Itta/23/2003 Of M/S Prashanth Enterprieses v. The Commissioner Of Income Tax

HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A No.23 OF 2003 JUDGMENT:-(Per Hon’ble Sri Justice L.Narasimha Reddy) The appellant is a firm and is assessed to tax. It undertakes theactivity of distribution of cooking gas at Karimnagar. Up to the assessmentyear 1993-94, the activity was being undertaken by only one person and hewas filing returns in his individual capacity. Two persons joined thebusiness in April, 1993 and deed of partnership was executed on01.04.1993 on a stamp paper of Rs.5/-. It is stated that to be more preciseand to accord with the relevant provisions of law, the same partnershipdeed was executed on a stamp paper of Rs.500/- on 04.01.1994. For the assessment year 1994-95, the appellant filed nil return. Theamounts paid towards interest on the capital of the respective partners werereflected in the returns. The Assessing Officer accepted the returns andpassed an order under Section 143(1) (a) of the Income Tax Act, 1961 (forshort, ‘the Act’) accepting the facts and figures. However, he initiated stepsunder Section 154 of the Act, at a later point of time, and reopened theassessment. According to him, the partnership deed did not exist on01.04.1993 and it came into existence only on 04.01.1994 and in that viewof the matter, the deduction of interest said to have been paid to the partnersis impermissible in law. An order was passed to that effect. The appellant carried the matter to the Commissioner (Appeals). Theappeal was allowed through order dated 25.11.1997 and the contention ofthe appellant was accepted. However, the Department carried the matter inappeal to the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, by filing I.T.A.No.171/Hyd/98. The Tribunal allowed the appeal through orderdated 12.02.2002. Hence, this further appeal under Section 260A of theAct. Heard the learned counsel for the appellant and the learned StandingCounsel for the respondent. The existence of the partnership as such, is not disputed. Thecontroversy is only as to the date on which it came into existence. If it has been formed on 01.04.1993, as pleaded by the appellant, the returns for theassessment year 1994-95 can certainly be for and on behalf of the firm. If,on the other hand, it came into existence at a later point of time, the returnsfor that year were required to be filed by the concerned individual. In suchan event, the question of payment of interest to the respective partners doesnot arise. The only basis for the Assessing Officer as well as the Tribunal totreat that the firm did not exist as on 01.04.1993, is that a valid partnershipdeed was executed only on 04.01.1994. Though it is true that a deed wasexecuted on 04.01.1994 on a stamp paper of Rs.500/-, it is a step taken incontinuation of the constitution of the firm on 01.04.1993, through adocument executed on a stamp paper of Rs.5/-. The Commissionerexamined the matter, in detail, and accepted the contention of theappellant. The Tribunal, however, proceeded to examine the contents ofthe document and took the view that the very payment of interest to thepartners is not provided for. That is indeed an error on the face of therecord. We, therefore, allow the appeal and set aside the order passed by theTribunal in I.T.A.No.171/H/98. Consequently, the order dated 25.11.1997passed by the Commissioner (Appeals) shall hold the field. There shall beno order as to costs. ___________________________L. NARASIMHA REDDY, J Date:26.08.2014Kdl/gk ____________________________ CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A No.23 OF 2003 kdl/gk Date:26.08.2014