376808061899518109713$5 1REFNOITA No.109-Alld-2012 Shiv Shakti Builders

 

IN THE INCOME TAX APPELLATE TRIBUNAL  ALLAHABAD BENCH ALLAHABAD BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER ITA No.109/Alld/2012 Assessment Year: 2005-06 M/s Shiv Shakti Builders, Harihar Ganj Fatehpur

vs.

Income Tax Officer, Range-II(4) Fatehpur.

(APPELLANT)

(RESPONDENT)

Assessee by: Shri Praveen Go Godbole, dbole, A.R. Revenue by: Shri A.K. Pandey, DR. Date of hearing: 03.09.2015  Order Pronounced on:13/10/2015

ORDER

This appeal has been filed by the assessee against the order of of Learned CIT(A), dated 21.02.2012 by taking the following grounds of appeal: 1.

That in any view of the matter declared

income in the return and declared status should have been accepted in the facts and circumstances of the case. 2.

That in any view of the matter the learned

Commissioner of Income Tax (Appeals) is highly unjustified in not accepting the additional evidence  file before him and the reasons given in the order  for not accepting the additional evidence are incorrect.

 

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3.

That in any view of the matter assessment as

 framed by the assessing officer as per order dated 23.11.2007 in the status of A.O.P. and his action as confirmed by the Commissioner of Income Tax (Appeals) is highly unjustified. 4.

That in any view of the matter appellant is a

 firm supported by a partnership document which was executed in time and the requirements of  section 184(2) were complied hence the two lower authorities were wrong in adopting the status  A.O.P. and also wrong in disallowing salary and interest paid to partners. 5.

That in any view of the matter the correct

 status of the appellant is of firm and not A.O.P is incorrect and the entire discussion as per Para 6 of the order is incorrect. 6.

That in any view of the matter before

changing the status and before disallowing the  salary and interest no opportunity was allowed to the assessee. Hence the actions of two lower authorities are incorrect. 7. That in any view of the matter payment of remuneration of Rs.90,000/- and payment of interest of Rs.38,125/- to the partners as per the

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terms of partnership deed hence it is an allowable deduction but the two lower authorities are not correct in disallowing the same. 8.

That in any view of the matter copy of

 partnership deed was filed in time and as per terms of deed, payment of salary and interest was claimed therefore, the two lower authorities were wrong in their action. 9. That in any view of the matter a rate of 7% as applied by the Commissioner of Income Tax (Appeals) not correct specially when the two lower authorities were admitted that the assessee is a  sub-Contractorr hence the declared profit should  sub-Contracto have been accepted especially when the learned commissioner of income tax (Appeals) held that  provision of section section 44AD is not not applicable. 10.

That in any view of the matter the learned

commissioner of Income Tax (Appeals) highly unjustified and incorrect in saying that the expenditure claimed in profit and loss account are not verifiable hence application of rate 7% is unwarranted and declared profit liable to be accepted.

3

 

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2.

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The ground Nos. 1,2,3,4,5 & 6 relate to only issue of making

the assessment of the assessee under the status of the AOP, not as firm. 3.

Brief facts of the case are that; the assessee submitted income st

tax return on 31   October, 2005 on an income of Rs.1170/-. The assessee enclosed audited balance sheet alongwith the return. The AO treated the assessee as AOP as the no partnership deed was filed alongwith the return. The assessee went in appeal before the ld. CIT(A), the assessee submitted the application under Rule 46A for admission of additional evidence and also enclosed the copy of the partnership deed. The ld. CIT(A) did not accept the additional evidence and confirm the order of the AO, assessing the assessee as AOP. 4.

I heard the rival submissions and carefully considered the

order of the tax authorities below. I noted that the assessee has submitted the copy of the original partnership deed filed before the AO. I have also perused the application made by the assessee for the admission of additional evidence under Rule 46A before the ld. CIT(A). The assessee requested by this application that due to the non awareness, he was not aware of about the furnishing of the documents before the AO and therefore, he requested to kindly accept the same as additional evidence.

 

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5.

5

From perusal of Rule 46A, I noted that the case of the

assessee, in our opinion falls under Rule 46A (c), the assessee has  been constituted for the first time during the main assessment year as per the provision of section 184 of the Act. It was necessary on the part of the assessee to enclose a certified copy of the instrument of partnership deed alongwith the return of income of the firm of the previous year relevant to the assessment year commencing on st

or after 1  April 1993 in respect of which assessment as a firm is first sought. The assessee firm has been constituted vide  partnership deed dated 12.10.2004 12.10.2004 between Shri Anand Kumar Kumar and Shri Ashish Kumar. The The partnership deed has been been executed on a stamp paper of Rs.750/-. The firm has started the business for the first time on 12.10.2004, therefore, in my opinion it is possible that the assessee who is not aware of about the intricacies of the Income Tax Act and may not be aware of about the relevant  provision that the copy of the partnership deed has to be enclosed alongwith the income tax return or the copy thereof has to be filed  before the Assessing Officer. Officer. 6.

I noted that in this case the assessee has given the

Vakalatnama in favour of Shri Ravi Kumar Rastogi, advocate and therefore, it is the duty of the advocate to guide the assessee and to file the copy of the partnership deed, for inaction of the advocate the assessee firm should not be penalized Hon’ble Supreme Court

 

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6

in the case of Moti Lal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh and Ors. 118 ITR 326 at page 330 held as under: “(ii)

There is no presumption that every person

knows the law. It is often said that everyone is  presumed to know the law, but that is not a correct  statement there is no such such maxim known to the law.” 7.

In view of the aforesaid dictum of law by the Hon’ble

Supreme Court; I am of the view that the assessee may not be aware of about the intricacies of the Income Tax Act. This fact is also proved from the conduct of the advocate on which the assessee has relied and to whom he has given the Vakalatnama, if the advocate would aware of the relevant provision of the Income Tax Act, he could have filed the copy of the partnership deed even during the course of assessment. I therefore, set aside the order of the ld. CIT(A) on this issue and I am of the view that it is a fit case where the additional evidence has been submitted by the assessee has to be admitted. 8.

Now coming to the question whether the assessee firm has to

 be assessed as AOP or firm. The relevant provision of section 184(2) lays down as under: “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

 

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7

 st 

after the 1   day of April, 1993 in respect of which assessment as a firm is first sought.” 9.

From the perusal of the aforesaid provision, it is apparent that

on the part of the assessee firm to enclose the copy of the  partnership deed alongwith the return as the word has been used ‘shall’ but the Court has interpreted similar provision in respect of section 80IA when the question has arisen whether the audit report can be filed subsequently or has to be filed alongwith return if the assessee claims deduction u/s 80I. The relevant provision of section 80IA(7) which also used the similar language requiring the copy of the audit report, is laid down as under for ready reference: “The deduction] under sub-section (1) from profits and  gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous  year relevant to the assessment assessment year for which the deduction deduction is claimed have been audited by an account a ant, nt, as de fined in the Explanation below sub-section (2) of section of  section 288 , and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such s uch accountant.”

10.

In both the provi provision, sion, the word has been used as ‘shall’. ‘shall’.

While interpreting the provision of section 80IA(7) the following High Court has taken the view that filing of the audit report alongwith the return are not mandatory but directory and if the

 

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8

audit report is filed at any time before framing of assessment, then requirement of section 80IA(7) would be met; (i) CIT Vs. Contimeters Contimeters Ele Electricals ctricals (P) Ltd. (2009) 178 Taxman 422 (Del). 422 (Del). (ii) CIT vs. ACE Multitax Multitaxes es Systems (P) Ltd. (2009) 317 ITR 307  (Kar.)  (Kar.) (iii) CIT Vs. Medicaps Ltd. (2010) 323 ITR 554/234 554/234 CTR 96 (MP). (iv) CIT Vs. Sanjay (Uttarakhand). 11.

Kumar

Bansal

219

Taxman

41  41 

Bombay High Court has also taken the the view view that filing of the

audit report alongwith the return is not mandatory in the case of CIT vs. Shivanand Electronics 209 ITR 63  63  (Bom). In this case I noted that the copy of the partnership deed should be filed alongwith the return but in case it was not filed alongwith the return, the AO should have asked the assessee to file the copy of the partnership deed. When the assessee filed the same before the ld. CIT(A), the ld. CIT(A) must have accepted the same, enclosing the copy of the partnership deed. In my view it is merely technical requirement so that the Revenue must have aware of that a  partnership has genuinely been constituted. I therefore, in the interest of justice and in view of the fact that the provision of section 184(2) is not mandatory and is only directory as the similar language has been used u/s 80IA(7). I set aside the order of the ld.

 

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9

CIT(A) on this issue and held that the assessee be assessed as ‘firm’ not as ‘AOP’. Thus the ground No. 1 to 5 are allowed. 12.

The ground ground Nos. 6, 7 & 8 relate to the disallowance of

remuneration and interest to the partners in accordance with the  partnership deed. After hearing the rival submissions, submissions, and going through the order of the tax authorities below. I noted that the remuneration and interest to the partner was disallowed by the AO as the assessee has been assessed as AOP not as a firm. Since while disposing off the ground No. 1 to 5, I have already held that the assessee be assessed in the status of the firm. I accordingly direct the AO to allow interest and salary to the partners subject to the compliance of the conditions as stipulated u/s 40(b) of the Act. Thus the ground Nos. 6, 7 & 8 stands allowed. 13.

The ground No. 9 & 10 relate to the estimation of the profit

in the case of assessee by applying the proviso to section 44AD. The facts relating to these issue are that the AO rejected the books of accounts and applied the proviso to section 44AD and estimated the income @ 8% on the total receipt of Rs.63,45,732/- at Rs.5,07,658/- when the matter went before the ld. CIT(A), the ld. CIT(A) agreed with the contention of the assessee that the  provision of section 44AD are not applicable in the case of assessee as gross receipt exceeds Rs.40 lacs but since the assessee did not produce the bills and vouchers in respect of the purchase of the material and other expenses. He took the view that AO has

 

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10

rightly invoked the provision of section 145(3) of the Act to restrict the estimation of the income @ 7%. 14.

I have have heard the riv rival al submission submission and considered the same

alongwith the order of the tax authorities below. The assessee has not taken any ground against the rejection of the books account therefore, the only question which remains and is under appeal  before me relate to the estimation of the profit. There is no dispute that the assessee has the gross contractual receipts as a subcontractor at Rs.63,45,732/- from Gupta Builders, Kanpur. This is first year of the business of the assessee, therefore, no comparative instance in the case of the assessee as earning of the profit as a subcontractor is available on record. The assessee has returned the income at Rs.1170/- naturally the balance of the receipts has been claimed by the assessee as an expenditure the onus is on the assessee to prove that he has incurred the expenses. It is an undisputed fact that the assessee failed to produce the bills and vouchers to prove the genuinity of the expenses although the assessee has produced the books of account. This is also the fact that in the case of sub-contractor the margin of the profit is less as the margin in respect of contractor is being shared between the main contractor and the sub-contractor. The assessee has submitted  before me at page 54 a copy of order dated 11.05.201 11.05.2011 1 of the ld. CIT(A) in which he has estimated the profit rate @ 5% of the total receipt. In the absence of any cogent material being brought on

 

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record from either of the side I think it appropriate that the gross  profit in respect of a sub-contractor be estimated @ 4% and accordingly I reduce the addition in respect of the gross profit @4%. Thus the ground Nos. 9 & 10 are partly allowed. 15.

In the result, the appeal filed by the assessee is partly

allowed.

Order pronounced in the open Court on13/10/2015.

Sd/(P.K. BANSAL) ACCOUNTANT MEMBER

Dated:13/10/2015  A.K.V.

Copy forwarded to: 1.  Appellant 2.  Respondent 3.  CIT 4.  CIT(Appeals) 5.  DR: ITAT ASSISTANT REGISTRAR