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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,
Harihar Ganj
Fatehpur

vs.

(APPELLANT)

Income Tax Officer,


Range-II(4)
Fatehpur.
(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

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

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

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.

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 Honble Supreme Court

ITA No.109/Alld/2012

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 Honble

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

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

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

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 subcontractor 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 subcontractor 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