ACIT, v. C & C Associates,

ITA 82/PUN/2009 | 2005-2006
Pronouncement Date: 31-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 8224514 RSA 2009
Assessee PAN AADFC2400M
Bench Pune
Appeal Number ITA 82/PUN/2009
Duration Of Justice 2 year(s) 15 day(s)
Appellant ACIT,
Respondent C & C Associates,
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-01-2011
Assessment Year 2005-2006
Appeal Filed On 16-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 82 PN/09 A.Y : 2005-06 ACIT CIRCLE-9 PUNE .... APPELLANT VS. M/S. C & C ASSOCIATES CTS NO. 4441 AKURDI PUNE-411035 PAN NO. AADFC2400M . RESPONDENT ITA NO. 87/PN/09 A.Y: 2005-06 M/S. C & C ASSOCIATES CTS NO. 4441 KUNDAN TOWERS AKURDI PUNE-411035 PAN NO. AADFC2400M .... APPELLANT VS. ADDL. CIT RANGE-9 PUNE . RESPONDENT ASSESSEE BY : SHRI V.L. JAIN DEPARTMENT BY : SHRI HARESHWAR SHARMA / SHISHIR DHAMYA ORDER PER D. KARUNAKARA RAO AM THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AN D THE REVENUE AGAINST THE ORDER OF CIT(A)-III PUNE IDENTICALLY DAT ED 31-10-2008 FOR THE ASSESSMENT YEAR 2005-06. APPEAL WISE ADJUDICATION IS TAKEN UP IN THE PRECEDING PARAGRAPHS. TA NO. 82 & 87/PN/09 A.Y: 2005-06 PAGE 2 OF 6 ITA NO. 87/PN/2009 (ASSESSEES APPEAL) THE ONLY GROUND RAISED IN THIS APPEAL IS AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN LAW IN CONFIRMING T HE ADDITION OF RS. 10 70 878/- BEING DISALLOWANCE U/S. 40(A)(IA ) AS BUSINESS INCOME NOT DERIVED FROM THE EXECUTION OF A HOUSING PROJECT QUALIFYING U/S. 80IB(10). 2. THE ONLY ISSUE WHICH IS CONTESTED BY THE ASSESS EE BEFORE US RELATES TO CONFIRMING THE ADDITION OF RS. 10 70 878/- WHICH WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT BY THE AO WHEN THE SAID AMOUNT WAS SUBJECT ED TO TDS BY THE ASSESSEE WHICH WAS REMITTED TO THE GOVERNMENT ACCOUNT NOT BEFO RE 31 ST MARCH BUT BEFORE THE DUE DATE OF THE FILING OF THE RETURN OF INCOME. B EFORE US LD COUNSEL STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE MUMBAI HIGH COURT JUDGEMENT IN THE CASE OF M/S GEM PLUS JEWELER I NDIA LTD. REPORTED IN 233 CTR (BOM) 248. RELYING ON THE SAME LD. COUNSEL ARGU ED STATING THAT CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE. FURTHER RELYING TH E DECISION OF THE TRIBUNAL IN THE CASE OF GOLDEN STABLES LIFESTYLE CENTRE PVT. LTD. VIDE ITA NO. 5145/MUM/2009. LD. COUNSEL STATED THAT THE AMENDED PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ARE INAPPLICABLE TO THE EXPEND ITURE WHICH ACCRUED PRIOR TO 10-09-2004 AS THE FINANCE ACT NO. 2 2004 GOT THE P RESIDENTIAL ASCENT AT A LATER DATE. FURTHER HE MENTIONED THAT THE AMENDMENT TO SEC . 40(A)(IA) BY THE FINANCE ACT 2010 WHICH EXTENDS THE TIME LIMIT FOR A LL TDS PAYABLE THROUGHOUT THE YEAR WAS INTRODUCED AS A CURATIVE MEASURE AND THEREFORE WOULD APPLY TO EARLIER YEARS ALSO. RELYING ON THE GEM PLUS JEWELER IN DIA LTD. (SUPRA) LD. COUNSEL ARGUED STATING THAT IN CASE OF ASSESSEE WITH CLAIM OF DEDUCTION 80IB(10) THE DISALLOWANCE INVOKING THE PROVISIONS O F SEC. 40(A)(IA) DOES NOT MAKE ANY DIFFERENCE AS ASSESSED INCOME ENJOYS DEDUCT ION IN ANY CASE. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF T HE REVENUE. WE FIND THERE ARE MERITS IN THE ARGUMENTS OF THE LD COUNSE L. HOWEVER IT IS NOT CLEAR FORM THE FILES THE DATES OF PAYMENTS OF THE DEDUCTED TDS TO THE GOVERNMENT TREASURY. WE ALSO NOTICED THAT THE ASSESSEE ENJOYS ST ATUTORY DEDUCTIONS UNDER CHAPTER VI(A) OF THE ACT. CONSIDERING THE ABOVE ARGUME NTS OF THE ASSESSEES COUNSEL WE ARE OF THE OPINION THAT THE ASSESSEE MU ST SUCCEED. HOWEVER ABSENCE OF DATES OF PAYMENTS AND THE NON PERUSAL OF THE CITED JUDGMENTS HAVE COME ON OUR WAY TO DECIDE. FOR THIS LIMITED PURPOSE WE DIRECT THE AO TO EXAMINE THE APPLICABILITY OF THE SAID DECISIONS TO THE FACTS OF THIS CASE AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. ASSESSEE IS TA NO. 82 & 87/PN/09 A.Y: 2005-06 PAGE 3 OF 6 DIRECTED TO FILE THE DECISIONS RELIED UPON BEFORE THE A.O TO ADVANCE HIS CASE. ACCORDINGLY THE GROUNDS ARE SET ASIDE. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 82/PN/09 (REVENUES APPEAL) THE GROUND RAISED IN THIS APPEAL IS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF SALARY TO PARTNERS WHICH IS DULY PROVIDED IN THE PA RTNERSHIP DEED AND NOT CLAIMED BY THE PARTNERS AS PER MUTUAL AGREE MENT RESULTING INTO THE CLAIM U/S. 80IB(10) ON HIGHER SI DE AND FURTHER DELETING THE RENT OF OFFICE PREMISES WHICH WAS OCCU PIED FOR CONDUCTING BUSINESS ACTIVITIES. 5. AT THE VERY OUTSET LD. DR FOR THE REVENUE STATED T HAT IT IS A CASE WHERE ASSESSEE INFLATED THE PROFITS FROM ELIGIBLE BUSINESS WITHIN THE MEANING OF SEC.80IA OF THE ACT. IN THIS REGARD LD. DR MENTIONED THAT ASSESSEE WAS UNDER THE OBLIGATION TO PAY REMUNERATION TO THE PARTNERS VIDE CLAUSE 9 OF THE PARTNERSHIP DEED DATED 20-06-2002. BUT THE SAME WAS N OT PAID FOR THE REASONS OBVIOUSLY TO INFLATE THE DEDUCTIBLE PROFITS OF THE ASSESSEE. THE EXPLANATION GIVEN BY THE ASSESSEE AS INCORPORATED IN PAGE 6 OF THE ASSE SSMENT ORDER VIDE PARA B.1 AS FOLLOWS:- AS REGARDS YOUR QUERY REGARDING SALARY TO PARTNERS IT IS WAS DECIDED MUTUALLY NOT TO TAKE ANY SALARY BY PARTNERS. SECONDLY THE CONSTRUCTION FIRM NEEDS HARDLY ASSETS AS ALL WORKS CAN BE DONE THROUGH CONTRACTORS AND PAYMENT TO CONTRACT ORS INCLUDE ALL RELATED ITEMS INCLUDING CHARGES FOR MACHINERY ETC. IF ANY REQUIRED TO CARRY OUT THAT WORK. SIMILARLY WE HAD CONSTRUCTED A SITE OFFICE ON THE SITE ITSELF WHERE OUT REQUIRED STAFF & SUPERVISOR WAS A ACCOMMO DATED WITH TELEPHONE HENCE NO RENT IS SEEN FOR OFFICE. WE HEREBY CONFIRM THAT SINCE THIS ENTITY IS TOTALL Y DIFFERENT FROM OTHER ENTITIES NOT A SINGLE RUPEE EXPENDITURE IT IN CURRED ON THE PROJECT IS EXCLUDED AS ALL OTHER ENTITIES ARE WITH DIFFERENT C ONSTITUENTS & THERE IS NO PROPRIETARY CONCERN. 6. IN THIS REGARD LD. DR STATED THAT ASSESSEE HAS NO REASON TO NOT TO PAY THE REMUNERATION TO THE PARTNERS. FURTHER REFERRING TO THE PROVIS IONS OF SUB-SECTION 10 LD. DR ARGUED STATED THAT THE A.O GRATED AMPLE OP PORTUNITY FOR SUBSTANTIATING THE CLAIMS OF THE ASSESSEE. FURTHER RE FERRING CLOSELY TO THE EXPRESSION USED IN SECTION 80IA(10) HE ARGUED STATING THAT THE EXPRESSION THEM USED IN THE SUB-SECTION (10) OF SECTION 80IB COVE RS THE PARTNERS OF THE FIRM. THE OTHER EXPRESSION SUCH AS IS SO---BUSINESS TRANSACTION BETWEEN TA NO. 82 & 87/PN/09 A.Y: 2005-06 PAGE 4 OF 6 THEM INCLUDES THE TRANSACTION OF NOT PAYING REMUNERATION T O THE PARTNERS. FURTHER HE ARGUED THAT THE CORRECT PROFITS SHOULD ONLY BE ALLOWED AS DEDUCTION NOT THE SAID MANAGED PROFITS WITH THE EFFECT OF INFL ATION. 7. ON THE OTHER HAND LD. COUNSEL ARGUED VEHEMENTLY ST ATING THAT SUB- SECTION 10 AND THE LANGUAGE USED IN IT REQUIRES DIFFE RENT UNITS TO BE COVERED BY THIS SUB-SECTION. THE PARTNERS OF THE FIRM ARE OUTSID E THE SCOPE OF SUB-SECTION (10) OF SECTION 80IA OF THE ACT. LD. COUNSEL FURTHER RELIED ON THE DECISIONS OF THE TRIBUNAL OF THE DELHI BENCH REPORTED IN 103 TTJ 578 DE LHI AND 2 ITD (TRIB) 730 (CHENNAI) FOR ADVANCING HIS CASE. FURTHER COMMENTING CRITICALLY ON THE A.OS FINDING THAT THE DECLARATION OF THE PROFITS AT THE RATE OF 27% IN THIS LINE OF BUSINESS IS ON HIGHER SIDE THE COUNSEL MENTIONED IT IS NO BASIS FOR INVOKING THE PROVISIONS OF SECTION 80IA(10) OF THE ACT. FURTHER REF ERRING TO THE PARTNERSHIP DEED LD. COUNSEL ARGUED THAT WITHOUT PREJUDICE ONLY FOUR ARE THE ACTIVE PARTNERS WHO ARE ENTITLED FOR REMUNERATION AND THE OTHER O NE BEING THE SLEEPING PARTNER THE DISALLOWANCE MUST BE ACCORDINGLY RECOMPU TED. 8. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE OF REMU NERATION VIS--VIS THE INFLATION OF PROFITS AND PERUSED THE LEGAL PROVISIONS AND OTHER RELEVANT INFORMATION NECESSARY FOR DECIDING THE ISSUE. THE SUB- SECTION 10 READS AS UNDER:- 10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR ANY OTHER REASON THE COURSE OF BUSI NESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BE TWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PRO FITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINES S THE ASSESSING OFFICER SHALL IN COMPUTING THE PROFITS A ND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDU CTION UNDER THIS SECTION TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. 9. SIMILARLY CLAUSE 9 OF THE PARTNERSHIP DEED READS AS UNDER:- 9. SALARY: IT IS HEREBY AGREED AMONGST THE PARTIES THAT FROM THE PARTY OF THE FIRST PART UP TO THE PARTY OF THE FOURTH PAR T ALL THE PARTNERS WILL BE WORKING PARTNERS I.E. 1) MR. RAJKUMAR K. CHADHA 2 ) MR. RAJ KISHORILAL CHADHA 3) MR. DILIP MOTILAL CHORDIA 4) MR. KUNAL DI LIP CHORDIA WILL BE THE WORKING PARTNERS AND THEY SHALL BE ENTITLED TO A MI NIMUM SALARY @ RS. 10 000/- P.M. (RUPEES TEN THOUSAND ONLY) AND THE SA LARY AS STATED ABOVE SHALL BE SUBJECTED TO CEILING LAID DOWN U/S. 40(B) OF THE INCOME-TAX ACT 1961 AMENDED TO THE DATE AND SUBJECTED ALSO TO AN Y STATUTORY TA NO. 82 & 87/PN/09 A.Y: 2005-06 PAGE 5 OF 6 MODIFICATIONS OR THE REENHANCEMENT THEREOF FOR THE TIME BEING IN FORCE IN RESPECT OF THE BOOK PROFIT WHICH IS PRESENTLY AS U NDER: A. ON THE FIRST 75000/- RS. 50000/- OR AT THE RAT E OF 90% OF THE BOOK PROFIT OR OF BOOK PROFIT WHICHEVER IS MORE IN THE CASE OF LOSS B. ON THE NEXT RS. 75000/- AT THE RATE OF 60% OF THE BOOK PROFIT C. ON THE BALANCE OF THE AT THE RATE OF 40% BOOK PROFIT THE TOTAL SALARY SHALL BE CREDITED TO RESPECTIVE PA RTNERS CURRENT ACCOUNT. SUCH SALARY BONUS COMMISSIONS OR REMUNERATION SHALL BE DRAWN OR CREDITED TO THE RESPECTIVE CURRENT ACCOUNTS OF THE PARTNERS MONTHLY . 10. FROM THE ABOVE IT IS OBVIOUS THAT PARTNERSHIP D EED EMPOWERS THE PAYMENT OF REMUNERATION TO THE PARTNERS. FROM THE ASSES SMENT ORDER IT IS GATHERED THAT THE ASSESSEE RELIED ON THE ORAL UNDERSTANDING FOR NON CLAIMING/PAYMENT OF THE REMUNERATION BY THE PARTNERS AN D THEREFORE THE PARTNERSHIP STANDS AMENDED TO THAT EXTENT. HOWEVER TH ERE IS NO EVIDENCE TO SUPPORT THE SAID AMENDMENT TO THE PARTNERSHIP DEED. IT IS ADMITTED POSITION THAT THE FACT OF NON CLAIMING OF THE REMUNERATION OF THE P ARTNERS IS DONE WITHOUT ANY REASON OR BASIS. CONSIDERING THE FACT THAT THE ASSESSE ES CONDUCT OF NON CLAIMING OF THE EXPENDITURE HAS MATERIALLY CONTRIBUTED FOR INFLA TION OF THE CLAIM OF DEDUCTION THE SUGGESTED ORAL AMENDMENT TO CLAUSE 9 OF THE PARTNERSHIP DEED IS DIFFICULT TO BE ACCEPTED BY US. IN SUCH CIRCUMSTANCE S IT IS REASONABLE TO INFER THAT THE ONLY AVAILABLE REASON FOR WHICH THE FIRM DID NOT P AY THE REMUNERATION IS TO HAVE A HIGHER DEDUCTION OF THE PROFITS OF CONCERNED A SSESSEE. FROM THE POINT OF VIEW OF THE INTENTION OF THE LEGISLATORS ALSO WE FIN D SUB-SECTION (10) WOULD TAKE CORE OF SUCH INFLATION AND WE FIND NO REASON TO FIND FAULT WITH THE DISCUSSION OF THE A.O . THEREFORE IN PRINCIPLE WE ARE WITH THE A.O AND TO TH AT EXTENT ORDER OF THE CIT(A) IS REQUIRED TO BE REVERSED . 11. FURTHER WE MAY PROCEED TO PLACE ON RECORD OUR DECISI ON ON THE DISMISSAL OF THE CROSS CONNECTION THEORY OF THE CIT(A). REGARDIN G THE ALTERNATE ARGUMENT OF THE COUNSEL REGARDING THE DISALLOWANCE OF REMUNERATI ON FOR THE SLEEPING PARTNER WE FIND THAT THERE IS MERIT IN THE SUBMISSION OF THE COUNSEL. THEREFORE THE REMUNERATION SHOULD BE COMPUTED IN ACCORDANCE WITH THE CLAUSE 9 OF THE PARTNERSHIP DEED IN RESPECT OF FOUR OF THE PARTNERS AND NOT OF FIVE AND TO THAT EXTENT WE AGREE WITH THE ALTERNATIVE ARGUMENT RAISED B Y THE LD. COUNSEL. SO A.O IS DIRECTED TO COMPUTE THE REMUNERATION AND RESTRICT THE DEDUCTION TO ONLY TO THE EXTENT OF THE REMUNERATION FOR FOUR OF THE PARTNERS OF T HE FIRM. REGARDING THE TA NO. 82 & 87/PN/09 A.Y: 2005-06 PAGE 6 OF 6 RENT WE FIND THE SAME IS NOT AUTHORIZED BY THE PARTNE RSHIP DEED IT IS MERELY A CASE OF ESTIMATION AND WITHOUT BRINING ANY COMPARABL E CASES ON TO THE RECORD. THEREFORE TO THE EXTENT OF THE RENT WE CONFIRM THE FIN DING OF THE CIT(A). ACCORDINGLY THE RELEVANT ARGUMENTS ON THE GROUND OF THE REVENUES APPEAL ARE ALLOWED . TO THE EXTENT OF THE REMUNERATION ATTRIBUTABLE TO TH E FIFTH PARTNER OF THE FIRM THE ASSESSEES GETS RELIEF. THUS THE GROUND IS PARTLY ALLOWED . 12. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF JANUARY 2011 SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 31 ST JANUARY 2011 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. ACIT CIRCLE-9 PUNE & ADD.CIT RANGE-9 PUNE 3. CIT(A)-III PUNE 4. CIT-V PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE