MUKUND RUNGTA,KOLKATA vs. DCIT, CC-V, KOLKATA, KOLKATA

2.3. Notice u/s 153A of the Act was issued on 4.2.2013 and the return in response to such notice was filed by the assessee on 21.3.2013 showing the original returned income of Rs. 11,13,87,024/-. The assessment was completed on 6.3.2014 u/s 143(3) / 153A/153D of the Act determining total income at Rs. 11,14,14,636/- which admittedly included disallowance u/s 14A of the Act made in the sum of Rs. 27,613/- and exempt income in the form of share of profit from firm u/s 10(2A) n the sum of Rs. 9,96,87,857/- , among others. No appeal was preferred against this assessment order.

2.4. Later this assessment order was subjected to revision proceedings u/s 263 of the Act by the ld CIT vide order dated 3.9.2015 on the ground that the share of profit from partnership firm amounting to Rs. 9,96,87,857/- (exempt income) included last year’s share of profit in the form of wrongly claimed excess depreciation by the firm amounting to Rs. 1,20,79,827/-. In other words, the exempt income in the sum of Rs. 9,96,87,857/- included last year exempt income of Rs. 1,20,79,827/-. This is explained more elaborately in the later part of this order. No appeal was initially preferred by the assessee against the order u/s 263 of the Act passed by the ld CIT before this tribunal. The ld CIT had set

3 Mukund Rungta & Nandlal Rungta.., AY 2010-11 aside the assessment order passed u/s 143(3) / 153A /153D of the Act dated 6.3.2014 treating it as erroneous and prejudicial to the interests of the revenue and directed the ld AO to make assessment de novo after giving full opportunity to the assessee.

2.5. Pursuant to the said order u/s 263 of the Act by the ld CIT on 3.9.2015, the ld AO framed the assessment vide order u/s 263/154/143(3)/153A/153D of the Act on 30.11.2015 wherein he added the sum of Rs. 1,20,79,824/- towards excess allowance of exemption u/s 10(2A) of the Act. Against this order, the assessee preferred an appeal before the ld CITA who dismissed the appeal on the ground that assessee had not preferred any appeal against the section 263 order of the ld CIT before the tribunal and hence he is not inclined to interfere with the findings of the ld CIT u/s 263 of the Act. According to ld CITA, the assessment framed on 30.11.2015 by the ld AO is only pursuant to the directions of the ld CIT u/s 263 of the Act. The assessee on realizing this problem, preferred an appeal before this tribunal as below:- a) Appeal against the order passed by the ld CIT u/s 263 of the Act with a delay of 223 days duly supported by a delay condonation petition explaining the reasons b) Appeal against the order of the ld CITA dated 23.5.2016 in respect of assessment framed pursuant to order passed u/s 263 by the ld CIT.

2.6. In respect of delay of 223 days in preferring the appeal before us, the ld AR argued that the assessee was under the bona fide belief that no appeal would lie before the tribunal against the order of the ld CIT passed u/s 263 of the Act as it did not involve any tax liability on the advice given by his then counsel. Later on receipt of the order of the ld CITA dated 23.5.2016 supra, the assessee had approached the present counsel who had advised him to prefer an appeal against the section 263 order of the ld CIT before the tribunal together with a delay condonation petition as the assessee has got a good case and fair chance of succeeding in appeal. In support of this, the ld AR relied on the following decisions for condonation of delay :- (a) Decision of co-ordinate bench of Hyderabad Tribunal in the case of Andhra Organics Ltd vs DCIT in dated 5.3.2014 (b) Decision of co-ordinate bench of Mumbai Tribunal in the case of Ashok Kumar Shivpuri vs CIT in ITA No. 631/Mum/2014 dated 7.11.2014

4 Mukund Rungta & Nandlal Rungta.., AY 2010-11 (c ) Decision of co-ordinate bench of Kolkata Tribunal in the case of Sri Anupam Biswas vs ITO in ITA No. 2198/Kol/2014 dated 9.12.2015 The ld DR vehemently objected to the condonation of delay and argued that ignorance of law should not be taken as an excuse.

2.7. We have heard the rival submissions. We find from the reasons stated in the condonation petition and the decisions relied upon hereinabove, the assessee had adduced sufficient and justifiable reasons for preferring the appeal belatedly and we feel it is a fit case to condone the delay. We also find that the co-ordinate bench of Mumbai Tribunal supra had specifically dealt with this issue as under :- “8. It was noticed that there was a delay of 285 days in filing the impugned appeal. The AR appearing in the matter, informed that Affidavit, giving reasons for the delay in filing of the appeal was filed along with the Memorandum of Appeal in Form No. 36, seeking condonation of delay, which reads, “I, Ashok Kumar Shipuri, son of late Shri Pandit Tapeshwar Nath Shipuri, aged about 78 years, r/o Arihant Sparsh, Flat no. 702, 7th Floor, Plot No. 13 & 14, Sector 26, Vashi, Navi Mumbai -400 703 do hereby state on oath as under: (1) That the order dated 05/02/2013 passed u/s 263 of the Income Tax Act, 1961 for AY 200809 was received by me on 13/02/2013. \ (2) That the last date for filing an appeal before the Hon’ble ITAT, Mumbai was 14/04/2013 but I could manage to file it only on 24/01/2014, resulting in a delay of about 9 months. (3) That the ld. CIT vide his order dated 5/2/2013 had directed the AO to pass a fresh assessment order after giving due opportunity of being heard and at that time, the importance of the order was not understood by me. (4) That in pursuance of the order of the ld. CIT, an assessment order dated 29/11/2013 u/s 143 r w s 263 was passed, levying a huge demand of Rs. 20,22,300/-. (5) That I am an engineer by qualification and being a retired person was appearing in my own matters till that stage. (6) That faced with this huge demand, I realized that I would need professional help. To that purpose I approached Smt. Ritika Agarwal, CA LLB, (Advocate High Court). She advised me to file an appeal against the assessment order dated 29/11/2013 passed u/s 143(3) r w s 263. She further advised me to file an appeal albeit belatedly against the order u/s 263 dated 5/02/2013 as well, since it was the foundation of the assessment order dated 29/11/2013. (7) That based upon such professional advice, I have filed an appeal against the order u/s 263 of the Act.

5 Mukund Rungta & Nandlal Rungta.., AY 2010-11 (8) That, I humbly submit before your honours that the omission to file the present appeal in time occurred because of my lack of knowledge about the income Tax Laws. (9) That mere technicality or delay in filing the appeal which was not caused prejudice to the department, deserves to be condoned in the larger interest of justice, equity and fair play and to reject the appeal at the threshold because of delay committed would result in a great loss and violation of principle of natural justice. (10)In support of my plea for condonation of delay, reliance is placed on the judgment in the case of Motilal Padampat Sugar Mills Co Ltd vs State of Uttar Pradesh and Others (1979) 118 ITR 326 (SC) wherein Lord Atkin has been quoted from Evans v Bartlam (1937) AC 473 that “there is the rule that ignorance of law does not excuse, a maxim of very different scope and application”. (11)That in view of the above facts and circumstances of the case, it is respectfully prayed that the delay of approximately 9 month in filing the appeal may kindly be condoned and appeal be admitted for adjudication on merits”.

In view of the aforesaid facts and circumstances of the case and respectfully following the judicial precedent relied upon hereinabove, we hereby condone the delay in filing of appeals by the assessee in and ITA No. 1319/Kol/2016 and admit those appeals for adjudication.

(a) The assessee is a partner of the firm M/s Maniglall Rungta and has 50% share in the profits of the firm along with another partner Mr Nandilal Rungta. During the financial year 2008-09 relevant to Asst Year 2009-10, the firm had inadvertently provided depreciation on plant and machinery at the rate of 35% instead of 15%. As a result of this, the firm provided excess depreciation of Rs. 2,41,59,654.71 ( 50% share works out to Rs. 1,20,79,827.36) in its books of accounts which further resulted in reduction of book profit of the firm. This mistake was discovered during the previous year 2009-10 relevant to Asst Year 2010-11 after the books for the financial year 2008-09 were closed. Thereafter a rectification entry was passed in the books of the firm in the financial year 2009-10 relevant to Asst Year 2010-11. The assessee further submitted that the share of profits from the firm attributable to assessee is Rs. 9,96,87,857.23 as against Rs. 8,76,08,029.88 as alleged by the ld CIT and the ld AO and the difference of Rs. 1,20,79,827.36 has arisen only due to different accounting treatment. The above accounting entries have no impact as far as taxation of the firm is concerned as the firm is taxed on the total income which has been arrived at after adding back the depreciation as per books and reducing the depreciation as per Income Tax Rules in both the Asst Years 2009-10 and 2010-11 which is duly accepted by the income tax department in the assessment proceedings and further that from the perusal of the above provision, it is the firm alone, which can be taxed with respect to the profits of the firm and not the partners’ themselves. It was further submitted that the CBDT vide its Circular No. 8/2014 [F.No. 173/99/2013-ITA-I] dt 31.3.2014 had clarified that ‘ a reference has been received in the Board in connection with the interpretation of provisions of section 10(2A) of the Income Tax Act, 1961 seekign clarification as to what will be the amount exempt in the hands of the partners of a partnership firm in cases where the firm has claimed exemption / deduction under Chapter III or VIA of the Act. The matter has been examined. Sub-section (2A) of Section 10 was inserted by the Finance Act, 1992 w.e.f. 01-04-1993 due to a change in the scheme of taxation of partnership firms. Since assessment year 1993-94 , a firm is assessed as such and is liable to pay tax on its total income. A partner is not liable to tax once again on his share in the said total income.”

It was specifically pointed out to the ld CIT during section 263 proceedings that there was absolutely no tax impact or tax loss to the exchequer due to mistake in claiming depreciation by the partnership firm as ultimately the said excess book depreciation has been added back in the memo of income and only depreciation as per income tax rates were claimed as deduction by the partnership firm and taxes paid accordingly. The ld CIT however not convinced with the arguments of the assessee sought to revise the assessment of the ld AO and treated the same as erroneous and prejudicial to the interests of the revenue within the meaning of section 263 of the Act by observing as under :- “I carefully perused the submission furnished by the assessee. Assessee's contention that his share of profit from M/s Mangilal Rungta amounting to Rs.9,96,87,857/- for Assessment Year 2010-11 also includes last year's undisclosed profit in the form of wrongly claimed excess depreciation by M/s Mangilal Rungta amounting to Rs.1,20,79,827/- (i.e. 50% of total wrongly claimed depreciation), does not hold much water. It is unjustified for assessee to show last year's share of profit or part thereof from firm in subsequent year and claim it as exempt income u/s 10(2A) of Income- tax Act, 1961.Therefore, I set aside the Assessment Order passed u/s 143(3)/153A/153D dated 06.03.2014 for being erroneous and prejudicial to the interest of revenue and direct the A.O. to make assessment de novo in the light of the discussion above, after giving full opportunity to the assessee.”

8 Mukund Rungta & Nandlal Rungta.., AY 2010-11 5. We find that the ld CITA in ITA NO. 1255/CIT(A)-20/CC-I(3)/15-16 dated 23.5.2016 dismissed the appeal of the assessee by observing as under:- “I have considered the finding of the AO in the assessment order and assessee’s written submission filed during the appellate proceedings. I have also considered Board circular No. 8/2014. From calculation of profit with assessee’s share filed, the AR has made out a case showing that assessee’s share of profit from M/s. Mangilall Rungta for AY 2010-11 also includes last year undisclosed profit in the form of wrongly claimed excess depreciation by M/s. Mangilall Rungta. There is some logic and force in assessee’s contention and submission but I do not make any comment on the finding given by the Ld. Principal Commissioner of Income Tax, Central-1, Kolkata in his order passed u/s. 263 (as the assessee has not preferred any appeal against the order in ITAT) which has become the basis of the order passed by the AO on 30.11.2015. Accordingly, assessee’s appeal on ground no. 2 and 3 are dismissed.”

Schedule “I” Head Office Account : Partners Capital Account Sri N.L. Rungta Opening Balance 518249232.09 Less: Withdrawal during the year 7000000.00 ------------------ 511249232.09 Add: Excess Depreciation provided in P&M (9MVA) Adjusted (F.Y. 08-09) 12079827.35 Add: Share of Profit 87608029.88 ------------------ 99687859.23 ---------------------- Closing Balance 610937089.32 --------------------- Sri Mukund Rungta Opening Balance 510460668.90 Less: Withdrawal during the year 600000.00 ------------------ 504460668.90 Add: Share of Profit 87608029.88 ------------------ 99687859.23 ---------------------- Closing Balance 604148526.14 --------------------- The ld AR also referred to page 14 of the paper book containing the profit and loss account of the assessee wherein he had separately credited the share of profit from partnership firm at Rs. 9,96,87,857.24 on the income side thereon.

He reiterated the point that both the ld CIT u/s 263 of the Act and the ld AO ultimately had only sought to reduce the exempt income claimed u/s 10(2A) of the Act towards share of profit from partnership firm which according to them had contributed to the increase in partners capital account during the year under appeal. Both the ld CIT and ld AO had not found any concealment of taxable income or furnishing of inaccurate particulars of taxable income reported by the assessee in the returns. Hence there is no prejudice that could be caused to the interests of the revenue and hence no revision u/s 263 of the Act could be made in the instant case and accordingly both the section 263 order of ld CIT as well as the order passed pursuant to section 263 order by the ld AO should be quashed. In response to all these arguments, the ld DR vehemently relied on the orders of the lower authorities.

In view of the aforesaid facts and circumstances, we hold that the revision proceedings u/s 263 of the Act by the ld CIT deserves to be quashed and accordingly we quash the same . Accordingly the grounds raised by the assessee in are allowed.

11 Mukund Rungta & Nandlal Rungta.., AY 2010-11 7.1. Since the revision proceedings u/s 263 of the Act are quashed, the subsequent order of assessment by the ld AO on 30.11.2015 becomes infructuous and deserves to be quashed. Accordingly the grounds raised by the assessee in ITA No. 1318/Kol/2016 are allowed.

7.2. The decision rendered in the case of Mukund Rungta would apply with equal force to Nandilal Rungta as the facts are exactly identical.

Order is pronounced in the open court on 09.03.2017