2019 (12) TMI 1425 - AT - Income Tax

Revision u/s 263 - enhancing the income as originally assessed - HELD THAT - We find no basis making enhancement. As clarified by the assessee with reference to the record of it s bill-wise details in the books of the payer, the same is a reimbursement by the customer-payer; the words S.A. denoting Security Advance , which is both accepted and repaid, recording it under columns S.A. paid and S.A. recovery , i.e., on being paid and released respectively, in the bill-wise statement - Two amounts of ₹ 1.25 lac each are reflected as S.A. recovery in the said statement, and tax deducted at source only on the balance amount/s. Further, the bill amount/s having been since paid, duly recorded in the assessee s accounts, not accounting a part thereof by the assessee, as inferred by the Revenue, would lead to a difference in its accounts (with that of the payer) to that extent, i.e., ₹ 2.50 lacs, while none has been noticed or found. The said amount is thus not a trading receipt, but the receipt back of the security advance, paid earlier. The turnover would, accordingly, stand undisturbed at the amount reflected in the books, i.e., ₹ 365.44 lacs. Allowance of interest and remuneration to the partners upon estimating the net profit of the contract business at 5% of the turnover - It is fully competent for the AO to estimate the assessee s business income either before or after allowing the said expenditure, in which latter case the estimate would be arrived at by factoring the amount of the said expenditure and, thus, lower than the former to the said extent. The motivation for a separate allowance thereof and, therefore, the estimation of profit prior thereto, could possibly be on account of the legal position that the said expenditure, to the extent allowed in the firms assessment, is assessable in the hands of the individual partners. Where, therefore, not separately deducted, no amount would stand to be assessed in their hands even as, being otherwise eligible for deduction, would stand to be reckoned while estimating the firms income u/s. 28. The AO had, in the instant case, estimated the net profit at 5% (of the turnover), and allowed the said deductions thereafter. The original assessment order clearly reflects the AO to be fully conscious of the same while making the estimate, and of having applied his mind in allowing the deduction on account of interest and remuneration to the partners, i.e., as claimed, being otherwise admissible. A lower estimate by him would not by itself make his order erroneous, particularly considering that the ld. CIT had not found his order erroneous on account of a lower estimate per se, but due to his having allowed, after estimation, deduction on account of interest and remuneration to the partners. Why, he himself directs for applying a net profit rate of 5% on the escaped turnover (of ₹ 2.50 lacs), so that he found the same as reasonable. The AO, accordingly, had no jurisdiction to revisit his said estimate in the set aside proceedings. This also answers the assessee s additional ground, challenging the revision in estimate, in its favour, even as the ld. CIT(A) has also held like-wise, so that there is no warrant for the said Ground; the Revenue being not in appeal. No basis for either a review of the said estimate, revised to 8%,or for regardingit as having been made after the allowance of interest and salary to the partners, so as to preclude their allowance, as argued by the Revenue. No adjustment in respect thereof is accordingly called for. Adjustment towards the income not separately assessed - These incomes are independent of the assessee s contract business. We are unable to see as to how these incomes, the source whereof is a Jeep (vehicle) and surplus (for the time being) money (placed under bank deposit), would not stand to be assessed separately as income from other sources - amount credited to the profit and loss account in their respect represents the net income, which would therefore not require any separate adjustment the depreciation schedule not bearing Jeep for adjustment of depreciation, a statutory allowance, exigible thereon. In fact, no contention either as regards the same being not separate or independent incomes, or the set off of any expenditure/allowance against the credits in their respect,has been raised by the assessee at any stage, including before us. The only adjustment, therefore, that obtains consequent to the set aside by the ld. CIT is the assessment as income from other sources u/s. 56, i.e., as assessed. The assessee s business income shall continue to be at ₹ 14,47,620/-, i.e., as original assessed. We are conscious that the allowance of deduction for remuneration to partners, allowed at ₹ 1,30,000, is to be w.r.t. book profit (Explanation 4 to s. 40(b)(v)), so that the enhancement in income upon estimation would have no bearing on the quantum of the said deduction. The same, however, has been considered w.r.t. the assessee s book profit, and found allowable at the claimed amount of ₹ 1,30,000. We decide accordingly. Assessee s appeal is partly allowed.

Summary

Issues Involved:
- Appeal against the Order by the Commissioner of Income Tax (Appeals) partly allowing the assessee's appeal contesting its assessment under section 143 read with s. 263 of the Income Tax Act, 1961 for Assessment Year 2010-11.

Detailed Analysis:

1. Scope of Assessment in Set Aside Proceedings:
The Revenue claimed that the income enhancement was determined per the section 263 order, whereas the Tribunal clarified that a fresh consideration of the issues was required as per law after hearing the assessee. The Tribunal rejected the Revenue's argument of foreclosure due to non-appeal by the assessee against the original assessment or the s. 263 order. The Tribunal decided to address each issue raised by the Commissioner per his order, requiring the AO to reconsider in assessment.

2. Quantum of Turnover Adjustment:
The Tribunal found no basis for increasing the turnover by ?2.50 lacs. The amount was clarified as a reimbursement by the customer-payer denoting 'Security Advance,' not a trading receipt but a refund of a security advance. The turnover remained undisturbed at ?365.44 lacs.

3. Allowance of Interest and Remuneration to Partners:
The Tribunal analyzed the allowance of interest and remuneration to partners after estimating the net profit. It was determined that the AO had estimated the net profit at 5% of the turnover and allowed deductions thereafter. The Tribunal concluded that the AO had no jurisdiction to revisit the estimate in the set aside proceedings, and no adjustment was required.

4. Adjustment towards Other Incomes:
The Tribunal addressed the income of ?1,77,273 not separately assessed, which was deemed as income from other sources. The source of these incomes, a Jeep and bank deposit surplus, warranted separate assessment. The Tribunal decided to assess the income from other sources at ?1,77,273, while the business income remained as originally assessed.

5. Final Decision:
The Tribunal allowed the assessee's appeal partly, maintaining the business income at ?14,47,620 and confirming the deduction for remuneration to partners at ?1,30,000. The Tribunal pronounced the order on December 24, 2019, resolving the issues raised in the appeal comprehensively.