M/S. B.M.T. PROFILE,MAYURBHANJ vs. ACIT, BALASORE CIRCLE, BALASORE

आयकर अपीऱीय अधिकरण, “एस.एम.सी”, न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, CUTTACK श्री चन्द्र मोहन गगग, न्द्याययक सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER आयकर अऩीऱ सं./ITA No.339/CTK/2018 (नििाारण वषा / Assessment Year :2010-2011) M/s BMT Profile, Vs. ACIT, Balasore Circle, Bhanjpur, Ward No.2, Baripada, Balasore Mayurbhanj, Odisha स्थायी ऱेखा सं./ जीआइआर सं./ PAN/GIR No. : AAHFB 8131 A (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) यनधागररती की ओर से /Assessee by : Shri P.R.Mohanty, AR राजस्व की ओर से /Revenue by : Shri Subhendu Dutta, DR सुनवाई की तारीख / Date of Hearing : 16/05/2019 घोषणा की तारीख/Date of Pronouncement 06/06/2019 आदेश / O R D E R This is an appeal filed by the assessee against the order of CIT(A), Cuttack, dated 28.06.2018 passed in First Appeal No.0295/2015-16 for the assessment year 2010-2011. 2. Ld. Assessee Representative(AR) submitted that the assessee does not want to press the grounds No.1, 2, 4 & 5, hence, the same are dismissed as not pressed. 3. Remaining sole effective ground of assessee for adjudication i.e. ground No.3 reads as follows :- “3. For that, the denial of deduction of salary to partners and interest to capital contribution deserves to be allowed on the ground that, there has been no violation to section 184(5) for completing the assessment under section 144.” 4. Ld. AR has also filed an application dated 16.05.2019 for admission of additional ground, which reads as under :-

2 ITA No.339/CTK/2018 "For that, the denial of deduction of salary to partners and interest to capital contribution deserves to be allowed on the ground that, there has been no violation to section 184(5) for completing the assessment under section 144 as the assessment has been completed invoking section 145 of the Act, and as the salary and interest has already suffered tax in the individual hands of the partners respectively therefore taxing the same by disallowance also amounts to double taxation not permissible by law.” Heard on the question of admission of additional ground : 5. I have heard arguments of both the sides and carefully perused the relevant material placed on the record of Tribunal along with application of assessee for admission of additional ground. 6. Ld. AR submitted that in the original assessment order passed u/s.143(3)/144 of the Income Tax Act, 1961 (for short ‘the Act’), the AO did not allow salary and interest on capital to the partners. Subsequently, the CIT Cuttack passed an order u/s.263 of the Act dated 23.03.2015 and directed the AO to re-examine the issue of higher depreciation claimed by the assessee @30% on vehicles like Hydraulic Excavator, Tipper and Tata Ace. Ld. AR further submitted that in pursuance to the said order u/s.263 of the Act, the AO passed order u/s.263 r.w.s.143(3) of the Act on 31.08.2015,, wherein the claim of excess depreciation of Rs.14,50,229/- was disallowed by holding that the assessee was not able to establish that these vehicles had been used in a business of running them on hire and, therefore, claim for excess depreciation was not valid in terms of item III(3)(ii) of the New Appendix 1 of I.T. Rules, 1962. Ld. AR further submitted that the assessee filed an appeal before the ld. CIT(A) Cuttack against the subsequent order of AO passed on 31.08.2015 but the assessee due to bonafide omission could not further agitated the claim of

3 ITA No.339/CTK/2018 salary and interest on capital to the partners. Ld. AR also submitted that while filing before the Tribunal, the assessee in ground No.3 agitated the said issue and simultaneously has also filed application for admission of additional ground which may kindly be allowed and the additional ground may kindly be admitted for adjudication. 7. Replying to the above, ld. DR submitted that the ground which was not raised before the ld. CIT(A) cannot be agitated by the assessee before the Tribunal. Therefore, ground No.3 as well as additional ground of assessee deserves to be dismissed in limine. 8. On careful consideration of above submissions and from the copy of the scrutiny assessment order dated 18.03.2013, which was revised by the CIT, Cuttack u/s.263 of the Act, I clearly observe that the AO decided the issue of allowability of salary and interest on capital to the partners but the same were dismissed on the ground that the margin of profit for assessment year under consideration earned by the assessee @1.4% after considering the salary and interest paid to the partners is not acceptable. Thereafter the case was picked up by the ld. CIT, Cuttack for revision u/s.263 of the Act and the AO had passed impugned assessment order u/s.143(3)/263 of the Act, wherein the claim of assessee regarding salary and interest on capital to the partners has not been decided, neither expressly nor impliedly but from vigilant reading of impugned assessment order dated 31.08.2015, I found that the claim of salary and interest on capital to the partners, which was dismissed in the original assessment order, has not been allowed by the AO in the subsequent

4 ITA No.339/CTK/2018 assessment order. In view of the above factual position, I have no hesitation to hold that the assessee had made a claim pertaining to salary and interest on capital to the partners in the original assessment proceedings which was neither allowed in the original assessment order nor in the subsequent assessment order passed in pursuance to the order u/s.263 of the Act. However, I am agreed to the contention of ld. DR that this issue has not been agitated by the assessee before the ld. CIT(A), Cuttack during the first appellate proceedings against the impugned reassessment order. Be that as it may, in this situation, the assessee cannot be prevented from making a claim before the Tribunal for which it is entitled as per provision of the Act, which was agitated by him during original assessment proceedings. Therefore, the additional ground of assessee which is improved version of ground No.3 deserves to be admitted for adjudication and, thus, I admit the same for consideration. Ground No.3 and additional ground : 9. I have heard rival submissions of both the sides and carefully perused the relevant material available on the record of the Tribunal, inter alia, impugned assessment and first appellate order and paper book filed by the assessee spreads over 56 pages. Ld. AR submitted that during the original scrutiny assessment proceedings, the AO vide ordersheet dated 27.02.2013 show caused the assessee as to why the salary and interest on capital to its partner should not be disallowed in view of the order of ITAT, Cuttack Bench Cuttack in the case of M/s L.M.Hati & Co. Vs. ACIT, ITA No.267&271/CTK/2012 for A.Y.2004-2005, order dated 13.07.2012.

5 ITA No.339/CTK/2018 Ld. AR further submitted that from the order dated 13.07.2012, it is apparent that the salary and interest on capital to the partners has been allowed by the Tribunal. Therefore, the AO made note sheet entry without application of mind and without reading the order of ITAT in the case of M/s L.M.Hati & Co.(supra). Ld.AR further submitted that neither in the original assessment order dated 18.03.2013 nor in the impugned reassessment order dated 31.08.2015 passed in pursuance to order of ld. CIT Cuttack, the AO had not mentioned any instance wherein the assessee failed to comply with any requirement of section 144 of the Act, therefore, salary and interest on capital to partners cannot be disallowed by invoking provisions of Section 184(5) of the Act. 10. Placing copy of ITAT Cuttack Bench, order dated 13.07.2012, ld. AR submitted that in para 7, the Tribunal has allowed claim of assessee pertaining to salary and interest on capital paid to the partners and the same was directed to be allowed, therefore, the AO was not correct in invoking provision of Section 184(5) of the Act. Ld. AR further submitted that the assessee has made claim of salary and interest to the partners in the original return of income, then while passing of reassessment order in pursuant to the order u/s.263 of the Act, the AO is duty bound to consider the claim of the assessee in a right perspective, but he failed to do so, therefore, the claim of assessee may kindly be allowed. Ld. AR vehemently pointed out that if the assessee due to inadvertent mistake or ignorance could not point out to the AO regarding his claim of allowance of salary and interest on capital to the partners then also as per Article

6 ITA No.339/CTK/2018 265 of the Constitution of India, no tax can be levied or calculated except by the authorities of law and the amount of salary and interest has been shown by the respective partners in their return of income and taxes have already been paid thereon, therefore, if such claim of assessee is not allowed then it would amount to double taxation, hence, the claim of the assessee may kindly be allowed keeping in view of the totality of facts and circumstances of the case. 11. Replying to the above, ld. DR submitted that the claim of the assessee was not pointed out during the assessment proceedings. However, ld. DR could not controvert the fact that the claim of assessee regarding salary and interest on capital to the partners was considered and disallowed by the AO during the original assessment proceedings u/s.184(5) of the Act. 12. On being asked by the Bench, ld. DR also did not controvert the fact that the amount of salary and interest on capital received by the partners has been shown by them in their individual returns of income and taxes have been paid thereon. 13. On careful consideration of above rival submissions, first of all, I may point out that the assessee is agitating the claim of allowance of salary and interest to the partners since the scrutiny assessment proceedings. However, the claim of assessee was not allowed by the AO on the allegation of failure of assessee to produce cash books and other books of accounts. However, from vigilant reading of the original assessment order as well as the impugned assessment order, I find that

7 ITA No.339/CTK/2018 the AO has not recorded any instance wherein the assessee has failed to comply with any requirement of the AO within the scope of Section 144 of the Act. So far as reliance on the order of ITAT Cuttack Bench in the case of M/s L.M.Hati & Co. (supra), is concerned, from careful reading of this order, I also find that in this case the Tribunal has allowed the claim of assessee pertaining to salary and interest on capital to the partners, therefore, the AO was not justified and correct in placing reliance on this order in the order sheet dated 27.02.2013 and, thus, I have no hesitation to hold that the reliance placed by the AO on the said order is misplaced and misconceived. 14. In view of the foregoing discussions and taking into consideration of totality of facts and circumstances of the case, I hold that neither in the original assessment order nor in the reassessment order passed in pursuance to the order of ld. CIT Cuttack u/s.263 of the Act, there is no instance where the AO could point out any non-compliance on the part of the assessee within the scope of Section 144 of the Act. So far as non- production of books of accounts is concerned, as a consequence, the income of the assessee has been enhanced and estimated from 1.4% to 8% of the turnover but when there is no non-compliance on the part of the assessee u/s.144 of the Act then merely because the reassessment order has been passed by mentioning Section 263/143(3)/144 of the Act, the claim of the assessee regarding salary interest on capital to the partners, cannot be ignored and disallowed. I may also point out that when the impugned amount of salary and interest on capital paid to the partners

8 ITA No.339/CTK/2018 has been offered for taxation by the respective partners in their returns of income, then in a case where the claim of partnership firm regarding same amount of salaries and interest on capital paid to the partners is not allowed then it would certainly amount to double taxation of same income, therefore, claim of assessee deserves to be allowed and I hold so. Accordingly, ground No.3 is allowed and the AO is directed to allow salary and interest on capital paid by the assessee to the partnership firm of its partners during the relevant financial year 2009-2010 pertaining to A.Y.2010-2011 under consideration. 15. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 06/06/2019. Sd/- (CHANDRA MOHAN GARG) न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 06/06/2019 प्र.कु.मम/PKM, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- . M/s BMT Profile, Bhanjpur, Ward No.2, Baripada, Mayurbhanj, Odisha प्रत्यथी / The Respondent- 2. ACIT, Balasore Circle, Balasore 3. आयकर आयुक्त(अऩीऱ) / The CIT(A), 4. आयकर आयुक्त / CIT 5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ग पाईऱ / Guard file. सत्यावऩत प्रयत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack