THER PARTNERS WOULD, AS PARTNERS, ALSO BE DEALING IN LIQUOR AND HOLDING THE SAME. THIS WOULD BE CONTRARY TO THE BASIC PRINCIPLE AND ILLEGAL. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON A JUDGM ENT OF THIS COURT IN ADDL. CIT V. DEGAON GANGA REDDY G. RAMAKRISHNA AND C O. [1995] 214 ITR 650 ; [1995] SUPPL. 2 SCC 146. IT DEALT WITH THE A. P. (TELANGANA AREA) ABKARI ACT, WHICH CONTAINED A PROHIBITION SIMIL AR TO THAT STATED ABOVE. THIS COURT HELD (PAGE 655) : IN VIEW OF THE CLEAR FINDINGS OF FACT RECORDED BY TH E TRIBUNAL, THERE CAN BE NO DOUBT THAT THE SUB-PARTNERSHIPS FORMED BY INDIV IDUAL PARTNERS OF THE MAIN PARTNERSHIP WHICH WERE LESSEES, WITH SOME OT HERS, MERELY TO FINANCE THE BUSINESS OF A PARTNER OF THE MAIN FIRM D OING ABKARI BUSINESS AND SHARE THE PROFITS AND LOSSES ACCRUED TO OR RECEIV ED BY HIM FROM THE MAIN FIRM, WERE NOT IN VIOLATION OF SECTION 14 OF THE ABKARI ACT. FOR THIS REASON, THERE IS NO BASIS TO HOLD THAT THE SUB-PARTNE RSHIPS WERE IN VIOLATION OF SECTION 14 OF THE ABKARI ACT AND, THEREF ORE, ILLEGAL. THE TRIBUNAL WAS RIGHT IN HOLDING THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE-SUB-PARTNERSHIPS BEING FOUND TO BE GENUINE WERE ENTITLED TO BE REGISTERED UNDER THE INCOME-TAX ACT. THE HIGH COURT HAS CORRECTLY ANSWERED THE QUESTION OF LAW REFERRED TO I T, AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 5 THE FACTS OF THE CASE ARE ENTIRELY DIFFERENT. THE S UB-PARTNERSHIPS WERE NOT FORMED TO DO BUSINESS IN LIQUOR BUT, AS THE TRIB UNAL CLEARLY FOUND, TO FINANCE THE BUSINESS OF THE PARTNER OF THE MAIN FIRM DOING ABKARI BUSINESS AND SHARE THE PROFITS AND LOSSES ACCRUED T O OR RECEIVED BY HIM THEREFROM. IT WAS IN THESE CIRCUMSTANCES THAT IT WAS HELD THAT SUCH SUB- PARTNERSHIPS WERE NOT DISENTITLED TO REGISTRATION UND ER THE INCOME-TAX ACT. IN THE RESULT, THE APPEAL IS ALLOWED. THE JUDGMENT A ND ORDER UNDER APPEAL IS SET ASIDE AND THE QUESTION IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. IN VIEW OF ABOVE DECISION OF HONOURABLE SUPREME COURT WE CONFIRM THE ACTION OF AO IN TAXING THE INCOME OF M/S MADHU & O THER PARTNERSHIP FIRM AS INCOME OF THE ASSESSEE MRS. MADHU INDIVI DUAL. THEREFORE GROUND NO 1 OF THE APPEAL IS DISMISSED. 5. THE SECOND, THIRD AND FOURTH GROUNDS ARE RELATING TO ADDITIONS MADE IN THE HANDS OF M/S MADHU & ORS WHICH IS A PARTNER SHIP FIRM VIDE ORDER DATED 20 TH MARCH 2006 AS UNDER :- A. GROUND NO 2 - RS. 1,92,000/- WERE DISALLOWED ON ACC OUNT OF SALARY PAID TO PARTNERS BECAUSE ASSESSMENT IS MADE IN THE STATUS OF AOP ON PROTECTIVE BASIS B. GROUND NO 3. AN ADDITION OF RS. 16,99,558/- U/S 40 A(3) FOR A PAYMENTS OF RS. 84,97,791/- IS MADE IN VIOLATION OF SECTION 40A(3) AND THEREFORE A DISALLOWANCE @ 20% THEREOF A MOUNTING TO RS. 16,99,558/- IS MADE C. GROUND NO 4 - UNEXPLAINED DEPOSIT TAXED U/S 68 OF THE ACT WITH RESPECT TO SIX PERSONS AMOUNTING TO RS. 8,50,0 00/-. ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 6 6. OVER AND ABOVE SUM OF RS. 50,633/- WAS THE RETURNED INCOME IN THE HANDS OF MESSRS MADHU AND ORS WAS ALSO ADDED IN TH E HANDS OF THE ASSESSEE. 7. MESSRS MADHU & ORS WAS ASSESSED A TOTAL INCOME OF RS. 27,90,190/- ON PROTECTIVE BASIS. IN THE HANDS OF THE ASSESSEE A PPELLANT, AN ADDITION OF IDENTICAL AMOUNT I.E. OF RS. 27,92,190 WAS MADE ON SUBSTANTIVE BASIS. ON READING OF THE ORDERS IN CA SE OF M/S MADHU & OTHERS OF ASSESSING OFFICER AS WELL AS WELL AS CIT (A) VIDE ORDER DATED 29.01.2015 WHERE IN IT IS HELD THAT THE INCOME OF THE LIQUOR BUSINESS HAS BEEN ASSESSED IN THE HANDS OF SMT. MADHU IN HER INDIVIDUAL STATUS. THEREFORE LD CIT(A) IN THE CASE OF M/S MADHU & OTH ERS HAS HELD THAT ADDITIONS MADE IN THE HANDS OF MESSRS MADHU & ORS W HICH ARE NOW CLUBBED IN THE HANDS OF APPELLANT ASSESSEE (INDIVID UAL) WOULD BE DEALT WITH IN THE APPEAL OF APPELLANT ASSESSEE INDIVIDUAL . ON APPEAL BEFORE CIT(A) ALL THE ARGUMENTS OF THE ASSESSEE WERE REJEC TED ON THE BASIS OF FINDING OF ASSESSING OFFICER IN CASE OF ASSESSMENT ORDER OF MESSRS MADHU & ORS. AND THEREFORE ASSESSEE IS IN APPEAL BE FORE US. 8. LD. AR SUBMITTED BEFORE US THAT AT THE TIME MAKING SUBSTANTIVE ADDITION IN THE HANDS OF ASSESSEE NO OPPORTUNITY WA S GIVEN TO ASSESSEE, MRS MADHU, TO CONTEST THE ADDITIONS MADE IN THE HANDS OF M/S MADHU & ORS WHICH WAS MADE U/S 68 AND U/S 40A(3 ). IT WAS FURTHER SUBMITTED THAT EVEN THE DISALLOWANCE OF SAL ARY TO PARTNERS OF ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 7 THE FIRM PAID BY M/S MADHU & ORS WAS ALSO NOT DISCU SSED. THEREFORE HE STATED THAT AN OPPORTUNITY WAS NOT GRANTED BY AO TO EXPLAIN THESE ISSUES OF ADDITION U/S 68 AS WELL AS DISALLOWANCE U/S 40A (3) OF THE ACT. THEREFORE THE MATTER MAY BE SET ASIDE TO THE F ILE OF AO. 9. LD. DR RELIED ON THE ORDER OF CIT(A) STATING THAT C IT(A) HAS CONSIDERED ALL THE ASPECTS AND THEREFORE THE APPEAL OF THE ASS ESSEE MAY BE DISMISSED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ON. ON THE BASIS OF ADDITIONS MADE IN THE M/S MADHU & OTHERS ON PROTEC TIVE BASIS LD. AO HAS MADE THE ADDITION OF RS. 27,92,190/- ON SU BSTANTIVE BASIS IN THE HANDS OF THE ASSESSEE. AS THE INCOME OF M/S MAD HU & OTHERS HAS BEEN ASSESSED IN THE HANDS OF ASSESSEE WHEREIN DISA LLOWANCE U/S 40A(3) OF RS. 16,99,558/- AND ADDITION U/S 68 OF RS . 8,50,000/- HAS BEEN MADE , IT IS APPARENT THAT NO OPPORTUNITY IS G IVEN BY ASSESSING OFFICER TO THE ASSESSEE. REASON FOR THE SAME IS THA T BOTH THE ORDERS U/S 143(3) READ WITH SECTION 148 IN THE HANDS OF TH E ASSESSEE AS WELL AS M/S MADHU & OTHERS ARE PASSED ON 20 TH MARCH, 2006 AND THEREFORE WE SET ASIDE GROUND NO. 2 AND 3 OF THE APPEAL OF TH E ASSESSEE CONTESTING THE ADDITION U/S 68 AS WELL AS U/S 40A(3 ) OF THE ACT BACK TO THE FILE THAT ASSESSING OFFICER WITH DIRECTION TO D EAL WITH BOTH THE ISSUES ON MERIT AFTER GIVING PROPER OPPORTUNITY OF HEARIN G TO THE ASSESSEE. ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 8 11.REGARDING GROUND NO. 4 WHICH IS AGAINST DISALLOW ANCE OF THE SALARY TO THE PARTNERS OF RS. 92,000/- IN THE HANDS OF M/S MA DHU & OTHERS. WE DISMISS THIS GROUND AS M/S MADHU & OTHERS IS NOT TR EATED BY ASSESSING OFFICER AS A FIRM BUT AOP AND THEREFORE DEDUCT ION OF SALARY TO PARTNER CANNOT BE GRANTED AS DEDUCTION TO AOP. AS THE INCOME OF AOP IS TAXED IN THE HANDS OF ASSESSEE ON SUBSTANTI VE BASIS THE INCOME OF AOP WOULD BE COMPUTED WITHOUT GRANTING DE DUCTION OF SALARY TO THE AOP. 12. IN THE RESULT GROUND NO. 2, 3 ARE ALLOWED FOR STAT ISTICAL PURPOSES AND GROUND NO. 4 IS DISMISSED. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. (ORDER PRONOUNCED IN THE OPEN COURT ON 23.12.2 015) SD/- SD/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/12/2015 *BINITA* COPY FORWARDED TO: 1. APPELLANT A 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO. 873 .DEL.2015 MRS MADHU, MEERUT V ITO WARD 1 (4) MEERUT A Y 2003-04 9 DATE INITIAL 1. DRAFT DICTATED ON 21/12/2015 2. DRAFT PLACED BEFORE AUTHOR 21/12/2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 23/12/2015 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.