M/s Sood Brij & Associates, New Delhi v. JCIT, New Delhi

ITA 1671/DEL/2010 | 2007-2008
Pronouncement Date: 29-10-2010 | Result: Allowed

Appeal Details

RSA Number 167120114 RSA 2010
Bench Delhi
Appeal Number ITA 1671/DEL/2010
Duration Of Justice 6 month(s) 13 day(s)
Appellant M/s Sood Brij & Associates, New Delhi
Respondent JCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 29-10-2010
Date Of Final Hearing 19-10-2010
Next Hearing Date 19-10-2010
Assessment Year 2007-2008
Appeal Filed On 15-04-2010
Judgment Text
I.T.A. NO.1671 /DEL/10 1/9 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO. 1671/DEL/2010 ASSESSMENT YEAR : 2007-08 M/S SOOD BRIJ & ASSOCIATES JCIT C-72 BASEMENT FLOOR RANGE-37 SOUTH EXTN.II N DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO.AACFS-1960-K APPELLANT BY : SHRI S.K. SARKAR C.A. RESPONDENT BY : SHRI KISHORE B. DR. ORDER PER A.K. GARODIA AM: THIS IS AN ASSESSEE'S APPEAL FILED AGAINST THE ORDER OF LD CIT(A)- XXVIII NEW DELHI DATED 1.3.2010 FOR ASSESSMENT YEAR 20 07-08. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THE LD CIT(A) AND THE LD JCIT HAVE ERRED IN DISALLOW ING `.21 40 000/- REPRESENTING SALARY/REMUNERATION PAID T O PARTNERS AS PER PROVISIONS OF SECTION 40(B)V OF THE INCOME TAX A CT 1961. 2. THE LD CIT(A) AND THE LD JCIT HAVE ERRED IN DISALLOW ING `.266.560./00 U/S 14A OF THE INCOME TAX ACT 1961. 3. THE LD CIT(A) AND JCIT HAVE ERRED IN CHARGING INTER EST U/S 234B OF THE INCOME TAX ACT 1961. . I.T.A. NO.1671/DEL/10 2/9 3. REGARDING GROUND NO.2 I.E. DISALLOWANCE U/S 14A I T WAS AGREED BY BOTH SIDES THAT THIS ISSUE HAS TO GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BUYS MFG. P VT. LTD. AS REPORTED IN 43 DTR 177. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF TH IS JUDGMENT OF HON'BLE BOMBAY HIGH COURT AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.2 STANDS ALLOWED F OR STATISTICAL PURPOSES. 4. REGARDING GROUND NO.3 IT IS HELD THAT THIS ISSUE OF CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL. 5. REGARDING GROUND NO.1 THE FACTS ARE THAT IT IS NO TED BY THE ASSESSING OFFICER THAT THE ASSESSEE FIRM IS CHARTERED ACCOUN TANTS FIRM AND HAS SHOWN INCOME UNDER THE HEAD INCOME FROM PROF ESSION INCOME FROM HOUSE PROPERTY INCOME FROM OTHER SOURCES AND INCOME EXEMPT U/S 10(38) OF THE ACT. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOU NT OF PAYMENT OF REMUNERATION TO THE PARTNERS. IT IS NOTED BY THE ASSESSING OFFICER THAT AS PER THE RELEVANT CLAUSES OF PARTNERSHIP DEED IT WAS NOT SPECIFIED AS TO HOW MUCH AMOUNT OF SALARY IS REQUIRED TO BE PAID TO EACH OF THE WORKING PARTNER AND THE PARTNERSHIP DEE D HAS NOT LAID DOWN THE SPECIFIC METHOD OF QUANTIFICATION THEREOF. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO SHOW CAU SE AS TO WHY THE REMUNERATION TO THE PARTNERS SHOULD NOT BE D ISALLOWED. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE PARTNERS REMUNERATION HAS BEEN COMPUTED AN D QUANTIFIED AS PER LIMIT PRESCRIBED U/S 40B(V) OF THE INCOME TAX ACT 1961 AND . I.T.A. NO.1671/DEL/10 3/9 AUTHORIZED IN ACCORDANCE WITH CLAUSES 1 & 2 OF THE S UPPLEMENTARY PARTNERSHIP DEED DATED 13.4.1992 TO THE ORIGINAL PAR TNERSHIP DEED DATED 12.5.1976. IT WAS ALSO SUBMITTED THAT PAYMENT OF REMUNERATION IS IN ACCORDANCE WITH BOARD CIRCULAR NO.739 DATED 25 .3.1996. THE ASSESSING OFFICER HAS REPRODUCED THIS BOARD CIRCULAR IN T HE ASSESSMENT ORDER AND THEREAFTER IT IS OBSERVED BY HIM THAT THE SALARY/REMUNERATION TO THE PARTNERS CANNOT BE ALLOWED AS DEDUCTION U/S 40B(V) OF THE ACT SINCE THE PARTNERSHIP DEED IN TH IS CASE NEITHER SPECIFIES THE AMOUNT OF SALARY REQUIRED TO BE PAID TO EACH OF THE WORKING PARTNER NOR HAS LAID DOWN THE SPECIFIC METHOD OF QUANTIFICATION THEREOF. HE MADE DISALLOWANCE OF THE ENTIRE AMOUNT OF PARTNERS REMUNERATION CLAIMED BY THE ASSESSEE OF `.21.40 LAKHS. HE HAS ALSO REFERRED TO A TRIBUNAL DECISION RENDERED IN THE CASE OF CIT V. HARYANA WAREHOUSING CORPORATION AS REPORTED IN 1 SOT 264 (CHD .). BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE LD CIT (A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER AP PEAL BEFORE US. 6. IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT ON PAGE NO.43-44 OF THE PAPER BOOK IS THE SUPPLEMENTARY DEED OF PARTNERSHIP AVAILABLE AND AS PER CLAUSE 1 & 2 OF THIS SUPPLEMENTAR Y PARTNERSHIP DEED PAYMENT OF REMUNERATION TO PARTNERS HAS BEEN AU THORIZED. IT IS ALSO SUBMITTED THAT AS PER CLAUSE (2) OF THIS SUPPLEMENTA RY PARTNERSHIP DEED IT LAYS DOWN THE PARA METER WITHIN WHICH THE R EMUNERATION IS TO BE PAID. RELIANCE WAS PLACED ON THE FOLLOWING JUDGM ENTS:- A) IQBAL AHAND &CO. V. ITO 1 SOT 202 (CAL.). B) CIT V. SUMAN CONSTRUCTION 121 TTJ 847 (PUNE). C) CIT V. ANIL HARDWARE STORE 323 ITR 368 (HP). . I.T.A. NO.1671/DEL/10 4/9 7. IT IS ALSO SUBMITTED THAT DEED SAYS THAT REMUNERATION HAS TO BE PAID AS PER MUTUAL CONSENT AND HENCE ALLOWABLE. IT IS ALSO SUBMITTED THAT TECHNICAL REASONS SHOULD NOT COME IN THE WAY OF GIVING RELIEF TO THE ASSESSEE. IN SUPPORT OF THIS CONTENTION IT WAS SUBMITT ED BY THE LD AR OF THE ASSESSEE THAT HE WILL SUBMIT A COPY OF JUDGMEN T OF HON'BLE BOMBAY HIGH COURT ON WHICH HE WANTS TO PLACE RELIANC E BUT NEITHER THE COPY OF ANY JUDGMENT WAS SUBMITTED NOR ANY CITATION W AS GIVEN BY HIM REGARDING ANY JUDGMENT IN THIS CONNECTION. 8. AS AGAINST THIS LD DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT AS PER TH E ASSESSEE CLAUSE 1 & 2 OF THE SUPPLEMENTARY PARTNERSHIP DEED DATED 1.4 .1992 ARE RELEVANT FOR THE PURPOSE OF DECIDING THIS ISSUE AS TO WH ETHER THE PAYMENT OF REMUNERATION TO PARTNERS IS ALLOWABLE OR N OT. WE THEREFORE REPRODUCE THESE TWO CLAUSES OF SUPPLEMENTAR Y PARTNERSHIP DEED AS UNDER:- 1. THAT SUBJECT TO MUTUAL CONSENT OF THE PARTNERS AN D SUBJECT TO THE PROVISIONS OF THE INCOME TAX ACT 1961 THE WORKI NG PARTNER OR PARTNERS SHALL BE PAID SUCH REMUNERATION AS MAY BE M UTUALLY AGREED BETWEEN THEMSELVES FROM TIME TO TIME AND SUCH REMUNERATION SHALL BE DEDUCTIBLE EXPENSE BEFORE ARRIV ING AT THE SHARE OF THE PARTNERS AS ALLOCABLE FROM THE NET PROFIT S. 2. THAT BOTH THE PARTNERS (HEREINAFTER REFERRED AS WO RKING PARTNERS) SHALL DEVOTE THEIR TIME AND ATTENTION IN THE CONDUCT OF THE AFFAIRS OF THE PARTNERSHIP FIRM AS THE CIRCUMSTA NCES AND NEED OF THE FIRMS BUSINESS MAY REQUIRE. THE TOTAL REMUN ERATION . I.T.A. NO.1671/DEL/10 5/9 PAYABLE TO THE WORKING PARTNERS SHALL BE AN AMOUNT PE RMISSIBLE AS REMUNERATION TO THE WORKING PARTNERS UNDER THE INC OME TAX ACT 1961 AND AS APPLICABLE FROM TIME TO TIME. 10. FROM THESE TWO PARAS OF SUPPLEMENTARY PARTNERSHIP DEED WE FIND THAT APART FROM STATING THAT REMUNERATION CAN B E PAID TO THE PARTNERS AS PER MUTUAL CONSENT OF THE PARTNERS AND AS PE R THE PROVISIONS OF THE INCOME TAX ACT 1961 NOTHING HAS BE EN SPECIFIED IN THE PARTNERSHIP DEED AS TO HOW MUCH TOTAL REMUNERATIO N HAS TO BE PAID IN A YEAR AND WHAT WILL BE THE SHARE OF THE PAR TNERS IN SUCH REMUNERATION. HENCE NOW WE CONSIDER AS TO WHETHER SUC H REMUNERATION CAN BE ALLOWED AS AN EXPENSE AS PER THE P ROVISIONS OF SECTION 40B(V). WE THEREFORE REPRODUCE THE PROVISIO N OF SECTION 40B(V) WHICH IS AS UNDER:- SECTION 40B(V): ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER WHICH IS AUTHORIZED BY AND IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PERIOD FAL LING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FART AS THE AMOUNT OF SUCH PAYMENT TO ALL THE PARTNERS DURING THE PREVIOUS YEAR EXCEEDS THE AGGREGATE AMOUNT COMPUTED AS HEREUNDER:- A) ON THE FIRST `.3 00 000 OF `.1 50 000 OR @ 90% OF T HE THE BOOK PROFIT OR IN CASE BOOK PROFIT WHICHEVER IS OF A LOSS. MORE. B) ON THE BALANCE OF THE @ 60 PER CENT BOOK PROFIT. . I.T.A. NO.1671/DEL/10 6/9 PROVIDED THAT IN RELATION TO ANY PAYMENT UNDER THIS CLAUSE TO THE PARTNER DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR COMMENCING ON THE ON THE IST DAY OF APRIL 1993 THE TERMS OF THE PARTNERSHIP DEED MAY AT ANY TIME DURING THE SAID PRE VIOUS YEAR PROVIDE FOR SUCH PAYMENT. 11. FROM THE ABOVE PROVISIONS OF SECTION 40B(V) IT IS SEEN THAT DEDUCTION CAN BE ALLOWED ON ACCOUNT OF PAYMENT OF R EMUNERATION TO A WORKING PARTNER WHICH IS AUTHORIZED BY THE PARTNERSHI P DEED AND IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. HE NCE IN ADDITION TO THIS REQUIREMENT THAT THE PAYMENT OF REMUNERATION TO A WORKING PARTNER IS AUTHORIZED BY THE PARTNERSHIP DEED THE PA YMENT OF REMUNERATION HAS TO BE IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. AS PER THESE CLAUSES OF THE SUPPLEMEN TARY PARTNERSHIP DEED IT CANNOT BE ASCERTAINED AS TO HOW MUCH REMUNERATION IS TO BE PAID AS PER PARTNERSHIP DEED AND HENCE THIS CANNOT BE ACCEPTED THAT THE PAYMENT OF REMUNERATION CLAIMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE PARTNERSHIP DEED. IT W AS AN ARGUMENT BEFORE US THAT AS PER CLAUSE 2 REPRODUCED ABO VE REMUNERATION CAN BE PAID UP TO THE AMOUNT WHICH IS A LLOWABLE UNDER THE INCOME TAX ACT 1961. IT WAS ALSO SUBMITTED BEFORE US THAT AS PER THE PROVISIONS OF PARTNERSHIP DEED DEDUCTION OF REMU NERATION IS ALLOWABLE TO THE EXTENT OF `.98 81 165/- AS PER THE WORKING AVAILABLE ON PAGE NO.31 OF THE PAPER BOOK BUT THE REMUNERATION P AID WAS ONLY OF `.21.40 LAKHS AND HENCE IT SHOULD BE ALLOWABLE. CONSID ERING THESE FACTS WE ARE OF THE CONSIDERED OPINION THAT UNDER TH ESE FACTS IT CANNOT BE ACCEPTED THAT THE REMUNERATION PAID BY TH E ASSESSEE IS IN ACCORDANCE WITH THE PARTNERSHIP DEED BECAUSE AS PER TH E CLAUSE 2 OF THE SUPPLEMENTARY PARTNERSHIP DEED AS REPRODUCED ABOVE THE TOTAL REMUNERATION PAYABLE TO THE WORKING PARTNERS SHALL BE AN AMOUNT WHICH IS PERMISSIBLE AS REMUNERATION TO THE WORKING PAR TNERS UNDER . I.T.A. NO.1671/DEL/10 7/9 THE INCOME TAX ACT 1961 AS APPLICABLE FROM TIME TO TIME. HENCE AS PER THIS CLAUSE OF THIS PARTNERSHIP DEED THE AMOUNT OF `.98 81 165/- IS PAYABLE AS REMUNERATION TO THE WORKING PARTNERS UNDER THE INCOME TAX ACT 1961 AND HENCE AS PER THIS CLAUSE NO.2 OF TH E SUPPLEMENTARY PARTNERSHIP DEED THIS MUCH PAYMENT SHOULD HAVE BEEN MADE TO THE PARTNERS AND THEN ONLY IT COULD HAVE BEEN ACCEPTED THAT THE PAYMENT OF REMUNERATION TO THE PARTNERS IS IN ACCORDANCE WITH THE PARTNERSHIP DEED. THIS WAS NOT DONE. THE REMUNERATION PAID TO THE PARTNERS IS ONLY OF `.21.40 LAKHS AND HENCE IT CANNOT BE ACCEPTED TH AT THE PAYMENT OF REMUNERATION TO THE PARTNERS IN THE PRESENT CASE IS IN ACCORDANCE WITH THE PROVISIONS OF PARTNERSHIP DEED AND HENCE THE SAME IS NOT ALLOWABLE U/S 40B(V) OF THE INCOME TAX ACT 1961. 12. NOW WE CONSIDER THE JUDGMENTS CITED BY THE LD AR OF THE ASSESSEE. THE FIRST DECISION IS THE DECISION OF CALCUTTA BE NCH OF THE TRIBUNAL RENDERED IN THE CASE OF IQBAL AHMED & SONS ( SUPRA). WE FIND THAT AS PER THE FACTS OF THAT CASE AS NOTED BY THE TRI BUNAL IN PARA NO.2 BOTH THE PARTNERS WERE ENTITLED TO DRAW MONTHLY SALAR Y AS MUTUALLY SETTLED FROM TIME TO TIME SUBJECT TO THE PROVISION OF THE INCOME TAX ACT 1961. IN THAT CASE IT WAS HELD BY THE TRIBUNAL THAT AS PER THE PARTNERSHIP DEED REMUNERATION WAS PAYABLE TO THE PA RTNERS AS PER THE PROVISIONS OF THE INCOME TAX ACT 1961 AND IT IS NOT THE FACT OF THAT CASE THAT ACTUAL PAYMENT OF REMUNERATION WAS LESS THAN THE AMOUNT PAYABLE AS PER INCOME TAX ACT 1961 AND HENCE ACTUA L PAYMENT OF REMUNERATION WAS ACCORDING TO TERMS OF PARTNERSHIP DE ED WHEREAS IN THE PRESENT CASE THE ACTUAL PAYMENT OF REMUNERATION IS NOT AS PER THEE TERMS OF THE PARTNERSHIP DEED AS PER WHICH REMUNE RATION HAS TO BE PAID AS PERMISSIBLE UNDER THE INCOME TAX ACT 1961 BUT ACTUAL JUDGMENT IS . HENCE THIS TRIBUNAL DECISION IS OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. . I.T.A. NO.1671/DEL/10 8/9 13. NOW WE CONSIDER THE SECOND DECISION OF THE TRIBUN AL CITED BY THE LD AR OF THE ASSESSEE IN THE CASE OF CIT V. SUMAN C ONSTRUCTION CO. (SUPRA). THIS TRIBUNAL DECISION IS ALSO OF NO HELP TO TH E ASSESSEE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THAT C ASE ALSO FACTS ARE NOT THIS THAT ACTUAL PAYMENT OF REMUNERATION IS N OT AS PER TERMS OF PARTNERSHIP DEED BUT IN THE PRESENT CASE WE HAVE ALR EADY NOTED THAT ACTUAL PAYMENT OF REMUNERATION IS AT VARIANCE WITHIN THE REMUNERATION PAYABLE AS PER PARTNERSHIP DEED. 14. THE THIRD JUDGMENT RELIED UPON IS THE JUDGMENT O F HON'BLE MADHYA PRADESH HIGH COURT RENDERED IN THE CASE OF CIT V. ANIL HARDWARE STORE (SUPRA). THIS JUDGMENT IS ALSO OF NO H ELP TO THE ASSESSEE AS FACTS ARE DIFFERENT. IN THIS CASE ALSO THIS WAS N OT THE FACTUAL POSITION THAT ACTUAL PAYMENT OF REMUNERATION TO PARTNERS WAS IN VARIANCE WITH THE REMUNERATION PAYABLE AS PER PA RTNERSHIP DEED. IN THAT CASE PARTNERSHIP DEED LAID DOWN THE METHOD O F COMPUTING REMUNERATION PAYABLE TO PARTNERS. HENCE THIS JUDGMEN T IS ALSO OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. 15. WE THEREFORE DO NOT FIND ANY REASON TO INTERF ERE IN THE ORDER OF LD CIT(A) ON THIS ISSUE. GROUND NO.1 IS REJECTED. 16. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. 17. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER 2010. SD/- SD/- (I.P. BANSAL) (A.K. GARO DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 29.10.2010. HMS . I.T.A. NO.1671/DEL/10 9/9 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DEL HI. TRUE COPY. BY ORDER (ITAT NEW DELHI).