Ram Narayan Contractor, New Delhi V. ACIT Circle-62(1), New Delhi

ITA 956/DEL/2020

AI Insights

The case involves Ram Narayan Contractor, who appealed against the order of the CIT(A) which denied deductions for interest on capital and salary to partners under sections 184(5) and 185 of the Income Tax Act, 1961. The initial assessment was made under section 143(3) read with section 144, estimating business income at 8% of gross turnover, later reduced to 5% by CIT(A). The CIT(A) rejected the assessee's requests for deductions citing non-compliance with section 184 of the Act, which prohibits such deductions if the firm does not meet certain conditions. The Tribunal found procedural lapses in the handling of the assessee's case and remanded it back for a thorough re-examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130782 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 23-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 02-03-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 144; 154; 143(3)

Judgement Text

Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE, DR. B.R.R.KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.956/Del/2020 (ASSESSMENT YEAR 2014-15) Ram Narayan Contractor 23, Bahi Veer Singh Marg Gole Market New Delhi-110 001 PAN-AABFR 5903N Vs. ACIT Circle-62(1) New Delhi (Appellant) (Respondent) Appellant by Mr. KVSR Krishana, Advocate Respondent by Mr. Anuj Garg, Sr. DR Date of Hearing 24/07/2023 Date of Pronouncement 27/07/2023 ORDER PER YOGESH KUMAR U.S., JM: This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-20, New Delhi [Ld. CIT(A)”, for short], dated 13/02/2020 for Assessment Year 2014-15. Grounds taken in this appeal are as under: “1. Interest on Capital of Rs.29,68,351/- and Salary to Partner Rs.59,94,429/- not allowed as assessment has been made u/s 144 {actually it was made u/s 143(3) r.w.s 144 of the Income Tax Act, 1961}. ITA No.956/Del/2020 Ram Narayan Contractor vs. ACIT Page 2 of 5 2. AO has wrongly rejected application u/s 154 of income tax Act and C.I.T has also wrongly rejected the appeal requesting to allow interest on Partner's Capital and Salary to Partner as assessment has been vide u/s 143 (3) r.w.s 144 and not u/s 144 of the Act and also rejection of claim of interest on Partner Capital and Salary to Partner is not automatic unless there is complete failure on the part of 'A' to co-operate. Section 184(5) does not come in to operation automatically when an assessment is made under section 144. And as such request that deduction for interest on capital and Partner Salary be allowed while computing taxable profit of the “Assessee’ firm. 3. Brief facts of the case are that, a return of income filed by the assessee declaring income of Rs. 38,46,290/-, an assessment order came to be passed u/s 143(3) read with Section 144 of the Act by making an addition of Rs. 2,38,63,486/- by estimating the business income at 8% of gross turnover of the assessee. Aggrieved by the order u/s 143(3) of the Act, the assessee preferred an appeal before the CIT(A). The Ld. CIT(A) vide order dated 14/03/2018 partly allowed the Appeal by reducing the estimated profit rate to 5% of gross receipts. The assessee filed rectification petition on 31/05/2018 before the CIT(A) and requested to allow the interest on capital and salary of partner, the same was rejected by the CIT(A) vide order dated 18/06/2018. Thereafter the assessee filed an application u/s 154 on 13/07/2018 requesting to allow interest on capital and salary to partner has claimed in its return of income, which has been dismissed by the A.O. vide order dated 28/08/2018 after considering the provisions of Section 185 of the Act. Aggrieved by the order dated 28/08/2018 made u/s 154 of the Act, the assessee preferred an ITA No.956/Del/2020 Ram Narayan Contractor vs. ACIT Page 3 of 5 appeal before the CIT(A). The ld. CIT(A) while deciding the issue dismissed the application filed u/s 154 of the Act as under:- “On Merits, It is seen from the order of the AO that the assessee filed ITR for A.Y. 2014-15 at an Income of Rs. 38,46,290/-. Subsequently, assessment u/s 144 of I.T. Act, 1961 was completed on 26.12.2016 at an income of Rs. 2,77,09,770/- wherein the Assessing Officer made addition of Rs. 2,38,63,486/- on the basis of estimated profit at the rate of 8% of Gross Receipts. Aggrieved form the order U/s 143(3), the assessee preferred appeal before CIT(A). The Ld. CIT(A)- 20 vide order dated 14.03.2018 partly allowed the appeal by reducing the estimated profit rate to 5% of Gross Receipts. Thereafter the assessee filed rectification petition on 31.05.2018 before CIT(A) and requested to allow deduction of interest on capital and salary to partner. The same was rejected by CIT(A)-20 vide order dated 18.06.2018. Thereafter, the assessee filed an application u/s 154 on 13.07.2018 requesting to allow interest on capital and salary to partner as claimed In its ROI. The assessee's application was considered but deduction of interest on capital and salary to partner was not allowed due to following reasons: i. During the year under consideration the status of assessee was firm and the assessment was completed u/s 144 of I.T. Act, 1961. ii.As per provisions of Section 184 of I.T. Act, 1961, interest & remuneration to the partners cannot be allowed. For sake of convenience relevant portion of section 184 and section 185 of I.T. Act, 1961 are reproduced as under: Section 184(5) “Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is no the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of Interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the Income chargeable under the head "Profits and gains of business or profession" and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28. ITA No.956/Del/2020 Ram Narayan Contractor vs. ACIT Page 4 of 5 Section 185 "Notwithstanding anything contained in any other provision of this Act, where a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession" and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28." During the course of appellate proceedings, the AR of the appellant has contended, the appellant has not tendered any arguments in support of his grounds of appeal. Therefore, considering the facts and circumstances of the case, it is seen that in light of the above provisions of law, the application u/s 154 dated 13.07.2018 for allowing the salary to partner and interest on capital has rightly been rejected. 6. In the result, the appeal is dismissed.” 4. Aggrieved by the order of the CIT(A) the Assessee preferred the present Appeal on the grounds mentioned above. 5. It is found that neither the assessee nor the representative of the assessee have appeared before the CIT(A) to put forth the case of the assessee, ultimately the Appeal has been decided ex-parte against the assessee. Though the ld. Assessee's Representative vehemently argued on the merit, ultimately requested to remand the matter to the file of the CIT(A) for de-novo consideration as the assessee has not been heard before passing the order by the CIT(A). The Ld. Departmental Representative has also not objected for de- novo consideration by the CIT(A). ITA No.956/Del/2020 Ram Narayan Contractor vs. ACIT Page 5 of 5 6. Considering the above facts and circumstances, we deem it fit to restore the matter to the file of the CIT(A) for de-novo adjudication of the issues involved in the Appeal and pass separate order, after hearing the Assessee. Accordingly, the Appeal filed by the assessee is partly allowed for statistical purpose. Order pronounced in open Court on 27 th July, 2023 Sd/- Sd/- (DR. B.R.R.KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27/07/2023 Pk/R.N, SR PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI