Shri Vinod Agarwal Vs. Pr. C.I.T. Central (ITAT Kolkata)
in circular No. 8/2014 dated 31-03-2014 issued by the CBDT on the provisions of section 10(2A) of the Act which clarified that ‘total income’ of the firm for sub section (2A) of section 10 of the Act, it has been claried that Sec.10(2A) of the Act as interpreted contextually, includes income which is exempt or deductible under various provisions of the Act. In particular it has been clarified by the CBDT in the said Circular that the income of a firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of its partners. It has further been clarified in the said Circular that the entire profit credited to the partners’ accounts in the firm would be exempt from tax in the hands of such partners, even if the income chargeable to tax becomes NIL in the hands of the firm on account of any exemption or deduction as per the provisions of the Act. If one goes by the CBDT Circular No. 8/2014, the profit credited to the partner’s account in the firm would be exempt from tax in the hands of partners, viz., the sum of Rs. 4,84,89,051/- which is the profit credited to the partner’s account in the firm in the present case. The above clarification in the Circular implies that the share of profit in the hands of the partners is independent of the profits of the firm which is finally distributed among the partners. Even if the income of the firm chargeable to tax becomes NIL on account of exemption/deduction, it does not mean that the income before claiming exemption will be taxed in the hands of the partners.
Therefore there are two views possible on the issue as to whether the Assessee would be entitled to exemption u/s.10(2A) of the Act on the share of profits credited in the partner’s capital account with the firm or the share of total income of the firm declared in the return of income by the firm. It may be true that the CBDT Circular No. 8/2014 was issued in the context of deduction in Chapter-VIA to a partnership firm and exemption in Chapter-III to the income of a partnership firm but the Circular is applicable to all profits credited in the books of the firm in the capital account of the partners, even though they are not declared by the firm in their return of income.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These are appeals by four different Assessees against four different orders all dated 21.03.2017 of Pr.C.I.T.- Central-2, Kolkata relating to A.Y.2013-14.
2. The issue involved in all these appeals is identical and arises out of the same facts and circumstances. These appeals were heard together. We deem it convenient to pass a common order.
3. There is a delay of 93 days in filing these appeals. It has been explained in an affidavit filed by the four assesses in these appeals that their tax matters were being looked after by one Shri Mukesh Khaitan, ACA. For A.Y.2013-14 assessment orders were passed on 30.03.2015 in the case of all the assesses. Subsequently on 16.09.2016 all the assesses received a show cause notice u/s 263 of the Income Tax Act, 1961 (Act) from the respondent. The assessees had given the same to Shri Mukesh Khaitan, ACA, who in turn handed over the brief to another Chartered Accountant for representing the case before the Principal C.I.T. The impugned order was passed on 21.03.2017 directing the AO to make a de novo assessment on the issue set out in the impugned order u/s 263 of the Act. The said order was received by the assessees on 24.03.2017. The assessees had handed over the order for necessary suggestions to Shri Mukesh Khaitan, ACA for further course of action. It appears that Shri Mukesh Khaitan did not seek any legal opinion for filing the appeal against the orders u/s 263 dated 21.03.2017. In the meantime the assessees received a notice from the AO u/s 142(1) of the Act dated 30.03.2017 for framing de novo assessments pursuant to the impugned order u/s 263 of the Act dated 21.03.2017. Thereafter the assessees themselves contacted a senior lawyer, who opined that order of Pr.CIT passed u/s 263of the Act dated 21.03.2017 was an appeal able order before the Tribunal and an appeal should be filed. In the meantime there occurred a delay of 93 days in filing the appeals before the Tribunal. The assessees have stated in the affidavit that they were not aware of the intricacies in the income tax matter and relied on the suggestions and advice from Shri Mukesh Khaitan, ACA. Since he did not give proper advice at the right time and since the assessees filed the present appeals on taking an opinion from a senior lawyer, the delay in filing the appeals is not deliberate and was due to unavoidable reasons. It has been mentioned that there is no malafide intention behind not filing the appeals within the prescribed time. It has also been mentioned that the assessees will be put to serious stress if the delay is not condoned.
4. The ld. Counsel for the assessee reiterated the facts as contained in the affidavit filed by the assessee and further placed reliance on the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisition, Anantnag and Anr. Vs Mst. Katiji & Ors. in CA No.460 of 1987 judgment dated 19.02.1987. In the aforesaid decision the Honorable Court took the following view in the context of condonation of delay in filing the appeals :
“The expression “sufficient cause” employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which sub serves the ends of justice-that being the life-purpose for the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that:-
1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.
3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
5. Further reliance was placed on the decision of Mumbai Bench of ITAT in the case of Earth metal Electricals (P)Ltd. Vs ITO (2005) 4 SOT 484 (Mum). In the aforesaid case there was a delay of 70 days in filing the appeal by the assessee. The assesee had explained the reasons for the delay as owing to the action of the Chartered Accountant in misplacing the assessee’s appeal papers. The appeal was filed by the assessee after getting a letter from the Tax Recovery Officer. The explanation for the delay in filing the appeal as to the act of the Chartered Accountant misplacing the appeal papers was held to be a sufficient cause for the delay in filing the appeal.
6. The ld. DR opposed the prayer of the assesee for condonation of delay. It was submitted by him that the reasons given in the affidavit for condonation of delay will not constitute a reasonable and sufficient cause for the delay in filing the appeal belatedly.
7. We have given a very careful consideration to the rival submissions. In our view the reasons given in the affidavit for condonation of delay are convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing these appeals. The appeals have been filed by the assessees on 24.08.2017. The orders u/s 263 of the Act were passed on 21.03.2017 and received by the assessee on 28.03.2017. On 30.03.2017 a notice u/s 142 (1) of the Act was issued by the AO pursuant to the directions contained in the impugned orders passed u/s 263 of the Act to do a denovo assessments. The assessments pursuant to the directions u/s 263 of the Act were concluded by the AO on 07.08.2017. On 14.08.2017 the assessees received the said assessment orders and thereafter contacted a senior advocate and according to his opinion the appeals have been fled. The sequence of events clearly demonstrates that the assessees were pursuing the proceedings before the AO pursuant to the orders u/s 263 of the Act and only on receipt of the assessment orders dated 07.08.2017 they contacted the senior advocate and based on his opinion filed the present appeals. In our view there is no deliberateness or negligence or malafides on the part of the assessees. In these circumstances we are of the view that the delay in filing these appeals deserve to be condoned and the same is hereby condoned.
8. The Assessees in all these four appeals are individuals. There was a search and seizure operation carried out by the revenue under the provision of section 132 of the Act on 10.05.2012 against the assessees and various business concerns of Srijan Group at various premises at Kolkata. Srijan Group is mainly engaged in real estate, construction and real estate marketing. All the Assessees in these appeals were also searched on 10.05.2012.
9. For AY 2013-14, the Asssessees filed their returns of Income in which each of the Assessees had shown a sum of Rs.4,84,89,051/- as share of profits received from the Partnership firm M/s. Avantika Advisory Services LLP. They claimed the said receipt as exempt u/s.10(2A) of the Act. Section 10 of the Act deals with incomes which is not included in the total income. Subsection (2A) to section 10 of the Act reads as follows:
” in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm.
Explanation.: For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;”
10. In the course of assessment proceedings for AY 2013-14, the AO, in the case of Shri Vinod Agarwal, issued a notice u/s 142(1) of the Act dated 15.01.2015 calling upon the assessee to furnish certain details. This notice was in relation to A.Y. 2007-08 to 2013-14. Another notice u/s 142(1) of the Act dated 23.01.2015 was issued by the AO with reference to A.Y. 2013-14 in which the AO specifically called from the Assessee the following information :-
“In case of any short of income/receipt from a partnership firm – please furnish a copy of set of accounts of the said firm, its PAN, evidence of filing its return of income for the relevant year and a certified copy of partnership deed.”
11. In reply to the aforesaid notice the assessee gave several details. The facts with regard to the assessee becoming a partner of the partnership firm M/s. Avantika Advisory Services LLP was also given by the Assessee. M/s. Avantika Advisory Services LLP was a limited liability partnership(LLP). It had four partners namely Active Nirman Pvt. Ltd, Fine star Consultancy Pvt. Ltd., Sumangal Vin trade Pvt. Ltd and Timely Commercial Pvt. Ltd. The partnership carried on the business of consultancy services dealing in shares, securities, commodities, currencies etc. and also dealing in property and real estate. By a supplementary LLP agreement dated 01.01.2013 the 4 assessees in these appeals were inducted as incoming or new partners in M/s. Avantika Advisory Services LLP. Prior to the aforesaid partnership deed the existing partners were sharing in profits and loss at 1/4th As per the supplementary LLP agreement dated 01.01.2013 the profit sharing ratio was as follows :-
“3. PARTNERS’ CONTRIBUTION AND PROFIT SHARING BETWEEN THE PARTNERS
The contribution in the LLP shall be Rs. 10,00,000/- (Rupees Ten Lacs only) and it may be brought in by the Partners as cash/moneys ‘worth of any property, rights or services agreed to between the LLP and any Partner in proportion as mutually agreed unanimously by the partners. The contribution may be increased or reduced at any time and from time to time in the same way. The partners of the LLP are entitled to share profit and losses in proportion mentioned herein below or any other proportion as mutually decided by the Partners from time to time.
