M/S. JANATHA TEXTILES,,VISAKHAPATNAM vs. THE ITO, VIZIANAGARAM

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER

ITA No. 503/VIZ/2016 (Asst. Year : 2000-01) M/s. Janata Textiles, Vs. ITO, Ward-2, C/o Rowe & Pal, CAs, Vizianagaram. 14-36-1, Krishna Nagar, Visakhapatnam. PAN No. AAEFJ 9791 P (Appellant) (Respondent)

Assessee by : None. Department By : Shri P.S. Murthy – Sr. DR Date of hearing : 26/12/2018. Date of pronouncement : 26/12/2018. O R D E R

This is an appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals)-1, Visakhapatnam, dated 04/10/2016 for the Assessment Year 2000-01. 2. The assessee has raised the following grounds of appeal:- 1) The Commissioner of Income tax(Appeals) is not justified in dismissing the appeal filed by the appellant on the basis of original grounds of appeal as well as additional grounds of appeal raised during the course of appeal proceedings. 2) The learned Commissioner of Income tax (Appeals) is not justified in stating that the department is bound to follow the directions of I.T.A.T. given by the Tribunal in his earlier order in ITA No.103/Viz/2008 Dt:11-4-2008

2 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) relating to Assessment Year 2001-02. 3) The assessing officer while considering the directions of Honourable Tribunal in his order relating to Assessment Year 2001-02, would be free to consider the actual interest income, which can be assessed in accordance with the provisions of Income tax Act after taking into consideration the principles laid down by the High Court of Andhra Pradesh in M. Jaffer Sahab Vs C.I.T., Vijayawada in F .C.No.122 of 1997 Dt:19-12-2013, where in the High Court held that the interest income accrued during the previous year relevant to Assessment Year alone should be taken into consideration and the interest income accrued for different years cannot be considered as income, in single previous year. 4) The Directions of the tribunal while being followed, should be consistent with the law as applicable to the previous year to relevant assessment year and the Commissioner of Income tax(Appeals) is not justified in rejecting the claims made by the appellant. 5) The Appellants claim that no assessment can be made in the case of appellant firm by invoking provisions of section 189(1) of the IT Act cannot be rejected, though, the issue was decided in ITA No.103/Vizag/2008 Dt. 11-04-2008 against the appellant, since the appellant is entitled to raise the issue once again before the department which making an assessment for Assessment Year 2000-01. 6) The Appellant claimed that since there was no firm in existence during the previous year relevant to Assessment Year 2000-01, due to dissolution of the firm on 07-03- 1999 consequent to death of the partner and consequent to the fact that the terms and conditions of the partnership clearly mentioned that the duration of the firm shall be at WILL and particularly in the absence of the clause, to continue of the firm even after the death of a partner. 7) The Appellant claimed that the provisions of section 189(1) would be applicable only in the case of the firm, which is continued legally even in the absence of a business being carried on and there cannot be a successor to a dissolved firm by operation of law. 8) The Appellant claim that the Notice U/s.147 of the IT Act itself is invalid to the appellant firm which is not existence during the previous year relating to Assessment Year 2000-01 and a Notice ought to have been issued to Association of persons.

3 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) 9) The Appellants claim that the Authorities are not justified in applying the provisions of section 234A(1) of the IT Act while levying interest since the appellant would be liable to pay interest, if any only, U/s.234A(3) of the Income tax Act and hence the excess interest levied may be directed to be deleted. 10) For these and other grounds that may be urged at the time of hearing the appellant prays for necessary relief.

4 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) income to the tune of Rs. 2,34,180/- for the Assessment Year 2000-01. 3. On appeal, Ld. CIT(A) confirmed the order of the Assessing Officer by following the decision of the ITAT, Visakhapatnam Bench in ITA No. 103/VIZ/2008. The relevant portion of the order of the ld. CIT(A) is extracted as under:-

“5. I have considered the pleas raised before me. At the outset, it is relevant to refer to the direction of the Hon'ble ITAT in this regard in ITA No.103/Vizag/2008, which is as follows: The next issue that arises for consideration is whether the interest is assessable to tax on accrual basis or in the year of receipt. It is not in dispute that the assessee followed Mercantile system of accounting and therefore interest is taxable on accrual basis. However, in the instant case, the date of accrual is relevant to be considered. Though the assessee has paid the amount in installments spanning over six years, the right to refund and consequential interest thereto arises only on account of the order passed by the I.T.A.T. In I.T.A.No.815/Hyd/1993, dt.17.2.2000. The payment of the last installment on 2.3.2000 also suggests that neither the assessee nor the Revenue was aware of the order passed by the Appellate Tribunal. Second proviso to Section 244(1A) reads as under:- "Provided further that no interest under this Section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding." The right to receive interest therefore can, at best, be said to accrue from the date of the order passed by the Appellate Tribunal, in which event, interest is assessable to tax in the assessment year 2000-2001 and 2001-2002. However, the Assessing Officer sought to assess the interest income in one year, probably by assuming that right to receive interest accrue upon passing a

5 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) consequential order by Assessing Officer to give effect to the order of the ITAT. Since it is not in dispute that the assessee followed Mercantile system of accounting, I hereby direct the Assessing Officer to assess the interest income in two years i.e., 20002001 and 2001-2002. 6. Thus it could be seen that the Hon'ble ITAT has resolved the issue as to date of accrual of interest to be in the Asst. Yr. 2000-01 and Asst. Yr. 2001-02, as the right to interest accrued to the assessee by reason of the order passed by the ITAT on 17.2.2000. It is quiet apparent that the pleas raised by the assessee that the interest accrued to the assessee in the years of payment of installments were rejected and a categorical finding has been given that the interest income can be considered to have accrued to the assessee only in the year 2000-01 & 2001- 02 and the AC was directed to assess the interest income in these two years. It is further noted that the assessee had not preferred any appeal or review or rectification against the above said finding or direction of the I.T.A.T, and hence such finding and direction has become final. The re-assessment proceedings and the consequent impugned order are as per the said direction given by the ITAT. I find that the AC has passed the impugned order in accordance with and as per the direction given by the FIAT and I do not find any error in the impugned order. The AR also did not point out any error in the impugned order except raising pleas which were already agitated before the 11(A) & ITAT in the earlier proceedings and which had reached finality. I do not find any merit in these pleas and are deserved to be rejected. As a result, the impugned action of the AC is upheld. 7. Subsequent to appeal hearing, the assessee flied additional grounds of appeal, which are reproduced hereunder The petitioner/appellant has filed the above appeal (i) relating to Assessment Year 2000-01 against the order passed by the Assessing Officer u/s.143 r.w.s.147 of IT Act, though the assessee has not filed any return in response to notice u/s.147, after filing objections against the after notice issued u/s.147 of IT Act. The Petitioner/ Appellant would like to submit that (ii) the Assessing Officer levied interest u/s.234A of IT Act of Rs.1,05,417/- by taking into consideration the provisions of section 234A(1) of the IT Act while the assessee claimed that interest is chargeable u/s.234A(3) of the IT Act.

6 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) The Petitioner / Appellant has not raised this (iii) ground since the Assessing Officer did not discuss the issue in the order passed, and since the determination of income itself was objected. The Petitioner / Appellant is now submitting additional statement of facts and grounds of appeal. The petitioner/ appellant is now approaching (iv) Honourable Commissioner (Appeals) to consider and admit additional grounds raised which may be considered while disposal of above appeal. 7.2 The additional grounds are raised after hearing. However, being legal issue, the additional grounds are admitted for action. 8. In regard to these pleas, it is noted that the provisions of Sec.234A(3) would be applicable in cases where income was already determined u/s443(1) or 143(3). This is not so in the assessee's case. Therefore, I do not find any merit in these pleas and the same are rejected. 9. The assessee also filed written submissions on 26.9.2016 after hearing and wherein it was stated that the assessee firm was dissolved consequent to the death of the Managing Partner of the firm. It was submitted that since the firm was dissolved during the financial year 1999-2000, provisions of section 189(1) of the IT Act cannot be applied. I find this plea was already considered and decided against the assessee by the Hon'ble ITAT in its order in ITA No. 103/Vizag/2008, dated 11.4.2008. The Hon'ble ITAT has held as follows:- During the previous year relevant to the assessment year under consideration, the Assessing Officer passed a consequential order, which was served upon the assessee. The order of the LT.A.T was passed on 17.2.2000 and only on account of the order passed by the Appellate Tribunal, the assessee became entitled to the refund as well as the interest on such refund. At no stage of the proceedings, the factum of so called dissolution of the partnership on the death of the managing partner was mentioned. At the time of hearing, the learned Counsel was directed t submit some proof to show that either in writing or by conduct the parties have decided to dissolve the partnership firm upon the death of the partner. No such evidence could be furnished. Therefore, by taking into consideration the factum of receipt of cheque in the name of the firm and encashment thereof, an adverse inference has to be drawn and it has to be assumed that the firm decided to continue

7 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) even after death of one of the partners, who was representing his HUF. Therefore, the issuance of notice by the Assessing Officer under section 148 of the Act in the name of the firm and consequent assessment made under section 144 read with section 147 of the Act is in accordance with law. The case law relied upon by the assessee are distinguishable on facts inasmuch as in those cases, the factual matrix as to whether there was dissolution or not was not the issue under consideration whereas, in the instant case, the clauses in the partnership deed and the conduct of the assessee clearly indicate that the firm continued its existence despite the death of the partners. Since the firm is treated as continued after the death of the partners, even if no business is carried on in the year under consideration, the Assessing Officer was justified in invoking the provisions of Section 189(1) of the Act to make an assessment in the status of firm with regard to the income earned by the firm. 10. Thus I find that in regard to the above plea, the Hon'ble ITAT has already categorically upheld the assessment proceedings for AY 2001-02 and held that the Assessing Officer was justified in invoking the provisions of sction 189(1) of the IT Act to make the assessment in the status of firm. Only thereafter, the AO was directed to assess interest income for AY 2000-01 & 2001-02. The above finding has become final and would be applicable for this impugned assessment year also. In the above scenario, I do not find any merit in the assessee’s pleas and are accordingly rejected. 11. The AR during the hearing did not advance any argument or did not raise any specific plea as to invalidity of the impugned proceedings for violation of Sec.147, 150 & 150(1) of the IT Act, and did not point out any deficiency in this regard. Hence the grounds raised on this count are dismissed.”

8 ITA No. 503/VIZ/2016 (M/s. Janata Textiles) 6. I find that the ld. CIT(A) by following the decision of the ITAT, Visakhapatnam Bench in ITA No. 103/VIZ/2008, dated 11/04/2008 confirmed the order of the Assessing Officer. I find no reason to interfere with the order of the ld. CIT(A). Thus, this appeal filed by the assessee is dismissed. 7. In the result, the appeal filed by the assessee is dismissed. Order Pronounced in open Court on this 26th day of Dec., 2018. Sd/- (V. DURGA RAO) Judicial Member

Dated : 26th December, 2018. vr/- Copy to: 1. The Assessee - M/s. Janata Textiles, C/o Rowe & Pal, CAs, 14-36-1, Krishna Nagar, Visakhapatnam. 2. The Revenue – ITO, Ward-2, Vizianagaram. 3. The Pr.CIT-1, Visakhapatnam. 4. The CIT(A)-1, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Senior Private Secretary, ITAT, Visakhapatnam.