M/s Prashanth Enterprieses vs. The Commissioner of Income tax

HON’BLE SRI JUSTICE L. NARASIMHA REDDY

AND

HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A No.23 OF 2003

JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy)

The appellant is a firm and is assessed to tax. It undertakes the activity of distribution of cooking gas at Karimnagar. Up to the assessment year 1993-94, the activity was being undertaken by only one person and he was filing returns in his individual capacity. Two persons joined the business in April, 1993 and deed of partnership was executed on 01.04.1993 on a stamp paper of Rs.5/-. It is stated that to be more precise and to accord with the relevant provisions of law, the same partnership deed was executed on a stamp paper of Rs.500/- on 04.01.1994.

For the assessment year 1994-95, the appellant filed nil return. The amounts paid towards interest on the capital of the respective partners were reflected in the returns. The Assessing Officer accepted the returns and passed an order under Section 143(1) (a) of the Income Tax Act, 1961 (for short, ‘the Act’) accepting the facts and figures. However, he initiated steps under Section 154 of the Act, at a later point of time, and reopened the assessment. According to him, the partnership deed did not exist on 01.04.1993 and it came into existence only on 04.01.1994 and in that view of the matter, the deduction of interest said to have been paid to the partners is impermissible in law. An order was passed to that effect.

The appellant carried the matter to the Commissioner (Appeals). The appeal was allowed through order dated 25.11.1997 and the contention of the appellant was accepted. However, the Department carried the matter in appeal to the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, by

filing I.T.A.No.171/Hyd/98. The Tribunal allowed the appeal through order dated 12.02.2002. Hence, this further appeal under Section 260A of the Act.

Heard the learned counsel for the appellant and the learned Standing Counsel for the respondent.

The existence of the partnership as such, is not disputed. The controversy is only as to the date on which it came into existence. If it has been formed on 01.04.1993, as pleaded by the appellant, the returns for the assessment year 1994-95 can certainly be for and on behalf of the firm. If, on the other hand, it came into existence at a later point of time, the returns for that year were required to be filed by the concerned individual. In such an event, the question of payment of interest to the respective partners does not arise.

The only basis for the Assessing Officer as well as the Tribunal to treat that the firm did not exist as on 01.04.1993, is that a valid partnership deed was executed only on 04.01.1994. Though it is true that a deed was executed on 04.01.1994 on a stamp paper of Rs.500/-, it is a step taken in continuation of the constitution of the firm on 01.04.1993, through a document executed on a stamp paper of Rs.5/-. The Commissioner examined the matter, in detail, and accepted the contention of the appellant. The Tribunal, however, proceeded to examine the contents of the document and took the view that the very payment of interest to the partners is not provided for. That is indeed an error on the face of the record.

We, therefore, allow the appeal and set aside the order passed by the Tribunal in I.T.A.No.171/H/98. Consequently, the order dated 25.11.1997 passed by the Commissioner (Appeals) shall hold the field. There shall be no order as to costs.

___________________________ L. NARASIMHA REDDY, J

____________________________ CHALLA KODANDA RAM, J Date:26.08.2014 Kdl/gk HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A No.23 OF 2003

Date:26.08.2014

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