The ACIT, 2(1), Bhopal v. M/s Kale Khan Mohd Hanif, Bhopal

ITA 76/IND/2013 | 2004-2005
Pronouncement Date: 02-07-2013 | Result: Dismissed

Appeal Details

RSA Number 7622714 RSA 2013
Assessee PAN ADFKH1421A
Bench Indore
Appeal Number ITA 76/IND/2013
Duration Of Justice 5 month(s)
Appellant The ACIT, 2(1), Bhopal
Respondent M/s Kale Khan Mohd Hanif, Bhopal
Appeal Type Income Tax Appeal
Pronouncement Date 02-07-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 02-07-2013
Assessment Year 2004-2005
Appeal Filed On 01-02-2013
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NOS. 75 & 76/IND/2013 A.YS. 2003-04 & 2004-05 ACIT 2(1) BHOPAL :: APPELLANT VS M/S KALE KHAN MOHD. HANIF BHOPAL PAN AADFKH 1421A :: RESPONDENT CO NOS.44 & 45/IND/2013 ARISING OUT OF ITA NOS. 75 & 76/IND/2013 M/S KALE KHAN MOHD. HANIF BHOPAL :: OBJECTOR VS ACIT 2(1) BHOPAL :: RESPONDENT 2 DEPTT. BY SHRI R.A. VERMA ASSESSEE BY SHRI PRADEEP GUPTA DATE OF HEARING 1.7.2013 DATE OF PRONOUNCEMENT 0 2 .7.2013 O R D E R PER SHRI R.C. SHARMA AM THESE ARE THE APPEALS FILED BY THE REVENUE AND CROS S OBJECTIONS BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 21.11.2012 FOR THE A.YS. 2003-04 TO 2004-05. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF BIDIES. THE ASSESSEE FURNISHED RET URN OF INCOME FOR A.Y. 2003-04 DECLARING TOTAL INCOME A T RS. 74 99 560/-AND FOR THE A.Y. 2004-05 DECLARING TOTAL INCOME OF RS. 57 31 290/-. THE ORIGINAL ASSESSMENTS U/S 143(3) WERE COMPLETED FOR A.Y. 2003-04 ON 23.2.2006 DETERMINING TOTAL INCOME OF RS. 77 01 320/- AND FO R THE 3 A.Y. 2004-05 ON 26.12.2006 DETERMINING TOTAL INCOME AT RS. 58 51 290/-. SUBSEQUENTLY BOTH ASSESSMENTS WERE REOPENED U/S 147 BY ISSUING NOTICES U/S 148 FOR A.Y . 2003-04 ON 30.3.2010 AND FOR A.Y. 2004-05 ON 30.3.2011. 3. IN THE A.Y. 2003-04 THE AO DISALLOWED REMUNERATION OF RS. 50 87 207/- PAID TO PARTNERS. THE AO NOTICED THAT THE ASSESSEE IS A PARTNERSHIP FIRM. IN THIS FIRM MOHD. SHIRAJ (MINOR) WAS ADMITTED TO THE BENEFITS OF PARTNERSHIP BY THE PARTNERSHIP DEED DAT ED 16.10.2001. HOWEVER DURING THE PREVIOUS YEAR REL EVANT TO A.Y. 2003-04 MOHD. SHIRAJ BECOMES MAJOR ON 21.11.2002. ON ATTAINING MAJORITY HE HAD EITHER TO ACCEPT OR REJECT THE CONTRACT OF PARTNERSHIP AND IN BOTH THE CASES THE REVISED PARTNERSHIP DEEP CONTAINING T HE SIGNATURES OF MOHD. SHIRAJ WAS NECESSARY WHICH SHOU LD HAVE BEEN FILED WITH THE RETURN OF INCOME. THE AO H AS 4 REFERRED TO THE PROVISIONS OF SECTION 184(4) WHICH STATES THAT (4) WHERE ANY SUCH CHANGE HAD TAKEN PLACE IN THE PREVIOUS YEAR THE FIRM SHALL FURNISH A CERTIFIED COPY OF THE REVISED INSTRUMENT OF PARTNERSHIP ALONGWITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO SUCH PREVIOUS YEAR AND ALL THE PROVISI ONS OF THIS SECTION SHALL APPLY ACCORDINGLY. THE AO OBSERVED THAT SINCE THE ASSESSEE HAS NOT FURNISHED REVISED PARTNERSHIP DEED ALONGWITH THE RE TURN OF INCOME FOR A.Y. 2003-04 THE ASSESSEE FIRM HAD TO BE TREATED AS AOP BY OPERATION OF SECTION 185 OF THE I T ACT AND NO DEDUCTION BY WAY OF REMUNERATION PAID TO ANY PARTNER OF SUCH FIRM WAS ALLOWABLE. ACCORDINGLY TH E AO DISALLOWED REMUNERATIONS PAID TO THE PARTNERS AMOUNTING TO RS. 50 87 207/- IN A.Y. 2003-04 AND RS . 39 08 357/- IN A.Y. 2004-05. 5 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) DELETED THE ADDITION AFTER HAV ING THE FOLLOWING OBSERVATIONS :- 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS OF THE CASE. IT IS A WELL SETTLED LAW THAT WHERE A MINOR ADMITTED TO THE BENEFITS OF A PARTNERSHIP ATTAINS MAJORITY AND ELEC TS TO BE A PARTNER OF THE FIRM THERE IS NO CHANGE IN THE CONSTITUTION OF THE FIRM BUT THERE IS CHANGE IN THE SHARES OF THE PARTNERS. IN CASE THE ORIGINAL INSTRUMENT OF PARTNERSHIP EVIDENCED THIS CHANGE I.E . PROVIDES FOR SHARING OF PROFITS AS WELL AS LOSS AFT ER ATTAINING OF HIS MAJORITY THERE IS NO REQUIREMENT O F ENTERING INTO A REVISED INSTRUMENT OF PARTNERSHIP A ND THE FIRM IS ENTITLED TO CONTINUATION OF REGISTRATIO N. IN THE INSTANT CASE THE INSTRUMENT OF PARTNERSHIP PROVIDED BOTH FOR THE SHARE IN THE PROFITS AS WELL AS IN LOSSES INCURRED BY THE FIRM ON ATTAINMENT OF 6 MAJORITY OF THE ERSTWHILE MINOR PARTNER. THEREFORE THERE WAS NO CHANGE IN THE CONSTITUTION OF THE FIRM AND THUS THE FIRM WAS ENTITLED TO CONTINUANCE OF REGISTRATION. IT WOULD BE RELEVANT TO REPRODUCE RELEVANT CLAUSE 10(A) AND 10(B) OF THE PARTNERSHIP DEED EXECUTED ON 16.10.2001 AS UNDER :- 10(A) THAT THE SHARES OF THE ADULT PARTNERS AND THE SAID SHRI MOHD. SHEERAZ WHILE HE IS A MINOR IN THE ANNUAL NET PROFITS OF THIS FIRM SHALL BE AS FOLLOWS : S.NO. NAME OF THE PARTNERS SHARE IN PROFITS SHARE IN LOSSES 1 SHRI MOHD. AZIA 9.67% 9.67% 2 SHRI MOHD. IDRIS 9.665% 9.665% 3 SHRI MOHD. IKRAM 9.665% 9.665% 4 SHRI MOHD. SABIR 7% 7% 5 SHRI MOHD. WASEEM 9.665% 9.665% 6 SHRI MOHD. ANIS 7% 7% 7 SHRI MOHD. MATIN 9.665% 9.665% 8 SHRI MOHD. AFAQ 15 335% 15 335% 7 9 SHRI MOHD. AYAD 7% 7% 10 MINOR SHRI MOHD. SHEERAZ 15 335% NIL TOTAL 100% 100% 10(B) THAT ON ATTAINMENT OF MAJORITY BY SHRI MOHD. SHEERAZ AND HE BECOMING A FULL FLEDGED PARTNER OF THIS FIRM THE SHARES OF THE PARTNERS AND THE SAID SHR8 MOHD. SHEERAZ IN THE ANNUAL PROFITS AND LOSSES OF THIS FIRM SHALL GET VARIED AND SHALL BE IN SUCH PROPORTION AS MENTIONED IN COL.3 OF FOREGOING CLAUSE NO. 10A AGAINST THEIR RESPECTIVE NAMES. FROM THE ABOVE CLAUSE 10(B) IT IS EVIDENTLY CLEAR T HAT SHARE OF THE PARTNERS IN THE PROFITS AS WELL AS LOS SES OF THE FIRM ON ATTAINMENT OF MAJORITY BY MOHD. SHEERAZ AND BECOMING A FULLFLEDGED PARTNER OF THE FIRM WAS DULY PROVIDED IN THE PARTNERSHIP DEED. THEREFORE ON ATTAINMENT OF MAJORITY OF MOHD. SHEERAZ THERE WAS NO REQUIREMENT OF EXECUTING A 8 FRESH PARTNERSHIP DEED CONTAINING SIGNATURE OF MOHD . SHEERAZ. SINCE THERE WAS NO VIOLATION OF PROVISION S OF SECTION 184(4) AS THERE WAS NO REQUIREMENT OF FURNISHING A REVISED PARTNERSHIP DEED OF THE FIRM ALONGWITH THE RETURN OF INCOME THE APPELLANT FIRM WAS ENTITLED FOR DEDUCTION OF REMUNERATIONS PAID TO THE PARTNERS IN ACCORDANCE WITH THE PARTNERSHIP DEE D AND SECTION 40(B) OF THE IT ACT. IT MAY BE RELEVAN T TO REFER SOME OF THE DECISIONS ON THIS ISSUE :- (I) IN THE CASE OF VAISH PHARMACY VS. CIT (1982) 138 ITR 624 IT WAS HELD AS UNDER :- WHERE A MINOR ADMITTED TO THE BENEFITS OF PARTNERSHIP OF A FIRM ATTAINS MAJORITY AND ELECTS TO BECOME A PARTNER AND THE ORIGINAL INSTRUMENT OF PARTNERSHIP ENVISAGES THE REDISTRIBUTION OF SHARES IN LOSSES WHEN THE MINOR ATTAINS MAJORITY THERE CAN BE NO CHANGE IN THE CONSTITUTION OF THE FIRM 9 WITHIN THE MEANING OF S. 184(2) AND (7) AND THE FIRM WILL BE ENTITLED TO THE CONTINUANCE OF REGISTRATION. BADRI NARAIN KASHI PRASAD VS. A DDL CIT (1978) 115 ITR 858 (ALL) FOLLOWED (II) SIMILARLY IN THE CASE OF BASANT BEHARI GOPAL BEHARI VS. CIT (1984) 145 ITR 96 (ALL) THE HONBLE ALLAHABAD HIGH COURT OBSERVED AS UNDER :- IT AFTER ATTAINING MAJORITY THE ERSTWHILE MINOR PARTNER DOES NOT REPUDIATE THE PARTNERSHIP AND THE INSTRUMENT OF PARTNERSHIP PROVIDES BOTH FOR HIS SHARE IN THE PROFITS AS WELL AS IN THE LOSS INCURRED BY THE FIRM THEREAFTER THERE IS NO CHANGE IN THE CONSTITUTION OF THE FIRM WHEN THE MINOR PARTNER ATTAINS MAJORITY AND THE FIRM WILL BE ENTITLED TO CONTINUANCE OF REGISTRATION. 10 (III) THE HONBLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF GANESH RICE MILLS VS. CIT M.P. (1981) 132 ITR 257 (MP) HAD ALSO EXPRESSED THE SAME OPINION OBSERVING AS UNDER :- SECTION 2(23) OF THE IT ACT 1961 DEFINES PARTNER AS INCLUDING A MINOR ADMITTED TO THE BENEFITS OF A PARTNERSHIP. IN VIEW OF THIS SPECIAL DEFINITION IT CANNOT BE SAID THAT WHEN A MINOR ADMITTED TO THE BENEFITS OF A PARTNERSHIP ATTAINS MAJORITY AND BECOMES A PARTNER IN THE REAL SENSE THAT IS ANY CHANGE IN THE IDENTITY OF THE PARTNERS. IF THE INSTRUMENT OF PARTNERSHIP IS COMPREHENSIVE AND ON A FAIR READING PROVIDES THE MANNER IN WHICH THE LOSSES WOULD BE SHARED ON THE MINOR ATTAINING MAJORITY IT CANNOT 11 ALSO BE SAID THAT THERE IS A CHANGE IN THE SHARE OF THE PARTNERS AS EVIDENCED BY THE INSTRUMENT OF PARTNERSHIP. THERE IS THUS NO CHANGE IN THE CONSTITUTION OF THE FIRM WITHIN THE MEANING OF S. 187(2) ON A MINOR PARTNER ATTAINING MAJORITY IN SUCH A CASE. IN VIEW OF THE ABOVE THE DISALLOWANCE OF REMUNERATIONS PAID TO PARTNERS OF RS. 50 87 207/- IN A.Y. 2003-04 AND RS. 39M98M357/- IN A.Y. 2004-05 MADE BY THE AO ARE DELETED. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT AS PER CLAUSE (10B) OF PARTN ERSHIP DEED DATED 16.10.2000 CLEARLY PROVIDED FOR SHARE OF PARTNERS IN THE PROFIT AS WELL AS LOSS OF THE FIRM ON ATTAINMENT OF MAJORITY BY MOHD. SHIRAZ AND BECOMING A FULL-FLEDGED PARTNER BY DULY PROVIDING IN THE PARTN ERSHIP 12 DEED. THUS AFTER ATTAINING THE MAJORITY BY MOHD. S HIRAZ THERE WAS NO REQUIREMENT OF EXECUTING A FRESH PARTNERSHIP CONTAINING SIGNATURES OF MOHD. SHIRAZ. THUS THERE WAS NO VIOLATION OF PROVISIONS OF SECTION 184 (4) OF THE ACT. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE REMUNERATION PA ID TO THE PARTNER WHICH WAS MADE BY THE AO TREATING THE F IRM AS AOP. DETAILED FINDINGS RECORDED BY THE CIT(A) AT PARA 5.4 ARE AS PER MATERIAL ON RECORD AND WHICH HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT BY BRINGING ANY POSI TIVE EVIDENCE ON RECORD. ACCORDINGLY NO INTERFERENCE I S REQUIRED IN THE ORDER OF THE CIT(A) IN ALLOWING CL AIM OF REMUNERATION PAID TO THE PARTNERS AMOUNTING TO RS.50 87 207/- FOR THE A.Y. 2003-04 AND RS. 3 90 83 5/- IN THE A.Y. 2004-05. 6. IN THE A.Y. 2003-04 ADDITION OF RS. 21 04 702/- ON ACCOUNT OF CREDIT ENTRIES OF RS. 7 21 272/- WAS MADE AND RS.13 83 430/- REPRESENTING GOLD ORNAMENTS 13 ACCOUNT AND DECLARED INCOME ACCOUNT UNDER VDIS INCLUDED WHICH WERE SHOWN BY THE ASSESSEE IN THE LI ST OF SUNDRY CREDITORS. THE AO NOTICED THAT IN THE SCHED ULE OF SUNDRY CREDITORS THERE WERE TWO ITEMS I.E. GOLD ORNAMENT ACCOUNTS OF RS.7 21 272/- AND DECLARED INCOME UNDER VDIS OF RS. 13 83 430/-. THE AO DISALLOWED BOTH THESE ITEMS OBSERVING THAT B. ON PERUSAL OF RECORDS IT IS SEEN THAT THE ASSESSEE FIRM HAD DISCLOSED GOLD JEWELLERY AMOUNTING TO RS.13 83 430/- UNDER VDIS DURING A.Y. 1997-98. SINCE THERE IS NO RELEVANCE OF PASSI NG ENTRIES PERTAINING TO F.Y. 1997-98 IN THE YEAR UND ER CONSIDERATION THIS CLAIM WAS LIABLE TO BE DISALLO WED. FURTHER THE ASSESSEE COULD NOT FULLY EXPLAIN THE CREDIT ENTRIES IN THIS REGARD. 7. BY THE IMPUGNED ORDER CIT(A) DELETED THE ADDITION AFTER HAVING MADE THE FOLLOWING OBSERVATIO NS :- 14 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. IT IS FOUND THAT THE AO HAD NOT PROPERLY APPRECIATED THE FACTS OF THE CA SE WHILE MAKING ADDITION OF RS. 21 04 702/-. ON PERUSA L OF CERTIFICATE OF CIT U/S 68(2) OF THE VDIS 1997 I SSUED ON 28.04.1999 IT IS CLEAR THAT THE APPELLANT HAD DECLARED INCOME OF RS. 13 83 430/- AS INVESTMENT IN GOLD JEWELLERY AND PAID TAX OF RS. 4 84 200/-. THEREAFTER THIS GOLD JEWELLERY WAS SOLD FOR A TOTA L CONSIDERATION OF RS. 21 04 702/- IN TWO LOTS AND TH E SURPLUS EARNED OF RS.7 21 272/- WAS CREDITED TO GO LD ORNAMENTS ACCOUNT. THOUGH THESE TRANSACTIONS SHOULD HAVE BEEN ADJUSTED TO THE ACCOUNTS OF THE PARTNERS AT THE MATERIAL TIME BUT THESE ARE APPEARI NG IN THE LIST OF CREDITORS. BUT THESE ENTRIES HAVE BE EN APPEARING SINCE A.Y. 1998-99. IN VIEW OF THE ABOVE IT IS CLEAR THAT BOTH THE ENTRIES OF CREDIT ARE FROM EXPLAINED SOURCES AND THEREFORE NO ADVERSE VIEW CAN BE TAKEN ON THIS ACCOUNT. HENCE THE ADDITION O N ACCOUNT OF DISCLOSED INCOME OF RS. 13 83 430/- AND GOLD ACCOUNT RS. 7 21 272/- TOTALLING TO RS.21 04 702/- MADE BY THE AO IS DELETED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS FOUND FROM RECORD THAT CERTIFICATE UNDER VDIS 1997 WAS I SSUED BY THE CIT ON 28.4.1999 WHEREIN THE ASSESSEE HAS DECLARED INCOME OF RS. 13 83 430/- AS INVESTMENT IN GOLD JEWELLERY AND PAID TAX OF RS. 4 84 200/-. THEREAFT ER JEWELLERY WAS SOLD FOR RS. 21 04 702/- AND SURPLUS WAS 15 CREDITED TO GOLD ORNAMENTS ACCOUNT. HOWEVER ENTRY WAS PASSED AND SHOWN AS CREDITOR SINCE 1998-99. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS JUST RECT IFIED THE ENTRY. SINCE THE CREDITS WERE FROM EXPLAINED SO URCES THE CIT(A) AFTER RECORDING FINDING AT PARA 6.4 CONC LUDED THAT NO ADDITION WAS JUSTIFIED. DETAILED FINDING R ECORDED BY CIT(A) AT PARA 6.4 HAS NOT BEEN CONTROVERTED. AACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFER E WITH THE ORDER OF THE CIT(A). 9. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 10. IN THE CROSS OBJECTION THE ASSESSEE IS AGGRIE VED FOR CIT(A)S ACTION IN UPHOLDING THE REOPENING OF ASSESSMENT U/S 147 OF THE ACT. HOWEVER DURING THE COURSE OF HEARING THE CROSS OBJECTION WAS NOT PRES SED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE SAME IS THEREFORE DISMISSED IN LIMINE. 16 11. IN THE RESULT BOTH THE APPEALS OF THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 2.7.2013 SD SD (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 02.7.2013 COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR DN/-12