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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SH. N.K.BILLAIYA & SH. ANUBHAV SHARMA
Per Anubhav Sharma, JM :
The appeal has been filed by the Assessee against order dated 30.09.2019 passed for assessment year 2011-12, by the Commissioner of Income Tax (Appeals)-20, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 25.12.2018 u/s 144/148 of I.T. Act, 1961 (hereinafter referred to as ‘the Act’) passed by DCIT, Circle-62(1), New Delhi (hereinafter referred as Ld. Assessing officer or in short Ld. AO).
9224.Del.2019 M/s. K.B. Contractors (Partnership), New Delhi
The assessee is a partnership firm and its case was reopened u/s 147 of the Act. During the assessment proceedings in response to notice u/s 148, return was filed on 11.12.2018. However, when the case was fixed for examination of books of accounts, Authorised Representative of assessee stated that the same cannot be produced. Accordingly Ld. AO proceeded to make assessment u/s 144 of the Act with following relevant findings in para 3 and 4 which are reproduced as under :-
“3. Income from contract business As discussed, above, the assessee refused to produce books of accounts vide note sheet entry dated 24.12.2018. Therefore, the receipts shown by the assessee and corresponding expenses claimed in ITR filed on 11.12.2018 in response to notice u/s 148, cannot be verified. As per the information available with this office the assessee received contract receipts of Rs. 11,45,80,715/- from different entities. Accordingly, vide note sheet entry dated 24.12.2018 it. was communicated that income from contract- business will be assessed by applying a fair net profit rate of 8% resulting in business income of Rs. 91,66,457/-. Neither any reply nor any objection has been, filed by the assessee. This indicates that the assessee has no objection against the estimation and assessing of income from contract business at Rs. 9.1.66,457/-. Looking to the facts of the ease and no objection, from the assessee, the same is estimated, and. assessed at Rs. 91,66,457/- which, results in an addition of Rs. 27,58.567/- in the business income declared by the assessee in ITR filed for A.Y. 2011-12 in response to notice u/s 148. Since the assessee has concealed the particulars of its income therefore, penalty proceedings u/s 271 (1 )(c) of the I.T. Act, 1961 are hereby initiated separately. (Addition Rs. 27,58,567/-) 4. Disallowance of interest and remuneration paid to partner :- 4. As discussed, the assessee firm has failed to produce books of accounts and failed to file details/information as requisite under section 142(1) of the Income Tax Act, 1961. Therefore, its income is being computed under section 144 of the Income Tax Act, 1961. The assessee failed to comply with conditions laid down u/'s 184 of the Income Tax Act, 1961.
9224.Del.2019 M/s. K.B. Contractors (Partnership), New Delhi
For sake of convenience, provisions of section 184(5) are reproduced as under: “ Notwithstanding anything contained in any other provision of this Act, where, in respect of of any assessment year, there is on 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 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 “profit and gain 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. ” Thus, as per provisions of section 185 of the Income Tax Act 1961, no deduction by way of payment of interest, salary, bonus, commission or remuneration to the partner is allowable in computation of business income. Looking to the facts and circumstances of the case, the interest of Rs. 4,00,834/- and remuneration of Rs. 54,00,00/- paid to partners is hereb) disallowed and added back to the total income of the assessee. (Addition Rs. 9,40,834/-)” 3. Ld. CIT(A) has sustained the additions and the assessee is in appeal raising following grounds :-
“1. That the Hon AO has erred in passing an order u/s 144/148 of the Income Tax Act, 1961 by simply estimating the income @ 8% from contractual services, whereas the turnover was 13,84,98,404/- and the accounts were properly audited u/s 44AB of the Income Tax Act,1961. 2. That the Hon AO has erred in passing an order u/s 144/148 of the Income Tax Act, 1961 by simply making disallowance of interest and remuneration to the partners of Rs.9,40,834/- against his perception of considering the profit @ 8% of the turnover declared by the assessee and hence the addition made on this account is totally illegal and bad-in- law. 3. In our favor, we also refer the judgement of ITAT Delhi in the case of Style Syntex Pvt. Ltd New Delhi vs Department Of Income Tax pronounced on 16 June, 2015, ITA No. 3
9224.Del.2019 M/s. K.B. Contractors (Partnership), New Delhi
73/Del./2010 decided by the bench of Diva Singh, Judicial Member and N.K.Saini, Accountant Member, Further decision of Acit, Circle-33, Koikata, vs M/S. G. D. Construction & Co., pronounced on 15 December, 2017 and Sai International, New Delhi vs Department of Income Tax on 28 September, 2012. 4. Other grounds will be submitted at the time of hearings.” 4. On behalf of the assessee it was submitted that as the partners were not on good terms there were some laches in contesting before the Ld. Tax Authorities below. It was submitted that late Shri K.L.Khanna one of the partners was solely maintaining the books of accounts and he has died on 13.12.2017. An affidavit is placed on record to support the contention that Mr. K.L.Khanna was responsible for taking care of books of accounts and was not keeping well since September, 2013 till he expired on 13.12.2017. There were ongoing disagreement between the remaining partners which has been sorted out to some extent and the affidavits reflects that remaining two partners Rajiv Khanna and Rohan Khanna, both sons of Late Sh. K.L.Khanna, have appointed their respective authorized representative and have given undertaking to produce the requisite details to the Tax Authorities below.
4.1 It was submitted that in the previous assessment years the returns were processed anc assessment orders have been passed wherein the net profit margin has been between 1.75 to 2.25% and accordingly it was submitted that Ld. Tax Authorities below have fallen in error in applying net profit margin of 8%.
Ld. DR on the other hand submitted that there is no error in the findings of Ld. Tax Authorities below.
Giving thoughtful consideration to the matter on record, the Bench is of considered view that as before Ld. CIT(A) when the assessee had produced material to show that in the previous years, the assessee was assessed at profit 4
9224.Del.2019 M/s. K.B. Contractors (Partnership), New Delhi
of around 2.5% then on the basis of non-maintenance of books of accounts the assessee’s case should not have been discredited. There is a presumption of continuity of events unless established otherwise. If the assessee had satisfied the Ld. CIT(A) that in the earlier assessment years 2006-07 to 2008-09, for which assessments were completed u/s 143(3) and assessee had given reasons for being unable to produce books of account due to dispute of partner, then computation of income, copy of P & L account and balance sheet should have been considered with previous years assessment records to justify a best judgment assessment. Ld. CIT(A), which is not only an appellate authority but has also co-terminus powers of Assessing Officer could also have thus intervened.
Thus, the facts of case justify restoring the issues to the Ld. AO for giving assessee opportunity to produce the books of accounts and to take the submissions of the assessee into consideration and pass a fresh order. The grounds and appeal are allowed for statistical purposes and the issue is restored to the files of Ld. AO.
In the result, the appeal of assessee is allowed for statistical purposes.
Order pronounced in the open court on 23rd March, 2023.
Sd/- Sd/- (N.K.BILLAIYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Date:- 23.03.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI