IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH ALLAHABAD

BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER

ITA No.109/Alld/2012 Assessment Year: 2005-06

M/s Shiv Shakti Builders, vs. Income Tax Officer, Harihar Ganj Range-II(4) Fatehpur Fatehpur. (APPELLANT) (RESPONDENT) Assessee by: Shri Praveen Godbole, A.R. Revenue by: Shri A.K. Pandey, DR. Date of hearing: 03.09.2015

Order Pronounced on:13/10/2015 ORDER

This appeal has been filed by the assessee against the order of

Learned CIT(A), dated 21.02.2012 by taking the following

grounds of appeal:

1. That in any view of the matter declared

income in the return and declared status should

have been accepted in the facts and circumstances

of the case.

2. That in any view of the matter the learned

Commissioner of Income Tax (Appeals) is highly

unjustified in not accepting the additional evidence

file before him and the reasons given in the order

for not accepting the additional evidence are

incorrect.

ITA No.109/Alld/2012 2

3. That in any view of the matter assessment as

framed by the assessing officer as per order dated

23.11.2007 in the status of A.O.P. and his action as

confirmed by the Commissioner of Income Tax

(Appeals) is highly unjustified.

4. That in any view of the matter appellant is a

firm supported by a partnership document which

was executed in time and the requirements of

section 184(2) were complied hence the two lower

authorities were wrong in adopting the status

A.O.P. and also wrong in disallowing salary and

interest paid to partners.

5. That in any view of the matter the correct

status of the appellant is of firm and not A.O.P is

incorrect and the entire discussion as per Para 6 of

the order is incorrect.

6. That in any view of the matter before

changing the status and before disallowing the

salary and interest no opportunity was allowed to

the assessee. Hence the actions of two lower

authorities are incorrect.

7. That in any view of the matter payment of

remuneration of Rs.90,000/- and payment of

interest of Rs.38,125/- to the partners as per the

ITA No.109/Alld/2012 3

terms of partnership deed hence it is an allowable

deduction but the two lower authorities are not

correct in disallowing the same.

8. That in any view of the matter copy of

partnership deed was filed in time and as per terms

of deed, payment of salary and interest was claimed

therefore, the two lower authorities were wrong in

their action.

9. That in any view of the matter a rate of 7%

as applied by the Commissioner of Income Tax

(Appeals) not correct specially when the two lower

authorities were admitted that the assessee is a

sub-Contractor hence the declared profit should

have been accepted especially when the learned

commissioner of income tax (Appeals) held that

provision of section 44AD is not applicable.

10. That in any view of the matter the learned

commissioner of Income Tax (Appeals) highly

unjustified and incorrect in saying that the

expenditure claimed in profit and loss account are

not verifiable hence application of rate 7% is

unwarranted and declared profit liable to be

accepted.

ITA No.109/Alld/2012 4

2. The ground Nos. 1,2,3,4,5 & 6 relate to only issue of making

the assessment of the assessee under the status of the AOP, not as

firm.

3. Brief facts of the case are that; the assessee submitted income

tax return on 31st October, 2005 on an income of Rs.1170/-. The

assessee enclosed audited balance sheet alongwith the return. The

AO treated the assessee as AOP as the no partnership deed was

filed alongwith the return. The assessee went in appeal before the

ld. CIT(A), the assessee submitted the application under Rule 46A

for admission of additional evidence and also enclosed the copy of

the partnership deed. The ld. CIT(A) did not accept the additional

evidence and confirm the order of the AO, assessing the assessee

as AOP.

4. I heard the rival submissions and carefully considered the

order of the tax authorities below. I noted that the assessee has

submitted the copy of the original partnership deed filed before the

AO. I have also perused the application made by the assessee for

the admission of additional evidence under Rule 46A before the ld.

CIT(A). The assessee requested by this application that due to the

non awareness, he was not aware of about the furnishing of the

documents before the AO and therefore, he requested to kindly

accept the same as additional evidence.

ITA No.109/Alld/2012 5

5. From perusal of Rule 46A, I noted that the case of the

assessee, in our opinion falls under Rule 46A (c), the assessee has

been constituted for the first time during the main assessment year

as per the provision of section 184 of the Act. It was necessary on

the part of the assessee to enclose a certified copy of the instrument

of partnership deed alongwith the return of income of the firm of

the previous year relevant to the assessment year commencing on

or after 1st April 1993 in respect of which assessment as a firm is

first sought. The assessee firm has been constituted vide

partnership deed dated 12.10.2004 between Shri Anand Kumar and

Shri Ashish Kumar. The partnership deed has been executed on a

stamp paper of Rs.750/-. The firm has started the business for the

first time on 12.10.2004, therefore, in my opinion it is possible that

the assessee who is not aware of about the intricacies of the

Income Tax Act and may not be aware of about the relevant

provision that the copy of the partnership deed has to be enclosed

alongwith the income tax return or the copy thereof has to be filed

before the Assessing Officer.

6. I noted that in this case the assessee has given the

Vakalatnama in favour of Shri Ravi Kumar Rastogi, advocate and

therefore, it is the duty of the advocate to guide the assessee and to

file the copy of the partnership deed, for inaction of the advocate

the assessee firm should not be penalized Hon’ble Supreme Court

ITA No.109/Alld/2012 6

in the case of Moti Lal Padampat Sugar Mills Co. Ltd. Vs. State of

Uttar Pradesh and Ors. 118 ITR 326 at page 330 held as under:

“(ii) There is no presumption that every person

knows the law. It is often said that everyone is

presumed to know the law, but that is not a correct

statement there is no such maxim known to the law.”

7. In view of the aforesaid dictum of law by the Hon’ble

Supreme Court; I am of the view that the assessee may not be

aware of about the intricacies of the Income Tax Act. This fact is

also proved from the conduct of the advocate on which the

assessee has relied and to whom he has given the Vakalatnama, if

the advocate would aware of the relevant provision of the Income

Tax Act, he could have filed the copy of the partnership deed even

during the course of assessment. I therefore, set aside the order of

the ld. CIT(A) on this issue and I am of the view that it is a fit case

where the additional evidence has been submitted by the assessee

has to be admitted.

8. Now coming to the question whether the assessee firm has to

be assessed as AOP or firm. The relevant provision of section

184(2) lays down as under:

“A certified copy of the instrument of partnership

referred to in sub-section (1) shall accompany the

return of income of the firm of the previous year

relevant to the assessment year commencing on or

ITA No.109/Alld/2012 7

after the 1st day of April, 1993 in respect of which

assessment as a firm is first sought.”

9. From the perusal of the aforesaid provision, it is apparent that

on the part of the assessee firm to enclose the copy of the

partnership deed alongwith the return as the word has been used

‘shall’ but the Court has interpreted similar provision in respect of

section 80IA when the question has arisen whether the audit report

can be filed subsequently or has to be filed alongwith return if the

assessee claims deduction u/s 80I. The relevant provision of

section 80IA(7) which also used the similar language requiring the

copy of the audit report, is laid down as under for ready reference:

“The deduction] under sub-section (1) from profits and

gains derived from an [undertaking] shall not be admissible

unless the accounts of the [undertaking] for the previous

year relevant to the assessment year for which the deduction

is claimed have been audited by an accountant, as defined

in the Explanation below sub-section (2) of section 288, and

the assessee furnishes, along with his return of income, the

report of such audit in the prescribed form duly signed and

verified by such accountant.”

10. In both the provision, the word has been used as ‘shall’.

While interpreting the provision of section 80IA(7) the following

High Court has taken the view that filing of the audit report

alongwith the return are not mandatory but directory and if the

ITA No.109/Alld/2012 8

audit report is filed at any time before framing of assessment, then

requirement of section 80IA(7) would be met;

(i) CIT Vs. Contimeters Electricals (P) Ltd. (2009) 178

Taxman 422 (Del).

(ii) CIT vs. ACE Multitaxes Systems (P) Ltd. (2009) 317 ITR

307 (Kar.)

(iii) CIT Vs. Medicaps Ltd. (2010) 323 ITR 554/234 CTR 96

(MP).

(iv) CIT Vs. Sanjay Kumar Bansal 219 Taxman 41

(Uttarakhand).

11. Bombay High Court has also taken the view that filing of the

audit report alongwith the return is not mandatory in the case of

CIT vs. Shivanand Electronics 209 ITR 63 (Bom). In this case I

noted that the copy of the partnership deed should be filed

alongwith the return but in case it was not filed alongwith the

return, the AO should have asked the assessee to file the copy of

the partnership deed. When the assessee filed the same before the

ld. CIT(A), the ld. CIT(A) must have accepted the same, enclosing

the copy of the partnership deed. In my view it is merely technical

requirement so that the Revenue must have aware of that a

partnership has genuinely been constituted. I therefore, in the

interest of justice and in view of the fact that the provision of

section 184(2) is not mandatory and is only directory as the similar

language has been used u/s 80IA(7). I set aside the order of the ld.

ITA No.109/Alld/2012 9

CIT(A) on this issue and held that the assessee be assessed as

‘firm’ not as ‘AOP’. Thus the ground No. 1 to 5 are allowed.

12. The ground Nos. 6, 7 & 8 relate to the disallowance of

remuneration and interest to the partners in accordance with the

partnership deed. After hearing the rival submissions, and going

through the order of the tax authorities below. I noted that the

remuneration and interest to the partner was disallowed by the AO

as the assessee has been assessed as AOP not as a firm. Since

while disposing off the ground No. 1 to 5, I have already held that

the assessee be assessed in the status of the firm. I accordingly

direct the AO to allow interest and salary to the partners subject to

the compliance of the conditions as stipulated u/s 40(b) of the Act.

Thus the ground Nos. 6, 7 & 8 stands allowed.

13. The ground No. 9 & 10 relate to the estimation of the profit

in the case of assessee by applying the proviso to section 44AD.

The facts relating to these issue are that the AO rejected the books

of accounts and applied the proviso to section 44AD and estimated

the income @ 8% on the total receipt of Rs.63,45,732/- at

Rs.5,07,658/- when the matter went before the ld. CIT(A), the ld.

CIT(A) agreed with the contention of the assessee that the

provision of section 44AD are not applicable in the case of

assessee as gross receipt exceeds Rs.40 lacs but since the assessee

did not produce the bills and vouchers in respect of the purchase of

the material and other expenses. He took the view that AO has

ITA No.109/Alld/2012 10

rightly invoked the provision of section 145(3) of the Act to

restrict the estimation of the income @ 7%.

14. I have heard the rival submission and considered the same

alongwith the order of the tax authorities below. The assessee has

not taken any ground against the rejection of the books account

therefore, the only question which remains and is under appeal

before me relate to the estimation of the profit. There is no dispute

that the assessee has the gross contractual receipts as a sub-

contractor at Rs.63,45,732/- from Gupta Builders, Kanpur. This is

first year of the business of the assessee, therefore, no comparative

instance in the case of the assessee as earning of the profit as a sub-

contractor is available on record. The assessee has returned the

income at Rs.1170/- naturally the balance of the receipts has been

claimed by the assessee as an expenditure the onus is on the

assessee to prove that he has incurred the expenses. It is an

undisputed fact that the assessee failed to produce the bills and

vouchers to prove the genuinity of the expenses although the

assessee has produced the books of account. This is also the fact

that in the case of sub-contractor the margin of the profit is less as

the margin in respect of contractor is being shared between the

main contractor and the sub-contractor. The assessee has submitted

before me at page 54 a copy of order dated 11.05.2011 of the ld.

CIT(A) in which he has estimated the profit rate @ 5% of the total

receipt. In the absence of any cogent material being brought on

ITA No.109/Alld/2012 11

record from either of the side I think it appropriate that the gross

profit in respect of a sub-contractor be estimated @ 4% and

accordingly I reduce the addition in respect of the gross profit

@4%. Thus the ground Nos. 9 & 10 are partly allowed.

15. In the result, the appeal filed by the assessee is partly

allowed.

Order pronounced in the open Court on13/10/2015.

Sd/-

(P.K. BANSAL) ACCOUNTANT MEMBER Dated:13/10/2015 A.K.V.

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR