Kishor Construction Co., RAJKOT-GUJARAT V. The Deputy Commissioner of Income Tax, Circle-2, RAJKOT-GUJARAT

MA 69/RJT/2010

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4158 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 10 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-02-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 14-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AYS; IN IN I T A NOS
• Section: 44AD

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ - ! ] [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] '#- $ , ' ( $ )* +, , ( BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER MA NOS.68 & 69/RJT/2010 FOR AYS 2001-02 & 2004-05 (IN ./ IN I.T.A. NOS.340 & 341/RJT/2007 RESPECTIVELY) ( / ASSESSMENT YEARS : 2001-02 & 2004-05) M/S.KISHOR CONSTRUCTION CO., BHUSHAN BLDG, RACE COURSE RING ROAD, RAJKOT / VS. THE DCIT CIR-2 RAJKOT (1 , ./ ./ PAN/GIR NO. : AAEFK 0371 Q ( 13 / APPLICANT ) .. ( 4513 / RESPONDENT ) 13 6 / APPLICANT BY : SHRI D.M. RINDANI, CA 4513 7 6 / RESPONDENT BY : SHRI C.S. ANJARIA, SR.DR 8 ) 7 !, / DATE OF HEARING 12/02/2016 9* 7 !, / DATE OF PRONOUNCEMENT 29/02/2016 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE PRESENT TWO MISCELLANEOUS APPLICATIONS (MA) AR E DIRECTED AT THE INSTANCE OF THE ASSESSEE FOR POINTING OUT APPAR ENT ERROR IN THE ORDER OF MA NOS.68 & 69/RJT/2010 (IN ITA NOS.340 & 341/RJT/20 07) M/S.KISHOR CONSTRUCTION CO., RAJKOT VS. DCIT ASST.YEARS 2001-02 & 2004-05 - 2 - THE TRIBUNAL (ITAT RAJKOT BENCH, RAJKOT) DATED 14/0 4/2011 PASSED FOR ASSESSMENT YEARS (AYS) 2001-02 & 2004-05 IN ITA NOS .340 & 341/RJT/2007. 2. WITH THE ASSISTANCE OF THE LD.REPRESENTIVES OF T HE PARTIES, WE HAVE PERUSED THE MISCELLANEOUS APPLICATIONS. THE TRIBUN AL (ITAT RAJKOT BENCH), WHILE CONSIDERING THE ISSUE OF ESTIMATION O F PROFIT IN BOTH THESE YEARS HAS RECORDED THE FOLLOWING FINDING:- 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE NET PROFIT RATE ADOPTED BY THE LD.CIT(A) AT 3.5% FOR THE ASSESSMENT YEAR 2001-02 WAS APPROVED BY THE TRIBUNAL WHEREAS FOR THE ASSESS MENT YEAR 2004-05 THE TRIBUNAL FINDING MERIT THE CONTENTIONS OF THE ASSESSEE HAS ACCEPTED THE NET PROFIT AT 4.15% AS DISCLOSED B Y THE ASSESSEE. THE FACTS REMAINS THAT THE BOOKS F ACCOUNTS MAINTAI NED BY THE ASSESSEE SUFFERED TOO MANY DEFECTS AS NOTED BY THE AUTHORITIES BELOW AND THEREFORE HAVING RECOURSE TO PROVISIONS O F SECTION 145(3) THE BOOKS OF ACCOUNT WERE REJECTED AND ESTIM ATION OF INCOME WAS RESORTED TO. PROVISIONS OF SECTION 44AD PROVIDES FOR ESTIMATION ON PRESUMPTIVE BASIS. SUB SECTION (2) O F SECTION 44AD READS AS FOLLOWS: (2) ANY DEDUCTION ALLOWABLE UNDER THE PROVISION S OF SECTIONS 30 TO 38 SHALL, FOR THE PURPOSES OF SUB-SE CTION (1), BE DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALL OWED. PROVIDED THAT WHERE THE ELIGIBLE ASSESSEE IS A FIRM , THE SALARY AND INTEREST PAID TO ITS PARTNERS SHALL BE D EDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION (1) SUBJ ECT TO MA NOS.68 & 69/RJT/2010 (IN ITA NOS.340 & 341/RJT/20 07) M/S.KISHOR CONSTRUCTION CO., RAJKOT VS. DCIT ASST.YEARS 2001-02 & 2004-05 - 3 - THE CONDITIONS AND LIMITS SPECIFIED IN CLAUSE (B) O F SECTION 40. THE PROVISO TO SUB SECTION (2) IS CRYSTAL CLEAR THA T ONLY SALARY AND INTEREST CAN BE ALLOWED FROM THE INCOME SO ESTIMATE D AND IT DOES NOT PROVIDE FOR ALLOWANCE OF ANY REMUNERATION. IN VIEW OF THIS WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) WA S NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW REMUNER ATION TO PARTNERS FROM THE NET PROFIT ESTIMATED. WE SET ASIDE HIS DI RECTIONS. 2.1. THE LD.COUNSEL FOR THE ASSESSEE, WHILE TAKING US THROUGH THE FINDING OF THE TRIBUNAL, HAS SUBMITTED THAT THE PROVISO APP ENDED TO SUB-SECTION (2) OF SECTION 44AD OF THE IT ACT, 1961 CONTEMPLATE S THAT, IN CASE OF A FIRM, IF PROFIT IS DETERMINED ON ESTIMATE BASIS U/S .44AD OF THE ACT, THEN ALSO THE SALARY AND INTEREST PAID TO ITS PARTNERS S HALL BE DEDUCTED FROM THE INCOME COMPUTED UNDER SUB-SECTION(1), IF CONDITION S SPECIFIED IN CLAUSE(B) OF SECTION 40 OF THE ACT ARE FULFILLED. HE FURTHER CONTENDED THAT THE OBSERVATION OF THE TRIBUNAL IN CONCLUDING LINES OF PARA-5 (CITED SUPRA) ARE CONTRARY TO THE MECHANISM AVAILABLE IN THE PROV ISO APPENDED TO SUB- SECTION(2) OF SECTION 44AD OF THE ACT. THE DIRECTI ONS OF THE TRIBUNAL FOR NOT ALLOWING SALARY PAID TO THE PARTNERS ARE NOT IN CONSONANCE WITH SITUATION CONTEMPLATED IN THE PROVISO. 2.2. ON THE OTHER HAND, THE LD.DR CONTENDED THAT TH E AO HAS ADOPTED THE NET PROFIT (NP) RATE AT 8%. THIS NET PROFIT H AS BEEN REDUCED BY THE LD.CIT(A) AT 3.5% IN AY 2001-02 AND 6% IN AY 2004-0 5. THE TRIBUNAL WHILE CONSIDERING THE PROFIT RATE REQUIRED TO BE AP PLIED FOR THE PURPOSE OF MA NOS.68 & 69/RJT/2010 (IN ITA NOS.340 & 341/RJT/20 07) M/S.KISHOR CONSTRUCTION CO., RAJKOT VS. DCIT ASST.YEARS 2001-02 & 2004-05 - 4 - ULTIMATE DETERMINATION OF THE INCOME OF THE ASSESSE E EXCLUDED THE REMUNERATION PAYABLE TO THE PARTNERS, MEANING THERE BY THE ADDITION OF REMUNERATION WOULD ENHANCE THE ULTIMATE PROFIT RATI O AND, THEREFORE THIS AMOUNT WAS EMBEDDED IN THE ULTIMATE TOTAL INCOME ON WHICH TAXES ARE TO BE PAID BY THE ASSESSEE. 3. DURING THE COURSE OF HEARING, THE LD.COUNSEL FO R THE ASSESSEE DID NOT PRESS MA FILED IN AY 2004-05. THEREFORE, MA NO.6 9/RJT/2010 IS REJECTED. 4. AS FAR AS MA NO.68/RJT/2010 FOR AY 2001-02 IS CO NCERNED, THE POWER OF RECTIFICATION U/S.254(2) OF THE IT ACT, 19 61 CAN BE EXERCISED ONLY WHEN THE MISTAKE WHICH IS SOUGHT TO BE RECTIFI ED IS AN OBVIOUS AND PATENT MISTAKE WHICH IS APPARENT FROM THE RECORD A ND NOT A MISTAKE WHICH REQUIRES TO BE ESTABLISHED BY ARGUMENTS AND L ONG DRAWN PROCESS OF REASONING ON THE POINTS ON WHICH THERE MAY CONCEIVA BLY TWO OPINIONS. THE ULTIMATE ISSUE BEFORE THE TRIBUNAL IN THE CROSS -APPEALS WAS DETERMINATION OF THREE TAXABLE INCOME OF THE ASSESS EE BY ADOPTING A NP RATIO ON ESTIMATE BASIS. THE AO HAS ADOPTED THE RA TE AT 8%, THE CIT(A) REDUCED TO 3.5%, THE TRIBUNAL HAS TO ADOPT A RATE E ITHER OF TWO OR IN BETWEEN SOMEWHERE. VISUALIZING THESE FACTS, THE TR IBUNAL HAS UPHELD THE RATE ADOPTED BY THE LD.CIT(A), BUT FURTHER DISALLOW ED REMUNERATION MA NOS.68 & 69/RJT/2010 (IN ITA NOS.340 & 341/RJT/20 07) M/S.KISHOR CONSTRUCTION CO., RAJKOT VS. DCIT ASST.YEARS 2001-02 & 2004-05 - 5 - PAYABLE TO THE PARTNERS AFTER DETERMINATION OF NP, MEANING THEREBY THE PROFIT RATE WOULD BE INCREASE TO SOME EXTENT BECAUS E ULTIMATE TAXABLE INCOME WOULD INCREASE IN COMPARISON TO THE INCOME R ESULTED AFTER GIVING EFFECT TO THE ORDER OF THE LD.CIT(A). THE ASSESS EE IS READING THE ORDER OF THE TRIBUNAL IN A HALF WAY AND TRYING TO PAINT IT W ITH A PATENT ERROR. IF THE COMPLETE ORDER IS BEING READ, THEN NO PATENT ERROR WOULD BE DISCERNABLE. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THESE MAS FILED BY THE ASSESSEE AND, THEREFORE THE SAME ARE R EJECTED. 5. IN THE RESULT, BOTH THE MAS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29 TH FEBRUARY, 2016 AT AHMEDABAD. SD/- SD/- ( )* +) ( ) , ( ' ( ( MANISH BORAD ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD ; DATED 29/ 02 /2016 ..), .')../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. 13 / THE APPLICANT 2. 4513 / THE RESPONDENT. 3. ! 8 =! / CONCERNED CIT 4. 8 =! ( ) / THE CIT(A)-III, RAJKOT 5. ?@A 4'!') , , /DR,ITAT, RAJKOT 6. AL M / GUARD FILE. / BY ORDER, 5?! 4'! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) & ' , / ITAT, RAJKOT