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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH
आदेश/Order
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Revenue against the order of
the Ld. CIT(A)-1, Chandigarh dt. 24/09/2015.
In the present appeal Revenue has raised the following grounds:
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case. 2. Whether in the facts and circumstances of the case the Ld. CIT(A) was right in deleting the addition by holding that partners remunerations were allowable on the net profit even if the same included income from other sources, even thought the explanation (3) to section 40(b) of the I.T. Act clearly provies that the Book profit is to be calculated in the manner laid down in chapter IV D whereas the Income from other sources is computed in the manner as laid down in chapter IV F.
It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored.
It was argued by the Ld. DR that owing to the audit objection the case
cannot be covered by the Circular No. 21 of 2015 dt. 10/12/2015. Hence the
case has been recalled and being decided on merits.
As taken from the order of the Ld. CIT(A) and from the records the brief
facts of the issue are that the original assessment was completed u/s 143(3) of
the Income Tax Act, 1961 on 30.11.2011. The Assessing Officer issued a notice u/s
154/155 on 15.11.2012 to rectify the apparent mistake in the assessment order.
As per the notice issued the details of mistake apparent from record was given
as "the assessee has claimed & allowed salary to partners amounting to Rs.
19,50,878/- on the basis of book profits of Rs. 47,45,944/'-. The assessee has
included income of Rs. 21,77,434/- received as interest on capital withdrawn by
the partners. The interest income on capital was not chargeable to tax as
business income but as income from other sources. As such the amount was
required to be deducted from book profits for calculation of salary allowable to
partners. The salary allowable after deducting the income from other sources
works out to Rs. 10,79,904/- calculated on book profit of Rs. 25,68,810/- (Rs.
47,45,944/- - 21,77,434/-). The salary excess allowed by the partners Rs. 8,70,974/-
(Rs. 10,79,904/- - Rs. 19,50,878/-) is under assessment. Tax effect of this omission is
Rs. 2,69,130/- besides levy of interest under section 234D is Rs. 86,121/-."
Order u/s 154 was passed on 22.03.2013 disallowing excess salary paid to
the partners of Rs. 8,70,974/-. A submission dated 10.09.2015 was filed during the
course of appellate proceedings, which is considered.
It was submitted before the Ld. CIT(A) that the partners had withdrawn
excess to their capital account and interest is recovered from partners. The
interest earned as such from the partners gets adjusted against the interest paid
on borrowings and, therefore, the business expenses is reduced and income
under the head "business and profession' increases. The expenses for payment
to partners for interest and salary are covered u/s 40(b)(v) of the Act and not u/s
57 of the Act. The Assessing Officer has wrongly treated the interest recovered
from partners amounting to Rs. 21,77,434/-as income from other sources instead
of business income and recomputed the book profit and has disallowed the
excess salary paid to the partners. In, support its plea, the appellant has relied
upon the decision of the Hon'ble Calcutta High Court in the case of Md.
Serajuddian and bros. Vs. CIT reported as (2012) 82 CCH 0098 KolHC/(2012) 80
DTR 0046/(2012) 210 Taxman 0084. Reliance was also placed upon the decision
of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT, reported in
[2002] 255 ITR 273 (SC).
The Ld. CIT(A) considered the decision of Hon'ble Calcutta High Court in
the case of Md. Serajuddian and bros. Vs. CIT wherein it was held as under
"the said chapter nowhere provided that method of accounting for the purposes of ascertaining net profit should be the only income from business alone and not from other sources. S. 29 provide how the income from profits and gains of business or profession should be computed and this had to be done as provided u/s 30 to 43D. By virtue of s. 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of s. 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/ or book-profit. The said section nowhere provides that the net profit as shown in the profit and loss account is not the profit computed under the head profit and gains of business or profession"
It was held finally that even if the income from other sources is included in
the profit & loss accounts to ascertain the net profit qua book profit for
computation of the remuneration of the partners, the same cannot be
discarded.
We have gone through the facts on record and also argument of both
the parties and we are in agreement with the finding that the method of
computation of income should be the on the similar lines for determination of
net profit and as well as determination of book profit as per the provisions of the
Income Tax Act, 1961. Hence the appeal of the Revenue is hereby dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court. Sd/- Sd/- संजय गग� डा. बी.आर.आर, कुमार, (SANJAY GARG ) ( DR. B.R.R. KUMAR, AM) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 29/11/2018
आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :
अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File