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TMI Blog2021 (5) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... please be quashed and/or above disallowance may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 2. At the outset, the ld. counsel for the assessee informs the Bench that assessee does not want to press ground no. 1 and ground no. 3. Therefore, we dismiss the ground no.1 and ground no.3 raised by the assessee as not pressed. The only effective issue involved in this appeal is ground No. 2 raised by the assessee which relates to disallowance of remuneration of partners to the extent of Rs. 2,24,247/- by treating interest on FD and interest on income tax refund as income from other sources. 3. The facts of the case which can be stated quite shortly are as follows: The assessee is engaged in the manufacturing of aromatic chemicals. During the course of assessment proceedings it was noticed by the assessing officer that the total income of the assessee included dividend income of Rs. 377/-, interest on deposit of Rs. 4,51,820/, interest on income tax refund of Rs. 28,322/- and interest on recurring deposit account of Rs. 42,602/-, which were covered under the head "Income from other sources" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) who has confirmed the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 7. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Before us, learned Counsel for the assessee has reiterated the submissions made before the ld. CIT(A). On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. We note that during the scrutiny assessment, the assessing officer noticed that the total income of the assessee included the following: (1) Dividend income Rs. 377/- (2) Interest on deposits Rs. 4,51,820/- (3) Interest on Income tax Refund Rs. 28,322/- (4) Interest on recurring deposit Rs. 42,602/- The assessing officer was of the view that above incomes were not directly related to the business income of the assessee therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing raw cotton, ginning the same, making cotton beds and selling such cotton beds and cotton seeds. For the assessment year 2004-05, the assessee filed the return of income on 27.10.2004 declaring total income of Rs. 20.35 lacs (rounded off). The Assessing Officer framed scrutiny assessment on 27.10.2006 determining the total income of Rs. 20.46 lacs (rounded off). Such assessment was subsequently reopened under Section 147 of the Act. During such reassessment proceedings, the Assessing Officer examined the question of remuneration paid by the firm to the partners. He was of the opinion that the ceiling of such remuneration for the purpose of claiming deduction had to be computed after ignoring the interest income of the assessee-firm earned on fixed deposits which came to Rs. 11.82 lacs (rounded off). He thus concluded that there was excess remuneration to the partners to the extent of Rs. 4.90 lacs (rounded off). He made disallowances accordingly. 3.2 The assessee carried the matter in appeal. CIT(A) rejected the assessee's appeal and confirmed the view of the Assessing Officer upon which, the assessee approached the Tribunal. The Tribunal, by the impugned judgment, rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any payment of remuneration to any partner who is a working partner, which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:- (a) On the first Rs. 3,00,000 of the book-profit or in case of a loss Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more; (b) On the balance of the book-profit At the rate of 60 per cent 5. From the above provision it can be seen that where an assessee is a partnership firm, any payment of salary, bonus, commission or remuneration to its partners under certain circumstances, if it exceeds the limits set out in Clause B, deduction to the extent of excess cannot be claimed. In the present case, such ceiling is prescribed in two slabs. On the first Rs. 3 lacs on the book profit or in case of loss such ceiling is Rs. 1,50,000/- or 90% of the book profit whichever is more. On the balance of the book profit such ceiling prescribed is @ 60%. 6. The question, therefore, arises whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown under different heading but the same was classified under the aforesaid heading as shown appearing in the matter of computation book profit in terms of Explanation 3 of Section 40(b)(v) as the said explanation provides for taking the net profit as shown in the profit and loss account and not the profit computed under the head 'profit and gains on business or profession'. Unlike Explanation (baa) to Section 80HHC and Section 33AB both of which mentioned profit as computed under the head 'profit and gains on business or profession', the Explanation 3 to Section 40(b)(v) does not refer to any head of income but maintains profit as shown in the profit and loss account however it was intended that for the purpose of Explanation 3 only profit computed under head 'profits and gains on business or professions' were to be considered, the expression used in Explanation 33A to Section 80HHC and Section 33AB would. have also found place in Explanation 3. 6. He contends that stipulation for the net profit should. be computed in the manner laid down in Chapter IV- D requires that computation provision of Chapter IV-D namely those contained in Sections 30 to 33D sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dy. CIT [1995] 212 ITR 496 and in case of G.K.W. Ltd. v. CIT [2005] 273 ITR 380 (Cal.) and the case of Mintri Tea Co. (P.) Ltd. v. CIT [2009] 319 ITR 264 (Cal) submits that if any factual inquiry was necessary or any debatable question of law had to be decided, it could. not be made subject-matter of a prima facie adjustment under Section 143(1)(a) and issue which could. not have been dealt with as a prima facie adjustment under Section 143A(a) cannot be dealt with as a mistake apparent from the record within the meaning of Section 154 and logically, he submits if no prima facie adjustment could. be made on an issue under Section 143(1)(a) intimation issued under the said provision did not suffer from any mistake apparent from the record and there can be no question of exercising the power under Section 154 for rectifying such an intimation. 10. He reminds us referring to the decisions of the Supreme Court in case of CIT v. Hero Cycles (P.) Ltd. [1997] 228 ITR 463 / 94 Taxman 271 and Deva Metal Powders (P.) Ltd. v. Commissioner, Trade Tax [2008] 2 SCC 439 that rectification under Section 154 can only be made if there is a glaring mistake of fact and law but not if the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and after going through the record carefully it appears to us neither the learned Tribunal nor the Commissioner of Income Tax (Appeals) being the two successive Appellate Authority below applied their mind nor examined the orders passed by the Assessing Officer in proceedings under Section 154 of the said Act. They have merely accepted what the Assessing Officer has held. The contention and submission of the assessee was not dealt with at all. Under these circumstances it would. have been ideal by this Court to remand the matter to the file of the learned Tribunal for fresh decision on the contention raised before us. 14. However, having regard to the age of the matter we refrained ourselves from remanding the matter and we decide the matter by ourselves. 15. As we have already observed learned two authorities below have not decided anything else, we therefore, examined the order passed by the Assessing Officer in relation to aforesaid two assessment years. Three several orders were passed with identical reasons and even language. It appears from the orders of the Assessing Officer when notice under Section 154 was issued replies in writing were given to the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the report held. as follows:- "A bare look at Section 22 of the Act makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 22, the mistake must exist and the same must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. "Mistake" means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception. "Apparent" means visible; capable of being seen; obvious; plain. It means "open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming". A mistake which can be rectified under Section 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration." 21. It is appropriate to quote also paragraph 15 of the said report- "15. "Mistake" is an ordinary word but in taxation laws, it has a special significance. It is not an arithmetical error which, after a judicious probe into the record from which it is supposed to emanate is discerned. The word "mistake" is inher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book-profit, or in case of a loss (b ) on the next Rs. 75,000 of the book-profit (c ) on the balance of the book-profit Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more; at the rate of 60 per cent; at the rate of 40 per cent; Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more; at the rate of 60 per cent; at the rate of 40 per cent; Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment. Explanation 1.- Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as "partner in a representative capacity" and "person so represented", respectively), - (i) interest paid by the firm to such individual otherwise than a partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the firm to such individual as partner in a represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act, then it should. be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of the Companies Act and another for the purpose of income-tax both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company's income, then it would. have stated in section 115J that "income of the company as accepted by the Assessing Officer". In the absence of the same and on the language of section 115J, it will have to held. that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal." 26. At page 282 of the said report the Supreme Court has also obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net profit as shown in the profit and loss account and not the profit computed under the head 'profit and gains on business or profession'. Hence these items should. not be excluded while computing book profit for the purpose of partners` remuneration. 11. We note that a bare reading of the Explanation 3 of section 40(b) of the Act, make it evident that selection of the any head of income, more particularly of the head "Profit or gain of business or profession", is nowhere required or envisaged by the Legislature. That is, there is no warrant to select the head of income so far as the computation of the permissible amount of deduction of the remuneration under section 40(b) is concerned. As per Explanation 3 of section 40(b) of the Act, Assessing Officer does not get the jurisdiction to go behind the net profit shown in the Profit & Loss account except to the extent of the adjustments provided in the Explanation 3, nor he is empowered to decide under which head the income is to be taxed. The net profit as shown, is not to be allocated into different components. As the issue is squarely covered in favour of the assessee by the judgment of the Jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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