Firm slammed with dis allowance for remuneration paid to partners as best judgment assessment was concluded
IT : If assessee firm fails to comply with provisions of section 144, no deduction by way of salary or remuneration paid to partners will be allowable
■■■
[2013] 33 taxmann.com 9 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Bhatnagar Opticals
v.
Income-tax Officer, Ward 2(1), Gwalior*
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT Appeal No. 313 (Agra) of 2012
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
FEBRUARY 15, 2013
Section 144, read with sections 184, 185 and 69C of the Income-tax Act, 1961 - Best judgment assessment [Non-compliance of section 144, effect of] - Assessment year 2006-07 - Assessee-firm's return was treated as invalid as no trading, profit and loss account and balance sheet were filed with it - Assessee did not comply with notices, under section 142(1) for filing return and under section 131 for producing books of account - Due to assessee's failure to produce complete details in spite of issuing several statutory notices, Assessing Officer passed ex parte assessment order under section 144 and disallowed salary/remuneration paid to partners as unexplained expenditure under section 69C, due to non-compliance of provisions of section 144 - Whether, where assessee firm did not comply with provisions of section 144, no deduction by way of salary or remuneration paid to partners was allowable as per sections 184(5) and 185 - Held, yes [Para 5.1] [In favour of revenue]
FACTS
| ■ | Assessee-firm filed return of income, but no trading account, profit and loss account and balance sheet were filed with it. Therefore, the return was treated as invalid. Notice under section 142(1) requiring assessee to file return of income and summon under section 131 requiring assessee to appear in proceedings and produce books of account and supporting documents were not complied with. | |
| ■ | During survey, some documents were impounded but no regular books of account were found at the premises. Partner of assessee-firm accepted that no books of account had been prepared. Due to failure of assessee to produce complete details in spite of issuing several statutory notices, Assessing Officer passed ex parte assessment order under section 144. From the records, the Assessing Officer found that the assessee firm had paid salary and remuneration to its partners, which was treated as unexplained expenditure under section 69C and addition was made. | |
| ■ | On first appeal, the Commissioner (Appeals) confirmed the addition on ground that assessee had failed to give any documentary evidence or produce books of account to substantiate the payments. | |
| ■ | The assessee contended that the order of the Assessing Officer was non-speaking and no details were provided for making addition. It was claimed that conditions of section 69C had not been satisfied and the remuneration was allowable under section 40(b) | |
| ■ | On second appeal by assessee: |
HELD
| ■ | Considering the facts of the case, it is clear that the assessee failed to comply with the provisions of section 144. Whatever return of income was filed originally, was declared invalid because the assessee failed to remove the deficiency in the return. The assessee also failed to file the return of income as required under section 142(1) and also failed to comply with the notice under section 144. Therefore, section 144 was rightly invoked against the assessee for framing the ex parte assessment order. Sub-section (5) of section 184 is an exception to Rule and would clearly disentitle the assessee for claiming deduction by way of salary and remuneration etc. in case the assessee made a failure as provided under section 144. Similarly, the assessee also failed to prove other ingredients of section 184 before the Assessing Officer. | |
| ■ | Therefore, the provisions of section 185 would also apply in the case of the assessee. | |
| ■ | Thus, according to section 184(5), the assessee would not be entitled for deduction by way of salary and remuneration. | |
| ■ | Since the assessee did not produce any evidence or material at any stage and there is no denial that the assessee claimed deduction on account of salary and remuneration in the original return of income, the Assessing Officer was justified in holding the expenditure to be unexplained. Further, the findings of the Assessing Officer are supported by the details filed in the return of income by the partners in which they have declared the amount of salary received from the assessee firm and as such specific material was available with the Revenue Department to prove that the assessee paid salary to these partners for which deduction has been claimed. Considering the above discussion in the light of the above provisions, there is no justification to interfere with the orders of the authorities below. The findings of fact recorded by the authorities below are accordingly confirmed and the appeal of the assessee is, accordingly, dismissed. [Para 5.1] |
Mahesh Agarwal for the Appellant. K.K. Mishra for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the assessee is directed against the order of ld. CIT(A), Gwalior dated 29.04.2012 for the assessment year 2006-07, challenging the addition of Rs.1,20,000/- on account of salary and remuneration paid to the partners.
2. The assessee filed application for admission of additional grounds, on which reply of the department was sought. However, on the date of hearing, the ld. Counsel for the assessee seeks permission to withdraw the application for raising the additional ground of appeal. The same is accordingly dismissed as withdrawn.
3. Briefly, the facts of the case are that the assessee filed return of income on 30.03.2007 showing loss of Rs. 2097/-. No trading account, profit & loss account and balance sheet were filed with the return of income. Deficiency letter was issued to the assessee but it was not complied with by the assessee to remove the defect in the return of income. Therefore, the same return was treated as invalid and was also intimated to the assessee as such. Simultaneously, the notice u/s. 142(1) was issued on 19.03.2008 requiring the assessee to file the return of income for the assessment year under appeal, which was also not complied with by the assessee. Further notice u/s. 142(1) and summon u/s. 131 were issued to the assessee time to time requiring the assessee to appear in the proceedings before the AO and to produce the books of accounts and supporting documents, but the assessee did not comply with the same. Survey u/s. 133A was conducted on 18.12.2008 in the premises of the assessee and some documents were impounded, but no regular books of account were found at the premises of the assessee. Statement of the partner of the assessee firm was recorded in which he has accepted that no books of account have been prepared. Thereafter, several statutory notices were issued time to time requiring the assessee to produce complete details, but none have been complied with by the assessee and accordingly, show cause notice u/s. 144 was also issued as to why income of the assessee be not computed exparte u/s. 144 of the IT Act. It was intimated that it is not possible for the assessee to produce the desired details as the concerned partner is not available. Thus, the assessee did not comply with any of the statutory notices. Therefore, the AO on the basis of the material on record passed exparte assessment order u/s. 144 of the IT Act. On the basis of record/information available with the Revenue Department, it was found that the assessee firm has also paid salary/remuneration to the persons mentioned below during the assessment year under appeal :
| (i) Smt. Pooja Bhatnagar | Salary | Rs.72,000/- |
| (ii) Shri Rachit Bhatnagar | Remuneration | Rs.24,000/- |
| (iii) Shri Anurag Bhatnagar | Remuneration | Rs.24,000/- |
The AO, therefore, treated the same as unexplained expenditure u/s. 69C of the IT Act, as no return of income was filed. Therefore, addition of Rs.1,20,000/- was accordingly made. Addition was challenged before the ld. CIT(A) and it was submitted that the order of the AO is non-speaking and no details were provided for making addition and the remuneration is allowable u/s. 40(b) of the IT Act. The ld. CIT(A), however, did not accept the contention of the assessee. The ld. CIT(A) found that the assessee firm came into existence vide partnership deed dated 04.01.2000 and salary and remuneration is paid as per the deed. Rs.72,000/- was paid to Smt. Pooja Bhatnagar, which was also declared in her return of income filed with the department and similarly in the other case of remuneration to other partners, they have declared remuneration received from assessee firm. The assessee, however, failed to give any documentary evidence and failed to produce books of account to substantiate these payments. Similarly, no documents and material was produced at the assessment stage despite giving opportunity. The ld. CIT(A) in the absence of any details was of the view that no business expenditure is allowable to the assessee firm and accordingly in the absence of any evidence for payment of salary and remuneration to the partners, addition was confirmed and appeal of the assessee was accordingly dismissed.
4. The ld. Counsel for the assessee submitted that no expenses have been disallowed by the AO and no specific notice u/s. 144 has been given. PB-3 is the letter of the AO which did not contain any specific material for making addition against the assessee. He has relied upon the decision of Hon'ble Kerala High Court in the case of T.C.N. Menon v. ITO [1974] 96 ITR 148 in which it was held that in the best judgment assessment, the assessee is entitled to show cause why on the materials gathered by the ITO, his total income should not be assessed in the manner proposed by the ITO. He has further submitted that the conditions of section 69C are not satisfied in this case because no proper explanation of the assessee was called for and there should be actual expenses incurred by the assessee so that addition could be made. In the case of the firm, as assessed by the AO, the deduction should be allowed as such. On the other hand, the ld. DR relied upon the orders of the authorities below.
5. We have considered the rival submissions and the material on record. The relevant provisions to deal with the matter in issue are reproduced as under. Section 144 of the Act provides as under :
144.(1)] If any person-
| (a) | fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or | |
| (b) | fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under subsection (2A) of that section], or | |
| (c) | having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, |
The Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment :
Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment :
Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.]
(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.
Section 184 of the IT Act provides as under :
184.(1) A firm shall be assessed as a firm for the purposes of this Act, if-
| (i) | the partnership is evidenced by an instrument ; and | |
| (ii) | the individual shares of the partners are specified in that instrument. |
(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall accompany the return of income of the firm of the previous year relevant to the assessment year commencing on or after the 1st day of April, 1993 in respect of which assessment as a firm is first sought.
Explanation.-For the purposes of this sub-section, the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.
(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought.
(4) Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly.
(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession" and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.
Section 185 of the IT Act provides as under :
185.Notwithstanding anything contained in any other provision of this Act, where a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession" and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.
5.1 Considering the facts of the case in the light of the above provisions, it is clear that the assessee failed to comply with the provisions of section 144 of the IT Act. Whatever return of income was filed originally was declared invalid because the assessee failed to remove the deficiency in the return. The assessee also failed to file the return of income as required u/s. 142(1) of the IT Act and also failed to comply with the notice u/s. 144 of the IT Act. Therefore, the provision of section 144 of the IT Act has been rightly invoked against the assessee for framing the exparte assessment order. Sub-section (5) of section 184 of the IT Act is exception to Rule and would clearly disentitle the assessee for claiming deduction by way of salary and remuneration etc. in case the assessee made a failure as provided u/s. 144 of the IT Act. Similarly, the assessee has also failed to prove other ingredients of section 184 of the IT Act before the AO. Therefore, the provisions of section 185 of the IT Act would also apply in the case of the assessee. Thus, according to section 184(5), the assessee would not be entitled for deduction by way of salary and remuneration. These provisions have no concern whatsoever even if the status of the assessee is noted as 'firm' in the body of the order. The entire crux of the facts has to be applied against the relevant provision of law for making assessment. Since the assessee did not produce any evidence or material at any stage and there is no denial even before us that the assessee claimed deduction on account of salary and remuneration in the original return of income, the AO was justified in holding the expenditure to be unexplained. Further, the findings of the AO are supported by the details filed in the return of income by the partners in which they have declared the amount of salary received from the assessee firm and as such specific material was available with the Revenue Department to prove that the assessee paid salary to these partners for which deduction has been claimed. Considering the above discussion in the light of the above provisions, we do not find any justification to interfere with the orders of the authorities below. The findings of fact recorded by the authorities below are accordingly confirmed and the appeal of the assessee is accordingly dismissed.
6. In the result, the appeal of the assessee is dismissed.
P. Sen *In favour of revenue.
Circle rates of properties to be adopted for calculation of cap gains in absence of other reliable valuations
IT : In absence of reliable valuation, circle rates of property is to be adopted
■■■
[2013] 33 taxmann.com 11 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax-XI
v.
Delhi Housing & Finance Corporation*
BADAR DURREZ AHEMED AND R. V. EASWAR, JJ.
IT Appeal No. 38 of 2013†
FEBRUARY 12, 2013
Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of [Full value of consideration] - Assessment year 2003-04 - Issue was with regard to correct valuation of two plots sold by respondent-assessee during financial year ending 31-3-2003 - After a gap of 3 years from date of sale, Inspector had made verbal enquiries, that too from only two-three persons - Whether Commissioner (Appeals) as also Tribunal were fully justified in not placing any reliance on Inspector's report - Held, yes - Whether Tribunal was justified in adopting only other values that were available to it which were circle rates of two localities at time of sales of said plots - Held, yes [Para 5] [In favour of assessee]
Karan Khanna and Ms. Asmita Kumar for the Appellant.
JUDGMENT
Badar Durrez Ahmed, J. - This appeal by the revenue is directed against the order dated 25.05.2012 passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'Tribunal') in ITA No.4917/Del/2010 pertaining to the assessment year 2003-04. The only issue that was before the Tribunal was with regard to the correct valuation of two plots sold by the respondent/assessee during the financial year ending 31.03.2003 which was relevant to the assessment year 2003-04. One plot was of Radhey Shyam Park and another of Rajinder Nagar Industrial Area. The impugned order passed by the Tribunal was the second round of litigation before the Tribunal. In the first round the Tribunal had passed an order on 28.11.2008 whereby it had noticed that the assessing officer while estimating the rate of the plots had taken a rate relying upon an Inspector's report with which the respondent had not been confronted. Consequently, the Tribunal had directed that the matter be restored to the file of the assessing officer to decide the same afresh after supplying the Inspector's report to the respondent/assessee and also after allowing an opportunity to the assessee to cross-examine the Inspector. The assessing officer was directed to estimate the sale rates of the said plots after considering the entire material and the surrounding circumstances in accordance with law.
2. Pursuant to the directions given by the Tribunal in the first round, the assessing officer supplied a copy of the Inspector's report to the assessee and also produced the Inspector for cross-examination by the assessee. However, despite the said cross-examination the assessing officer maintained that the assessee had suppressed the sale prices and did not accept the explanation offered by the assessee. The assessing officer once again adopted Rs. 6,000/- per sq. yd. as the rate for computing the value of the plots at Radhey Shyam Park and Rajinder Nagar Industrial Area. As such the assessing officer confirmed his earlier determination of Rs. 31,21,980/- in respect of land at Radhey Shyam Park and Rs. 23,93,000/- in respect of land at Rajinder Nagar Industrial Area. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT (Appeals) held that the assessee was not justified in applying the rate of Rs. 1,000/- sq. yd. and held that Rs. 2,500/- per sq. yd. should be adopted for the land at Rajinder Nagar Industrial Area and Rs. 2,900/- per sq. yd. should be adopted for the land at Radhey Shyam Park.
3. The revenue as well as the assessee filed appeals before the Tribunal being aggrieved by parts of the decision of the CIT (Appeals). The cross-appeals have been disposed of by the order dated 25.05.2012 which is impugned before us by the revenue. The Tribunal had taken the view that so far as the plot at Radhey Shyam Park was concerned the circle rate was Rs. 1,338 per sq. yd. whereas the apparent sale consideration was @ Rs. 1,441/- per sq. yd. and, therefore, in the absence of any concrete evidence to the contrary the circle rate should be adopted as representing the correct value of the land at Radhey Shyam Park since the circle rate was lower than the apparent sale consideration at the rate of Rs. 1,441/- per sq. yd. The Tribunal accepted at Rs. 1,441/- per sq. yd. As regards the land at Rajinder Nagar Industrial Area the Tribunal observed that circle rate was Rs. 2,508/- per sq yd. at the relevant time. The sale consideration that was shown at the rate of Rs. 1,000/- per sq. yd. was below the circle rate of Rs. 2509/- per sq yd. and, therefore, the Tribunal concluded that the CIT (Appeals) was justified in adopting the rate of Rs. 2,500/- per sq. yd.
4. We have also gone through the order passed by the CIT (Appeals) which sets out in some detail the cross-examination of the Inspector by the assessee. The observations of the Commissioner of Income Tax (Appeals) with regard to the cross-examination of the Inspector are as under: -
"(iv) On the cross examination of Shri Dewan-Inspector, sought by the assessee and allowed by the AO, the following analysis and important aspects came into light which are narrated as under:
| (a) | Shri Dewan answered that he do not remember the exact facts as the matter is more than three years old. | |
| (b) | No written directions given to him. | |
| (c) | He was verbally asked to visit the area and make local enquiries as to the prevailing market rate for those properties. | |
| (d) | He could not point out the difference between the Radhey Shyam Park residential colony and Rajinder Nagar Industrial Estate area. | |
| (e) | He could not also point out the distance and location between two colonies. | |
| (f) | He made enquiries only from 2 to 3 persons. | |
| (g) | The visit was made on working day. | |
| (h) | Enquired from the male occupants of the colony present on that date. | |
| (i) | He could not answer whether rates were for residential or industrial colony plots. | |
| (j) | No documentary evidence was collected or based. | |
| (k) | He explained general method used for collecting income tax enquiries, identity is not disclosed, as to get the true picture of the situation prevailing. | |
| (l) | I disguised myself as a prospective buyer for the properties in those colonies and enquired about the likely rate at which I could buy the property at that time of visit. | |
| (m) | From his statement it is apparent that the alleged rate Rs. 6000 to Rs. 7000 per sq. yd. existed on the date of his visit i.e. 2.3.2006. Such rate was not prevailing during the F.Y. 01.04.2002 to 31.03.2003. No cogent or worthy material or reliable, relatable or referable in the form of any documents which could be used as evidence, or could be used as the basis was procured and available with the department even to justify their existing rate (on 2.3.2006) for the alleged rate of Rs. 6000/- to Rs. 7,000/-. The information provided was thus not sufficient material and has not been ascertained or verified, for the existing rate prevailing during the A.Y. 2003-04." |
5. It appears from the aforesaid cross-examination that the Inspector was, at the time of cross-examination hardly aware of the facts of the case. It is also pertinent to note that he had only made verbal inquiries with regard to the prevailing market rate of the property and had not collected any instances of actual sales in the said areas. Furthermore, the inquiry that he made was as on the date of his visit, that is, on 02.03.2006, whereas the sales had taken place in the financial year ending 31.03.2003. He also stated that he had made inquiries from only 2-3 persons. It is obvious that when such statements are made in cross-examination, his report with regard to the rate of land being Rs.6,000/- per sq. yd. to Rs. 7,000/- per sq. yd. in the two localities would not have much evidentiary value, if at all. He had specifically indicated in his cross-examination that he had inquired about the likely rate at which he could buy property at that time. Thus, even the rates indicated by him in his report, were not of financial year ending 2003-04 but, were of the date he visited, that is, 02.03.2006. Therefore, the Commissioner of Income Tax (Appeals) as also the Income Tax Appellate Tribunal were fully justified in not placing any reliance on the Inspector's report and by describing it only as an opinion without any material evidence to back the same. Consequently, the Tribunal was justified in adopting the only other values that were available to it and those were the circle rates of the two localities at the time of the sales of the said plots. Going by the circle rates, the Tribunal has concluded that no inference was called for in respect of the plot at Radhey Shyam Park, whereas, the value of the plot at Rajinder Nagar Industrial Area was to be re-calculated at the rate of Rs.2,500/- per sq. yd.
6. In these circumstances, we are of the opinion that no substantial question of law arises for our consideration. The appeal is dismissed. There shall be no order as to costs.
SB __._,_.___
No comments:
Post a Comment