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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R
PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of
the Principal Commissioner of Income Tax, Ujjain dated
27.3.2017 in respect of the assessment year 2012-13.
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] 2. Briefly stated facts are that assessment u/s 143(3) of
the Income Tax Act, 1961 (hereinafter called as ‘the Act’)
was completed by the A.O. on 5.3.2015 assessing income
at Rs.39,78,892/-. Subsequently, Ld. Principal CIT
invoked the provisions of section 263 of the Act and issued
a notice to the assessee as to why the assessment framed
should not be revised on the grounds mentioned in the
show cause notice dated 14.3.2017. In response thereto
written submissions dated 24.3.2017 was filed on behalf of
the assessee requesting to drop the proceedings u/s 263 of
the Act. The submission of the assessee was not
acceptable by the Ld. Principal CIT and he proceeded to
revise the assessment order. Ld. Principal CIT considering
facts of the case was of the view that the assessment order
so framed was erroneous in so far it was prejudicial to the
interest of the revenue and therefore assessment order was
set aside. The A.O. was directed to re-examine the issues
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] in the light of the observations made by the Principal CIT.
Aggrieved by this, the assessee is in the present appeal.
Ld. Counsel for the assessee Shri S.S. Deshpandey vehemently argued that the order so passed is not justified and contrary to the settled position of law. He submitted that the A.O. duly considered all the issues and framed assessment. He further submitted that twin condition for invoking the provisions of section 263 of the Act are not satisfied in the present case. He reiterated the submissions as made in the written synopsis. For the sake of clarity, submissions of the assessee are reproduced as under:
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] 4. On the contrary, Ld. D.R. opposed the submissions
and supported the order of Principal CIT. He submitted
that there is no illegality in the order passed by the Ld.
Principal CIT as the A.O. has not applied his mind on the
facts of the case. He further submitted non conducting of
the enquiry has resulted into the order being erroneous
and prejudicial to the interest of the revenue. He
submitted that at the stage of invocation of the proceedings
u/s 263 of the Act, it is sufficient that on some issues A.O.
did not apply his mind. In the present case, he submitted
that ex-facie, the A.O. has not examined the issues,
therefore, it cannot be stated that the A.O. has applied his
mind and adopted one of the plausible view.
We have heard the rival submissions, perused the
materials available on records and gone through the orders
of the authorities below. It is settled position of law that
powers u/s 263 of the Act can be exercised if twin
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] conditions are satisfied i.e. any order passed under the Act
by the Assessing Officer is erroneous so far as it is
prejudicial to the interest of the revenue. Now in the
present case, it is to be examined whether these twin
conditions are satisfied?. The basis of revising the order by
the Ld. Principal CIT is that no expenses were allowable on
the surrendered income as such income cannot be
categorised as the business income. Further, the claim
related to set off of depreciation and allowability of
donation was also not examined. On the other hand, as
per assessee, all these issues were examined in regular
assessment proceedings and order is being revised purely
on the basis of change of opinion. It is also the submission
of the assessee that explanation inserted in the section 263
of the Act by the amendment would not be applicable in the
year under consideration as the same would be applicable
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
w.e.f. the assessment year 2017-18. For the sake of clarity,
the relevant contents of the order is reproduced as under:
“2. The assessee is engaged in the business of let out Garden for various programmes, Hotel Running, Restaurant. During the year under consideration a survey u/s 133A was conducted on the business premises of the assessee and during the course of survey it was found that the investment in the construction of Hotel was more than the investment shown in the books of the account of the assessee and the assessee agreed to declare additional income of Rs.1,25,01,135/- in his return for the year under consideration. The same income has been declared in his return in addition to regular income. The income is considered as income under section 69 of the Act. After discussion the following issues have been emerged:-
The assessee has declared loss from business of Rs.81,48,508/-. It is claimed that this year was the first year of the starting of Hotel Imperial and due to new Hotel the assessee could not attract the tourist in sufficient numbers as such it could not fetch sufficient receipt, however the fixed over head had to be borne by the assessee to maintain the day to day working of Hotel business. Further being first year of business there is huge depreciation of the Hotel building which also resulted in loss in the books. The assessee produced guest register, receipt register of restaurant and garden and claimed that the entire receipt has been declared by the assessee. However the expenses of electricity, interest and depreciation has to be incurred which resulted loss during the year.
Disallowance of Remuneration paid to partners:-
On the perusal of computation of income, it is found that the assessee firm has claimed deduction for remuneration to the partners amounting to Rs.9,00,000/-. The assessee was asked to explain the justification of claiming such higher remuneration while there is a loss to the assessee. In the reply it is
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain]
submitted that the assessee has declared the sum of Rs.1,25,01,135/- as such it income is arrived at Rs.43,52,627/- as such the calculation of remuneration to partners is correctly made. I have considered the submission of the assessee and found not acceptable. The assessee during the course of survey has declared investment in the hotel Imperial source of which could not be explained as such the declared income is considered as income under section 69 of the Act.
As such the income from declaration in the investment of Hotel cannot be treated as business income and cannot be included in the income while calculating the remuneration u/s 40(b) of the Act. Reliance is placed on the decision of ITAT Chandigarh in the case of M/s. Makson Distributors, Vs. The DCIT in ITA No.53/Chd/2011 wherein the Tribunal has held as under:
Under the provisions of Income Tax Act, the interest and salary paid to the partners is to be allowed as per the provisions of section 40(b) of the Act which is in connection with the determination of business income. Once income in the hands of the assessee has been assessed as deemed income by invoking the provisions of section 69A, 69B & 69C of the Act and is not assessed as income from business under Income Tax Act, the provisions of section 40(b) of the Act in connection with the allowance of salary paid to the partners cannot be invoked to allow the deduction on account of such salary being paid to the partners of the firm. The assessee has relied upon the ratio laid down by the Chandigarh Bench of the Tribunal in Bhanu Mal Inder Lal (supra) wherein vide order dated 22.10.2010, the Tribunal had directed the allowance of salary in respect of the business income assessed in the hands of the assessee. The said ratio was laid down by the Tribunal in the facts of the case where there was a survey and certain income was surrendered, part of which was assessed as business income in the hands of the assessee and part as additional income of the assessee u/s 69A, 69B & 69C in the hands of the assessee. The direction was given by the Tribunal to allow the said claim of salary paid to the partners against the business income earned by the assessee. In the facts of the case before us, the surrendered income was assessed as additional income u/s 69a, 69B & 69C of the Act and hence no claim of salary paid to the partners is to be allowed against the said income. In view of above the assessee is not entitled to make payment of remuneration of Rs.9,00,000/-. Accordingly the remuneration of Rs.3,00,000/- is allowed and balance of Rs.6,00,000/- is added to the income of the assessee.” 12
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] 6. From the above order, it is clear that the assessing
officer is conscious of the fact that the income so
surrendered did not partake character of the business
income. However, he disallowed the claim of partners
remuneration but allowed claim of set off of
loss/expenditure against the income so surrendered.
Further, it is also noted that the assessment order does not
speak of consideration of claim of donation by the
assessing officer. The moot question in the present case is
that whether assessee is entitled for the allowance of
expenses and set off of loss? The assessee has failed to
demonstrate the income so surrendered during the course
of search had any link with the business receipts. In the
absence of such link, the set off of expenditure against
such income would not be allowed. Therefore, the
allowance of such expenditure by the A.O. in the absence
of supporting evidence of business income is patently
[ITA No.311/Ind/2017] [A-One Enclave, Ujjain] erroneous and consequently prejudicial to the interest of
the revenue. We do not see any infirmity into the order of
the Ld. CIT(A). Grounds raised by the assessee are
dismissed.
In the result, the appeal filed by the assessee is
dismissed.
Order was pronounced in the open court on 05 .12.2018.
Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIALMEMBER Indore; �दनांक Dated : 05/12/2018 VG/SPS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order
Assistant Registrar, ITAT, INDORE