ACIT, v. Ashish Trading Co.,

ITA 1210/PUN/2008 | misc
Pronouncement Date: 20-08-2010 | Result: Dismissed

Appeal Details

RSA Number 121024514 RSA 2008
Bench Pune
Appeal Number ITA 1210/PUN/2008
Duration Of Justice 1 year(s) 11 month(s) 8 day(s)
Appellant ACIT,
Respondent Ashish Trading Co.,
Appeal Type Income Tax Appeal
Pronouncement Date 20-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 20-08-2010
Assessment Year misc
Appeal Filed On 11-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 1210/PN/2008 (ASSTT. YEAR : 2005-06) ASSTT. COMMISSIONER OF INCOME-TAX SATARA CIRCLE SATARA .. APPELLANT V. AASHISH TRADING CO. PLOT NO.6 MARKET YARD SATARA PAN : NOT AVAILABLE . RESPONDENT APPELLANT BY : SHRI ABHAY DAMLEL RESPONDENT BY : SHRI. VIPIN GUJARATHI ORDER PER D. KARUNAKARA RAO AM THIS IS THE APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF CIT(A)- II PUNE DATED 27.5.2008.2008 FOR THE A.Y. 2005-0 6. FOLLOWING GROUNDS WERE RAISED BY THE REVENUE : 1. THE ORDER OF THE LEARNED CIT (A) IS CONTRARY T O LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (A) GROSSLY ERRED IN DELETING THE D ISALLOWANCE OF RS.4 65 546/- MADE IN THE ASSESSMENT FROM OUT OF TH E ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PAYMENT OF SALARY TO PAR TNERS INSTEAD OF CONFIRMING THE SAID DISALLOWANCE. 3. THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE T HAT THE ASSESSING OFFICER HAD RIGHTLY COMPUTED THE BOOK PROFIT WITHIN THE MEANING OF SECTION 40 (B) AFTER EXCLUDING THE INTEREST RECEIPT S OF RS. 19 04 116/- FROM SUCH COMPUTATION BY TREATING THE SAID RECEIPTS AS INCOME FROM OTHER SOURCES. 4. THE LEARNED CIT(A) GROSSLY ERRED IN HOLDING THAT T HE INTEREST RECEIPTS OF RS. 19 04 116/- WAS IN THE NATURE OF BUSINESS IN COME MERELY ON THE GROUNDS THAT THE ASSESSEE HAD EARNED THE IMPUGNED I NTEREST OUT OF THE ADVANCES GIVEN THROUGHOUT THE YEAR WHICH WERE BEING RECEIVED BACK FOR THE BUSINESS OF THE FIRM. IT OUGHT TO HAV E BEEN APPRECIATED BY THE LEARNED CIT(A) THAT THE CORRECT CRITERION AP PLICABLE WAS WHETHER THE ASSESSEE HAD MADE / GIVEN THE ADVANCE I N CONNECTION WITH ITS OWN BUSINESS; AND IN THE ASSESSEES CASE IT WAS NOT SO. 5. THE LEARNED CIT (A) GROSSLY ERRED IN FAILING TO APP RECIATE THAT THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF SALARY TO THE PARTNERS WAS EXCESSIVE AND UNJUSTIFIED IN AS MUCH AS THE LADY PA RTNERS HAD NOT RENDERED ANY SERVICE. 6. THE LEARNED CIT (A) FURTHER FAILED TO APPRECIATE TH AT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS IN ANY CASE JUSTI FIED SINCE THE BOOK PROFIT AFTER EXCLUDING THE IMPUGNED INTEREST RECEIP TS WORKED OUT TO A LOSS AND IN THE CIRCUMSTANCES SECTION 40 (B)(V)( II) WAS PATENTLY APPLICABLE. ITA NO 1210/PN/2008 AASHISH TRADING CO.. A.Y.2005-06 PAGE OF 4 2 7. THE LEARNED CIT (A)-II PUNE ERRED IN DELETING THE ADDITION OF RS.2 11 473/- ON ACCOUNT OF INTEREST NOT CHARGED FR OM A PERSON COVERED U/S 40 A(2)(B) WITHOUT APPRECIATING THAT TH E ASSESSEE HAD PAID INTEREST AMOUNTING TO RS.11 39 456/- TO OTHER RELATED PERSONS U/S 40 A(2)(B) FROM WHOM FUNDS HAD BEEN BORROWED. THER EFORE THE ADDITION COULD NOT MERELY BE TREATED AS BEING IN TH E NATURE OF A NOTIONAL ADDITION SINCE THE SAME AMOUNTED TO DIVER SION OF INTEREST BEARING FUNDS FOR ADVANCING INTEREST-FREE LOANS AN D HENCE WAS LIABLE FOR PROPORTIONATE DISALLOWANCE. 8. WITHOUT PREJUDICE TO THE ABOVE THE CIT (APPEALS) O UGHT TO HAVE GIVEN DIRECTION REGARDING THE INADMISSIBILITY OF INTEREST OF RS. 1 14 829/- PAID / PAYABLE TO THE VERY SAME PERSON. 9. FOR THESE AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF HEARING THE ORDER OF THE LEARNED CIT (A) MAY BE V ACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS ENGAGED IN THE WHOLE-SALE AND RETAIL BUSINESS OF COCONUT ATTA AND KIRANA (GROCERY) GOODS. ASSESSEE FILED THE RETURN OF INCOME ON 31-10-2005 DECLARING TOTAL INCOME OF RS.6 44 00/- THE SAID RETURN WAS PROCESSED U/S. 14 3(1) OF THE I.T. ACT 1961 ON 9- 1-2006. THE CASE WAS SELECTED FOR SCRUTINY AND A N OTICE U/S. 143(2) OF THE ACT WAS SERVED UPON THE ASSESSEE. THE A.O FINALLY DETERMIN ED THE ASSESSED TOTAL INCOME U/S. 143(3) AT RS.18 60 963/- MAKING AN ADDITION OF RS.12 16 963/-. AGGRIEVED BY THE ABOVE ADDITION THE ASSESSEE IS IN APPEAL BEFOR E US. 3. THE ASSESSEE HAS RAISED 10 GROUNDS IN THIS APPEA L BUT ESSENTIALLY THE ISSUES ARE ONLY THREE IN NUMBERS. THE FIRST ISSUE RELATE TO INCLUDABILITY OF ANOTHER INCOME FOR THE PURPOSE OF DETERMINING THE EXTENT OF SALARI ES/REMUNERATION PAYABLE TO THE PARTNERS OF THE FIRM U/S 40B OF THE ACT. THIS ISSU E HAS BEEN ARGUED BY THE COUNSEL RELYING ON THE ORDER OF THE ITAT JAIPUR BENCH IN THE CASE OF S.P. EQUIPMENT AND SERVICES 128 TTJ 68 AND ALLEN CARRIER INSTITUTE 37 DTR (JP) WHERE ONE OF THE MEMBERS OF THIS BENCH IS PARTY TO THE ORDER. THE H ELD PORTION IN THE CASE OF ALLEN CARRIER INSTITUTION ITA NO.414/JP/2009 A.Y. 2005- 06 CITED AS 37 DTR (JP) READS AS UNDER : NET PROFIT SHOWN BY A FIRM IN ITS P & L A/C IS NO T TO BE CLASSIFIED INTO DIFFERENT HEADS OF INCOME UNDER S. 14 FOR THE PURPO SE OF S. 40(B) AND THEREFORE INTEREST INCOME IS NOT TO BE EXCLUDED FR OM THE NET PROFIT DECLARED BY THE ASSESSEE FOR COMPUTING BOOK PROFIT FOR THE P URPOSE OF DETERMINING THE ALLOWABLE DEDUCTION OF REMUNERATION PAYABLE TO THE PARTNERS UNDER SECTION 40(B) OF THE ACT. FOR THE PURPOSE OF COMPUTING DED UCTION UNDER S. 40(B) INTEREST ON BANK FDRS IS NOT TO BE EXCLUDED FROM NE T PROFIT. CONSIDERING THE ABOVE FINDING OF THE JAIPUR BENCH O F THE TRIBUNAL WE TREAT THIS ISSUE AS COVERED ONE AND IN FAVOUR OF THE ASSESSEE. ACCO RDINGLY ISSUE NO. 1 IS COVERED AND GROUNDS NO. 1 TO 6 OF THE REVENUE ARE DISMISSED . ITA NO 1210/PN/2008 AASHISH TRADING CO.. A.Y.2005-06 PAGE OF 4 3 4. ISSUE NO. 2 RELATES TO INVOKING OF THE PROVISION S OF SECTION 40 A(2)(B) IN RESPECT OF THE TRADING TRANSACTIONS AND DEBIT BALAN CES THEREOF CONNECTING TO THE SALES MADE BY THE ASSESSEE TO HUSBAND OF ONE OF THE PARTNERS OF THE ASSESSEE. CONSIDERING THAT IT IS THE CASE OF NOTIONAL PAYMEN T CIT(A) GRANTED RELIEF TO THE ASSESSEE. WE FIND NO REASON TO INTERFERE WITH TH E SAME AS THE REVENUE HAS FAILED TO MAKE OUT A CASE THAT IT FALLS IN THE MISCHIEF OF PROVISION OF SECTION 40 A(2)(B) OF THE ACT. IT IS AN ADMITTED POSITION THAT THESE ARE DEEMED PROVISIONS AND THERE IS A NEED FOR INTERPRETATION OF THE SAME STRICTLY. ACCO RDINGLY GROUND NO 7 IS DISMISSED . 5. GROUND NO. 8 RELATES TO THE THIRD ISSUE I.E. INA DMISSIBILITY OF INTEREST PAYMENTS OF RS. 1 14 829/-. AS PER THE COUNSEL THIS AMOUNT WAS PAID TO SHIRISHKUMAR R. SHAH IN THE CAPACITY OF THE KARTA OF THE H.U.F. A.O. HAS MISTAKENLY LINKED THIS TRANSACTION WITH THAT OF THE DEBIT BALANCES WHICH A RE PAYABLE TO SHIRISHKUMAR R. SHAH IN INDIVIDUAL CAPACITY. LD COUNSEL DEMONSTRATED THE EXISTENCE OF TWO SEPARATE ACCOUNTS ONE IN THE HANDS OF THE INDIVI DUAL THE SECOND ONE IN THE HANDS OF THE H.U.F. STATUS. WE HAVE PERUSED THE SEPARA TE ACCOUNTS PLACED AT PAGE 44 OF THE PAPER BOOK (SHIRISHKUMAR R. SHAH INDIVIDUAL) AND SHIRISHKUMAR R. SHAH HUF AT PAGE 18 OF THE PAPER BOOK AND FOUND THE CLAIM OF THE ASSESSEE IS ALLOWABLE. CONSIDERING THE EXISTENCE OF SEPARATE A CCOUNT AND SEPARATE PERSONS WE ARE OF THE OPINION THAT THE ACCOUNTS SHOULD BE SEPA RATELY UNDERSTOOD AND TO THAT EXTENT THE AO HAVE MIXED UP THE TRANSACTIONS AND W RONGLY INVOKED THE PROVISIONS OF SECTION 40 A(2)(B) OF THE ACT. IN OUR OPINION THE IMPUNTED PAYMENT MADE BY THE ASSESSEE SHOULD BE TREATED SEPARATELY AND ACCORDING LY THE ASSESSEE IS ENTITLED TO MAKE THE CLAIM OF DEDUCTION IN THE P AND L ACCOUNT. THEREFORE THE DISALLOWANCE IS UNCALLED FOR. ACCORDINGLY THE ISSUE NO. 3 RAISED VIDE GROUND NO. 8 IS DISMISSED . 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 20TH AUGUST 2010 SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (D. KARUNAKARA RAO ) ACCOUNTANT MEMBER PUNE DATED THE 20TH AUGUST 2010 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT ITA NO 1210/PN/2008 AASHISH TRADING CO.. A.Y.2005-06 PAGE OF 4 4 3. THE CIT -III PUNE 4. THE CIT(A)-II PUNE 4. THE D.R. A BENCH PUNE 5. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE