Commissioner Of Income Tax-Iichandigarh v. M/S. Nand Lal Labhu Ram,Kharar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 162 of 2005Date of decision: 31.3.2011 Commissioner of Income Tax-IIChandigarh --- Appellant Versus M/s. Nand Lal Labhu Ram,Kharar --- Respondent *** CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant-Revenue. Mr. H.N. Mehtani, Advocate for the respondent. --- AJAY KUMAR MITTAL, J. The paper-book of this case is said to have been burnt in the fire incident that took place in the premises of this Court on thenight of 30[th] January, 2011. Learned counsel for the appellant hasmade available two copies of paper-book to the Registry forreconstruction of the file. The said copies are taken on record. Thepaper-book of this appeal is treated as having been reconstructed. 2.This order will dispose of two appeals, i.e. Income TaxAppeal Nos. 162 and 163 of 2005 as identical questions are involvedtherein. The facts have been taken from Income Tax Appeal No. 162of 2005. 3. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against theorder dated 16.9.2004, passed by the Income Tax Appellate TribunalChandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No.348/CHANDI/2001, relating to the assessment year 1993-94. 4.The following substantial questions of law have beenclaimed for determination by this Court: “(i)Whether the ITAT was right in law in observing that “thecontroversy, as to whether assessee was duty bound tofile certified copy of the partnership deed when there wasno change in the constitution of the firm may thus, not berelevant”, even though there was a change in constitutionof firm w.e.f. 1.4.1992 in so far as two new partners joinedthe firm in place of three outgoing partners?controversy, as to whether assessee was duty bound tofile certified copy of the partnership deed when there wasno change in the constitution of the firm may thus, not berelevant”, even though there was a change in constitutionof firm w.e.f. 1.4.1992 in so far as two new partners joinedthe firm in place of three outgoing partners? (ii)Whether the ITAT was right in law in allowing theassessee the status of firm even though the assesseefailed to furnish copy of partnership deed with return ofincome consequent to change in constitution of firm?assessee the status of firm even though the assesseefailed to furnish copy of partnership deed with return ofincome consequent to change in constitution of firm? (iii)Whether the firm having failed to comply with provision ofSection 184 of the Income Tax Act, 1961 was to beassessed as an association of persons in view of Section185 of the Income Tax Act, 1961?”Section 184 of the Income Tax Act, 1961 was to beassessed as an association of persons in view of Section185 of the Income Tax Act, 1961?” (ii)Whether the ITAT was right in law in allowing theassessee the status of firm even though the assesseefailed to furnish copy of partnership deed with return ofincome consequent to change in constitution of firm?assessee the status of firm even though the assesseefailed to furnish copy of partnership deed with return ofincome consequent to change in constitution of firm? (iii)Whether the firm having failed to comply with provision ofSection 184 of the Income Tax Act, 1961 was to beassessed as an association of persons in view of Section185 of the Income Tax Act, 1961?”Section 184 of the Income Tax Act, 1961 was to beassessed as an association of persons in view of Section185 of the Income Tax Act, 1961?” 5.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the respondent-assessee filed its return for theassessment year 1993-94 on 30.8.1993 declaring income of Rs.2,365/- wherein it claimed its status as PFAS. The return wasprocessed under Section 143(1)(a) and notice under Section 148 ofthe Act was issued to the assessee. During the course ofassessment proceedings under Sections 143(3)/147 of the Act, theassessing officer found that the assessee had not furnished certifiedcopy of the partnership deed along with the return of income. It wasobserved that as per the provisions of Section 40(b) of the Act andalso for the reason that the assessment year 1993-94 was the firstyear of the changed partnership on account of change in partners, itwas mandatory to file the original partnership deed specifying theinterest, and the remuneration paid to the partners, which theassessee failed to do. However, during the course of assessmentproceedings, the assessee filed a photo copy of a partnership deedin which the names of fathers of the partners had not beenmentioned, and on the basis of that, the assessing officer formed anopinion that the partnership deed, a photostat copy whereof hadbeen furnished, had not been executed. On the basis of the above,the assessing officer, vide order dated 24.3.2000, concluded that thestatus of the assessee was merely that of an ‘AOP’. The assessingofficer further concluded that once that was so, no deduction wasadmissible to the assessee on account of salary and interest paid tothe partners under Section 40(b) of the Act. The assessing officer,thus, made addition of a sum of Rs. 45,000/-, which the assesseehad debited to the income returned on account of salary to the partners. Besides, a sum of Rs. 1,01,000/- was disallowed and alsoadded to the income returned, which the assessee had paid asinterest to the partners. The assessing officer further made anaddition of an amount of Rs. 3,23,669/- which the assessee hadshown to have paid as interest on the capital of the partners. 6. The appeal carried by the assessee against the order ofthe assessing officer before the Commissioner of Income Tax(Appeals) [for short “the CIT(A)”], was allowed vide order dated24.1.2001 whereby the additions made by the assessing officer weredeleted. While doing so, the CIT(A) held that the assessee wasentitled to be treated as PFAS and deduction on account of paymentof salary and interest to the partners is also allowable. It was furtherobserved that the assessing officer had erred in holding that theassessee had diverted interest- bearing funds to its sister concern,M/s. Garg Rice and General Mills. It was further observed that forordering disallowance of interest or any part thereof, it was essentialthat a clear finding be recorded by the assessing officer that theborrowed money or the part thereof had been utilized for thepurposes other than the business. 7.The Tribunal, vide the order appealed against herein putits seal of affirmation on the finding returned by the CIT(A) anddismissed the appeal of the Revenue. 8.We have heard learned counsel for the parties andperused the record. 7.The Tribunal, vide the order appealed against herein putits seal of affirmation on the finding returned by the CIT(A) anddismissed the appeal of the Revenue. 8.We have heard learned counsel for the parties andperused the record. 9. The point for consideration in this case is, whether theassessee-respondent could be treated to be a partnership firm or itwas to be assessed as an association of persons. 10. The Tribunal while upholding the order of the CIT(A)held that the assessee was assessable as partnership firm and therelevant finding recorded in that behalf in para 6 of the order is asunder: “We have given our careful consideration to the rivalcontentions. It is not disputed that status of the assesseewas taken as that of PFAS at the time of processing thereturn. During the course of assessment proceedings u/s143(3), it is also not disputed that assessee has filedcopy of the partnership deed duly signed by the partners.Since there has been a compliance with the proceduralprovisions of this statute, assessee was entitled to thestatus of PFAS. The controversy, as to whetherassessee was duty bound to file certified copy of thepartnership deed when there was no change in theconstitution of the firm may, thus, not be relevant in-so-faras the assessee has complied with the provisions ofSection 184 for grant of status of PFAS. Finding noinfirmity in the order of the CIT(A), we decline tointerfere.” 11. The CIT(A) and the Tribunal concurrently came to theconclusion that there was no change in the constitution of the firmand the assessee had filed a copy of the partnership deed which wassigned by all the partners. It was further recorded that the proceduralrequirement of the Act had been complied with and, therefore, theassessee was liable to be assessed in the capacity of a partnershipfirm. An effort has been made by the learned counsel for the Revenue to show that the findings of fact recorded by the CIT(A) andaffirmed by the Tribunal are erroneous. But the counsel has notbeen able to show any perversity in the said findings except trying topersuade this Court to re-appraise the evidence. Finding no groundto interfere with the findings aforesaid, the substantial questions oflaw are answered against the Revenue. The appeals are accordinglydismissed. (AJAY KUMAR MITTAL) JUDGE March 31, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE