Income Tax Appellate Tribunal - Bangalore
Deepa Agro Agencies vs Income Tax Officer on 5 August, 2005
Equivalent citations: (2005)98TTJ(BANG)766
ORDER
Deepak R. Shah, A.M.
1. This appeal by assessee is directed against the order of learned CIT(A), Davangere, dt. 12th March, 2003.
1.1 The first ground of appeal is against disallowance of a sum of Rs. 1,79,350 being discount allowed to the customers through the credit notes.
1.2 The assessee-firm carried on business in purchase and sale of seeds and pesticides. A survey was conducted at the business premises of assessee on 2nd July, 1998. During the course of survey, the assessee agreed to offer an additional income of Rs. 2,45,000 for the assessment year under appeal. The assessee declared the sum as there were certain cash credits in the books of account for which the assessee had no documentary evidence to substantiate the genuineness of such cash credits. During the course of survey, the AO also found certain credit notes in the premises of assessee. The AO held that the credit notes are not issued by the assessee. Thus, such rebate/discount has not been passed on. Even the recipient of such discount has not accounted as such credit notes were not issued. He accordingly disallowed the sum. When the matter was carried before the learned CIT(A), learned CIT(A) asked for a remand report from the AO vide his letter dt. 5th July, 2002. The direction of learned CIT(A) is containing following words :
"The AO is directed to provide cross-verification of the assessee before disallowing the claims of incentive amounting to Rs. 1,66,290. Same is the case with regard to discount amounting to Rs. 1,79,212. In the interest of natural justice, the AO is directed to provide adequate opportunity to the assessee to prove these expenses and cross-verify the payment of incentive and discount."
1.3 When the AO conducted further enquiry pursuant to such remand report, the assessee filed necessary details. However, while passing the impugned order, learned CIT(A) held that "there is no question of providing cross-examination facility to appellant. The payment of discount is not genuine". The assessee, therefore, challenges the above finding.
1.4 Learned Counsel for assessee, S/Shri V. Srinivasan and Virupanna Amberkar submitted that learned CIT(A) has gone against his own direction. While calling for remand report, the assessee filed all the details. The AO has collected certain information, which was not provided to assessee and hence, learned CIT(A) has asked the AO to provide all these details. This direction has not been complied with. Accordingly, the matter is required to be restored back to the AO to provide all the information and consider the submission by the assessee. It was, therefore, concluded that in the interest of justice, the matter is required to be restored to the AO.
1.5 Learned Departmental Representative submitted that in the interest of justice, the matter may be restored back.
2. On careful consideration of the relevant facts and the arguments advanced, we are convinced that the matter is required to be restored back to the AO for examining the claim of assessee afresh. We set aside the direction of learned CIT(A) and the AO shall provide necessary information collected in this regard and also to consider the claim of assessee in regard to claim of discount/rebates.
3. The next ground of appeal is against disallowance of remuneration to the partners.
3.1 The AO held that for the purpose of "book profits" as defined in Section 40(b), the income declared during the course of survey cannot be considered. He accordingly restricted the claim of remuneration, after excluding the additional income declared during survey, from the book profits. The same was upheld by the learned CIT(A).
3.2 Learned Counsel for assessee submitted that any credit in the books of account and forming part of profit as per P&L a/c is to be considered for the purpose of book profit defined in Section 40(b). Section 68 is not independent of any of the charging provisions and the income is taxed under either of the heads. In the present case, the cash credit is nothing but part of book profit and accordingly taxed as business income. When it is taxed as business income as per Section 40(b), such income forms part of book profit and remuneration thereon is allowable, which is authorized by and in accordance with terms of partnership deed. For this proposition, he relied upon the decision of Tribunal, Bangalore, in ITA No. 325/Bang/1997 in the case of Sharada Rice Mills, dt. 18th Dec., 2000.
3.3 Learned Departmental Representative, on the other hand, relied upon the appellate order. It was submitted that the decision of Tribunal relied is distinguishable on facts.
4. We have carefully considered the relevant facts and the arguments advanced. The cash credits were found recorded in the books of account. Thus, the nature of such cash credits attains the character of business income. The words 'book profit' defined in Section 40(b) mean net profit as shown in P&L a/c computed in the manner laid down in Chapter IV-D. The assessee included such unexplained cash credits in its P&L a/c. The book profit is to be computed in the manner laid down in Chapter IV-D. Thus, this cash credit forms part of book profit. The assessee is not carrying on any other business and has no other source of income. Thus, whatever income arising to the assessee is business income and hence, computation is in accordance with Chapter IV-D. Thus, it can be held that such cash credit forms part of book profit for the purpose of computation of remuneration. The AO is directed to include such cash credit in the book profit for the purpose of allowing remuneration to the partners which is authorized by and in accordance with the terms of partnership deed.
5. The next ground of appeal is against charging of interest under Sections 234B and 234C of the Act.
5.1 Interest under Sections 234C is chargeable on the advance tax payable on the basis of income declared in the return of income. Interest under Sections 234B is consequential in nature, as the assessee does not deny its liability to pay advance tax.
In the result, the appeal is allowed.