M/s. RP Associates, Greater Noida V. DCIT, Noida

ITA 1515/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6806 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: S K CHATURVEDI
• Section: 40(b); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER & MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.-1515/DEL/2016(A.Y. 2 012-13) RP ASSOCIATES H-11, ALPHA-II, DISTT. GAUTAM BUDH NAGAR GREATER NOIDA PAN : AANFR1249K APPELLANT VS DCIT CIRCLE-3 NOIDA RESPONDENT ASSESSEE BY SH. S.K.CHATURVEDI, CA REVENUE BY MS. NIDHI SRIVASTAVA, CIT DR ORDER PER SUCHITRA KAMBLE, J.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 04.02.2016 AND 21.12.2015 PASSED BY THE COMMISSIONE R OF INCOME TAX (APPEALS)- I, NOIDA FOR ASSESSMENT YEAR 2012-13 . 2. GROUNDS OF APPEAL ARE AS UNDER : 1. THAT LD. CIT(A)-I NOIDA HAS ERRED BY CONFIRMIN G THE ADDITION OF RS. 28,80,000/-, THE AMOUNT OF SALARY TO WORKING PARTNER S, DISALLOWED BY AO IN SPITE OF THE FACTS THAT THE SAME WAS WELL WITHIN PERMISSIBLE LIMITS UNDER SECTION 40(B)(V) AND THE PARTNERSHIP DEED ALS O SPECIFIES THE METHOD FOR QUANTIFYING THE SAME. THIS ACTION IS ARBI TRARY, ILLEGAL AND AGAINST SETTLED JUDICIAL PRONOUNCEMENTS. 2. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, MODIF Y ANY GROUND OF APPEAL WITH THE PERMISSION OF HONBLE BENCH. DATE OF HEARING 21 .0 8 .201 9 DATE OF PRONOUNCEMENT 23 . 10 .201 9 2 ITA NO. 1515/DEL/2016 (RP ASSOCIATES) 3. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PROVIDING MAN POWER DURING THE YEAR. AS PER PROFIT AND LOSS A/C, TOTAL RECEIPTS FROM CONTRACT WORK WAS DISCLOSED AT RS. 9,89,40,542/- ON WHICH NET PRO FIT OF RS. 17,97,511/- WAS DECLARED. THE ASSESSEE FILED RETURN DECLARING T AXABLE INCOME OF RS. 17,97,510/- ON 27.09.2012. THE CASE WAS SELECTED FO R SCRUTINY AND NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 WAS ISSUED O N 26.08.2013 AND SERVED UPON THE ASSESSEE. SUBSEQUENTLY, NOTICES U/S 142(1) ALONG WITH QUESTIONNAIRE WERE ALSO ISSUED REQUIRING THE ASSESS EE TO FURNISH CERTAIN DETAILS / INFORMATION. IN RESPONSE TO THE SAME PART NER OF THE ASSESSEE ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TI ME AND FURNISH DETAILS AND REPLIES TO THE QUERIES RAISED DURING THE ASSESS MENT PROCEEDINGS. THE ASSESSING OFFICER MADE ADDITIONS OF RS. 28,80,000/- BY WAY OF DISALLOWANCE OF SALARY TO PARTNERS WHICH WAS HELD NOT TO BE IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 40(B) OF THE INCOME TAX ACT, 1961 AND DI SALLOWED RS. 8,00,000/- ON ESTIMATED BASIS FROM THE EXPENSES WHICH WERE CLAIME D BY THE ASSESSEE AND NOT SUPPORTED BY THE VOUCHERS. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED OF THE APPEAL. 5. THE LD. AR SUBMITTED THAT THE CIT(A) ERRED BY CO NFIRMING THE ADDITION OF RS. 28,80,000/-. THE LD. AR FURTHER SUBMITTED TH AT THE AMOUNT OF SALARY TO WORKING PARTNERS WAS WRONGLY DISALLOWED BY THE ASSE SSING OFFICER DESPITE THE FACT THAT THE SAME WAS WELL WITHIN THE PERMISSIBLE LIMITS U/S 40(B)(V) AND THE PARTNERSHIP DEED ALSO SPECIFIES THE METHOD FOR QUAN TIFYING THE SAME. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS : 1.CIT V. ASIAN MARKETING ITA NO. 271/2010 (RAJ. H .C) 2. DURGA DAS DEVKI NANDAN V. ITO ITA NO. 4/2005 ( HIMACH) 3. CLASSIC LAW V. ACIT ITA NO. 3403/DEL/2016 4. SANTLAL AGARWAL & SONS V. ACIT ITA NO. 434-436 /AGR/2012 5. PANDA FUELS V. ITO. ITA NO. 07/CTK/2018 (CUTTA CK) 6. UNITEC MARKETING SERVICES. V. ACIT ITA NO. 822 /MUM/2018 3 ITA NO. 1515/DEL/2016 (RP ASSOCIATES) 6. LD. DR SUBMITTED THAT THE CIT(A) HAS RIGHTLY DIS ALLOWED THE REMUNERATION. THE LD. DR RELIED UPON THE DECISION O F THE HONBLE DELHI HIGH COURT IN CASE OF SOOD BRIJ AND ASSOCIATES VS. CIT 2 03 TAXMAN 188. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER : 11. I HAVE CONSIDERED THE PARTNERSHIP DEED PLACED ON RECORD BY THE ID. COUNSEL FOR THE APPELLANT. I HAVE ALSO EXAMINED THE JUDGMENT OF HON'BLE HIMACHAL PRADESH HIGH COURT RELIED UPON BY THE APPELLANT. THE CLARIFICATORY CIRCULAR OF THE CBDT RELIED UPON BY THE ID. A.O. AT PARA 4 VERY CATEGORICALLY STATES THAT ANY REMUNERATI ON PAID TO AN INDIVIDUAL PARTNER WILL BE ADMISSIBLE AS DEDUCTION ONLY WHEN THE SAID PARTNER IS A WORKING PARTNER. THE SAID INSTRUCTION H AS TAKEN INTO ACCOUNT THE EFFECT OF SUCH BLANKET BAR AND HAS PERM ITTED A GRACE PERIOD UP TO A.Y. 1996-97 AND HAS DIRECTED FOR DISAL LOWING THE REMUNERATION PAID TO THE PARTNERS ONLY THEREAFTER. T HE INTENT OF THE STATUTE IS THEREFORE VERY CLEAR. THE REMUNERATION PA ID TO THE PARTNERS ARE TO BE ALLOWED ONLY WHEN THE PARTNERS ARE WORKIN G PARTNERS AND NOT OTHERWISE. EVEN IN THE CASE OF WORKING PARTNERS THE CLAIM OF DEDUCTION OVER PAYMENT OF REMUNERATION TO THE PARTNE RS IS SUBJECT TO FURTHER CONDITIONS IN SO MUCH AS THE PARTNERSHIP DE ED MUST PROVIDE THE AMOUNT OF REMUNERATION TO EACH INDIVIDUAL WORKI NG PARTNER OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION TO BE PAID TO THE PARTNERS OF THE FIRM. 12. THE CLAUSE 7 OF THE PARTNERSHIP DEED WHICH HAS BEEN EXECUTED MUCH LATER TO THE CBDTS CIRCULAR NO.739 DATED 25/05 /19S6 IS EXTRACTED AND REPRODUCED HEREINBELOW: THE PARTNER MAY WITH THEIR MUTUAL CONSENT DRAW REM UNERATION FROM PARTNERSHIP FIRM AT A RATE/AMOUNT THAT MAY BE MUTUA LLY AGREED TO FROM TIME TO TIME. THEY MAY INCREASE OR DECREASE SU CH REMUNERATION BY MUTUAL CONSENT. 13. FROM A PLAIN READING OF THE SAID PROVISION IN THE PARTNERSHIP DEED IT IS CLEAR THAT THERE IS NO REFERENCE TO THE PARTNER S BEING THE WORKING PARTNERS. IT SIMPLY PROVIDES FOR PAYMENT OF REMUNERA TION TO THE PARTNERS BY THE MUTUAL CONSENT OF THE PARTNERS. IT DOES NOT SAY IN ANY MANNER WHATSOEVER THAT THE REMUNERATION WILL BE PAI D TO THE PARTNERS BECAUSE OF THE PARTNER BEING A WORKING PARTNER. THER E IS ALSO NO REFERENCE TO THE MANNER IN WHICH THE QUANTUM OF THE REMUNERATION IS TO BE DECIDED. THE DEED DOES NOT SPECIFIES THE QUANTU M OF REMUNERATION EITHER. 14. THE AUTHORITY BEING THE JUDGMENT OF HONBLE HIM ACHAL PRADESH HIGH COURT IS OF NO HELP TO THE APPELLANT. THE FACT S OF THE CASE BEFORE HONBLE HIMACHAL PRADESH HIGH COURT WERE TOTALLY DIF FERENT FROM THE CASE OF THE APPELLANT AS IN THAT CASE THERE WAS MANNER PRESCRIBED TO FIX AND COMPUTE THE REMUNERATION PAYABLE TO THE PART NERS. FURTHER, THE ISSUE IN DISPUTE BEFORE HONBLE HIGH COURT WAS C OMPLETELY DIFFERENT AS HONBLE HIGH COURT WAS EXAMINING THE I SSUE OF 4 ITA NO. 1515/DEL/2016 (RP ASSOCIATES) PRECEDENCE AS IN VIEW OF THE REVENUE THE ID. ITAT W AS IN ERROR IN NOT FOLLOWING THE PRINCIPLE OF PRECEDENT OF ITS EARLIER DECISION DATED 27/05/2004 IN ITA NO.562/CHANDI/2002 TITLED AS MELA RAM MITTER BHUSHAN VS. ITO. AFTER CONSIDERING THE FACTS OF THE CASE THE HONBLE HIGH COURT HELD THAT THE FACTS OF THE CASE BEFORE THEM WAS DIFFERENT FROM THE FACTS OF THE CASE IN MELA RAM MITTER BHUSHAN VS. ITO. THE PRESENT CASE IS COMPLETELY ON DIFFERENT ISSUES AND THE DISPUTE IS WITH REGARD TO ISSUES WHICH WERE NOT EVEN PRESENT IN THE DISPUTE ADJUDICATED BY HONBLE HIMACHAL PRADESH HIGH COURT. THE RELIANCE PLACED BY THE APPELLANT ON THE SAID JUDGMENT IS THE REFORE MISPLACED AND OF NO HELP TO IT. 15. IN VIEW OF THIS THE PROVISIONS FOR PAYMENT OF R EMUNERATION TO THE PARTNERS OF THE APPELLANT FIRM IS NOT IN ACCORDANCE WITH THE PROVISIONS OF LAW U/S. 40(B)(V) OF THE I.T. ACT, 1961 AS CLARI FIED BY THE CBDT CIRCULAR NO. 739 DATED 25/03/1996. THEREFORE, THE A DDITIONS MADE BY THE ID. A.O. ON ACCOUNT OF DISALLOWANCE OF SALAR Y PAID TO THE PARTNERS OF THE APPELLANT FIRM SUFFERS FROM NO INFI RMITY. THE ADDITION OF RS. 28,80,000/- IS THEREFORE CONFIRMED. THE HONBLE DELHI HIGH COURT IN CASE OF SOOD BRIJ AND ASSOCIATES (SUPRA) HAS HELD THAT WHERE QUANTUM OR AMOUNT OF RE MUNERATION AND MANNER OF COMPUTATION IS NOT SPECIFIED OR STIPULATE D IN PARTNERSHIP DEED BUT WAS LEFT TO BE DECIDED AT THE FUTURE TIME AS PER TH E REQUIREMENTS OF SECTION 40(B)(V) WHICH WERE NOT SPECIFIED THEN IN THAT CASE REMUNERATION PAID TO PARTNERS WOULD NOT BE ALLOWED AS DEDUCTION U/S 40(B )(V). HOWEVER, IN THE PRESENT CASE, THE PARTNERS HAVE AGREED TO PAY THE S PECIFIC REMUNERATION AS PER ADDENDUM TO PARTNERSHIP DEED DATED 25 TH APRIL, 2011 WHICH IS NOT IN DISPUTE. THUS, THE REMUNERATION WAS QUANTIFIED AND STIPULATED BY THE PARTNERS. THUS, THE DECISION OF THE HONBLE DELHI H IGH COURT WILL NOT BE APPLICABLE IN THE PRESENT CASE AS THE FACTS IN THE PRESENT CASE ARE DISTINGUISHABLE. AS REGARDS CBDT CIRCULAR THE SAME IS ALSO NOT APPLICABLE IN THE PRESENT CASE AS WELL. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2019 . SD/- SD/- (R.K.PANDA) (SUCHITRA KAMBL E) ACCOUNTANT MEMBER JUDICIAL MEMBER 5 ITA NO. 1515/DEL/2016 (RP ASSOCIATES) DATED: 23.10.2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 29/08/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30/08/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER