RAMESH KOCHA,MUMBAI vs. ITO 24(3)(4), MUMBAI

आदेश /O R D E R

Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeals by assessee for Assessment Year [AY] 2009- 10 contest separate orders of Ld. first appellate authority, which we dispose-off by way of this common order for the sake of convenience & brevity. First, we take up which contest the order &1380/Mum/2017 Ramesh Kocha Assessment Year: 2009-10 of Ld. Commissioner of Income-Tax (Appeals)-42 [CIT(A)], Mumbai, Appeal No.CIT(A)-42/IT-47/11-12 dated 06/10/2016 qua confirmation of certain additions. The assessment for impugned AY was framed by Ld. Income Tax Officer -24(3)(4), Mumbai [AO] u/s 143(3) of the Income Tax Act,1961 on 29/12/2011 wherein the income of the assessee has been determined at Rs.19,67,570/- after certain additions as against ‘Nil’ return filed by the assessee on 30/09/2009. During the impugned AY, the assessee was engaged in the business of manufacturing of chlorinators, evaporators & flexible connectors etc. 2.1 The first issue under appeal is addition of Rs.7,33,565/- on account of legal expenses since the same, in the opinion of Ld. AO, were not incurred for the purpose of business and moreover, TDS deducted there-from was not deposited within the stipulated time limit. The Ld. Authorized Representative for assessee [AR] pleaded for admission of additional evidences in support of the claim on this account. Keeping in view the principle of natural justice, the issue stands remitted back to the file of Ld. AO with a direction to assessee to substantiate his claim and demonstrate that these expenses were incurred for the purpose of assessee’s business and further the provisions of TDS has duly been complied with against the same. Ground Nos. 1 & 2 stands allowed for statistical purposes. 2.2 Ground No. 3 & 4 contest adhoc disallowance against telephone expenses, motor expenses & depreciation and sundry expenses debited to the profit & Loss Account. Keeping in view, the reasonable disallowance &1380/Mum/2017 Ramesh Kocha Assessment Year: 2009-10 rate of 10% & 20%, the same do not require any interference on our part and hence, dismissed. 3.1 Ground Numbers 5 & 6 plead for allowance of brought forward losses of AY 2007-08. The facts of the same are that the assessee, in the return of income, claimed brought forward business loss of earlier years amounting to Rs.42,72,212/- and after adjusting the current income of Rs.11,62,964/-, carried forward the balance amount of Rs.31,09,248/-. It was noted that the loss was incurred in AY 2006-07 and since assessee failed to furnish sufficient documentary evidences including loss returns of earlier years, the same was denied to the assessee. Aggrieved, the assessee carried the matter before Ld. CIT(A). 3.2 The Ld. CIT(A) noted that the correct figures of brought forward losses was Rs.26,93,383/-. The Ld. CIT(A), on page numbers 3 to 5 of the impugned order, noted the constitution / re-constitution history of an erstwhile firm namely Babubhai Narottamdas & Co. and noted that w.e.f. 22/09/2006, the assessee carried on the business of the said firm as sole surviving partner / proprietor as well the agent of court receiver. The financials of the firm were prepared on 22/09/2006 and the total loss arising from the business was determined and the business was taken by the assessee who filed return of income in the capacity of proprietor for the balance period of six months of FY 2006-07 under his own individual name. The total loss so determined up-to 22/09/2006 was Rs.42,72,212/- and accordingly the assessee’s 50% share therein came to Rs.21,36,108/-. &1380/Mum/2017 Ramesh Kocha Assessment Year: 2009-10 After adding further loss of Rs.5,55,990/- incurred by the assessee after 22/09/2006, the total loss thus worked out to Rs.26,92,096/-. The set-off of the same has been claimed by the assessee in AY 2008-09 onwards by placing reliance on the decision of Apex court in Sakthi Trading Co. [250 ITR 871]. The amount of Rs.6,28,694/- has already been set-off by the assessee against the same in AY 2008-09 and accordingly the balance amount of Rs.20,63,402/- has been left to be set-off in subsequent years. 3.3 However, upon perusal, Ld. CIT(A) noted that the details filed did not match with the returns of income for respective AY and the claim of brought forward losses has not been clearly mentioned in returns for AYs 2007-08 & 2008-09. Finally, after perusing the provisions of Section 78 and placing reliance on the decision of Hon’ble Delhi High Court rendered in Pramod Mittal Vs. CIT [2012 205 Taxman 444], the set-off of the same has been denied to the assessee against which the assessee is in further appeal before us. 3.4 The primary argument of Ld. AR revolves around the fact that it was the case of succession by inheritance and therefore, the provisions of Section 78 were not applicable to the facts of the case and hence, the set- off of the losses was allowable to the assessee. The Ld. DR placed reliance on the stand of Ld. CIT(A). 3.5 We have carefully heard the rival contentions and perused the impugned order. At the outset, it is noted that loss of Rs.5,55,990/- incurred &1380/Mum/2017 Ramesh Kocha Assessment Year: 2009-10 by the assessee in the capacity of proprietor for AY 2007-08 has completely been set-off in AY 2008-09 and the same is, undisputedly, in order. 3.6 Now, we are concerned with set-off of balance amount of Rs.20,63,402/- which is nothing but assessee’s own share of loss to the extent of 50% in erstwhile firm as on the date of dissolution i.e. 22/09/2006. In our opinion, this loss has been incurred by the firm and exclusively belongs to the firm only and is not available for set-off to the partner in individual capacity. Clearly, the firm and individual are separate legal / taxable entities in the eyes of law. From the facts culled out by Ld. first appellate authority, it is evident that the assessee was admitted as partner of the firm since 22/10/1968 and continued as partner up-to 22/09/2006 when the other partner of the firm (assessee’s brother) died and the firm was continued as proprietorship concern of the assessee. Therefore, we do not find any strength in the argument that it is a case of succession by inheritance since nothing has been inherited by the assessee rather he was already a partner in the firm since inception stage of the firm. Hence, on factual matrix, we find that the assessee’s share in the losses of the erstwhile firm belonged to that firm only and could not be set-off by assessee in individual capacity. Our view is duly supported by the judgment of Hon’ble Delhi High Court rendered in Pramod Mittal Vs. CIT [19 Taxmann.Com 24] wherein the matter has been adjudicated by the Hon’ble court in the following manner:- 3. We have considered the contentions raised by the petitioner but do not find any merit in the same. Partnership firm is a separate and distinct unit of assessment. The &1380/Mum/2017 Ramesh Kocha Assessment Year: 2009-10 petitioner and his brother constituted a partnership firm, which was dissolved w.e.f. 18.9.2004. The partnership firm will have to be assessed on the income for the period 1.4.2004 to 18.9.2004. After the dissolution of the partnership firm, it ceased to exist. The petitioner in terms of the dissolution deed became entitled to fixed assets, current assets and liabilities of the firm. The other partner was paid the current account balance and capital balance standing to his credit. After 18.9.2004, the appellant continued to carry on the business as a sole proprietor. As a sole proprietor the income earned was taxable in his hand as an individual and as a separate unit/person.