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of <h1>ITAT supports assessee's claim of new partnership firm with separate assessment periods. Adjustments made based on compliance and usage.</h1> <h3>M/s SABKO INDUSTRIES. Versus INCOME TAX OFFICER.</h3> M/s SABKO INDUSTRIES. Versus INCOME TAX OFFICER. - TTJ 032, 036, Issues:1. Whether the AAC erred in not accepting the assessee's contention regarding the formation of a new partnership firm and separate assessment periods.2. Disallowance of interest under s. 40(b).3. Disallowance of car expenses and depreciation.4. Disallowance of travelling expenses.5. Disallowance of office rent.6. Charging of penal interest under s. 139(8).7. Granting full depreciation separately to both partnership firms.Analysis:1. The first issue revolves around the contention that a new partnership firm was formed, necessitating separate assessment periods. The ITO did not accept this claim, citing a change in the firm's constitution. The AAC supported the ITO's decision, emphasizing that there was a change in the firm's constitution, justifying the application of s. 187(2) of the Act. The assessee argued that the subsequent firm, with only two partners, was distinct from the initial firm with five partners. The ITAT agreed, noting that the ITO had granted registration to the subsequent firm as a new entity, thus warranting separate assessments for the two periods.2. The issue of interest disallowance under s. 40(b) was not pursued during the appeal and was consequently rejected by the ITAT.3. Regarding the disallowance of car expenses and depreciation, the ITAT reduced the disallowance to 1/7th from the AAC's 1/4th, aligning with similar cases within the group. The depreciation disallowance was also adjusted to 1/7th based on non-business use criteria.4. The disallowance of 1/4th travelling expenses was challenged by the assessee, citing compliance with IT Rules. The ITAT concurred, finding no justification for disallowance when expenses were rule-compliant, especially after car expenses had already been addressed.5. The disallowance of 1/3rd office rent was contested on the grounds that no partner utilized the premises, with only an employee staying overnight for security. The ITAT agreed, ruling out disallowance in such circumstances.6. The issue of charging penal interest under s. 139(8) was considered, with the ITAT opining that interest due after the appeal effect should be charged under the said section.7. The final issue pertained to granting full depreciation to both distinct partnership firms. The ITAT held that since the firms were separate entities, full depreciation should be allowed in accordance with the relevant provisions of the Act.In conclusion, the ITAT partly allowed the appeal, addressing each issue comprehensively and rendering decisions based on the facts and legal provisions presented during the proceedings.
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