The ACIT, Circle-2, RAJKOT-GUJARAT V. M/s. Komal Arts, RAJKOT-GUJARAT

ITA 18/RJT/2013

• Counselvise Citation: 1824914 RSA 2013
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: B R POPAT
• Keywords: Reassessment proceedings
• Section: 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RA J KOT BENCH BEFORE: SHRI D.K. TYAGI , JUDICIAL MEMBER AND SHR I A. MOHAN ALANKAMONY , ACCOUNTANT MEMBER ACIT, CIR - 2, RAJKOT (APPELLANT) VS M/S KOMAL ARTS, 4 - CHAMPAK NAGAR PEDAK ROAD, RAJKOT (RESPONDENT) REVENUE BY : SRI AVINASH KUMAR, D . R. ASSESSEE BY: SRI B.R. POPAT , A.R. DATE OF HEARING : 2 6 - 04 - 2013 DATE OF PRONOUNCEMENT : 06 - 0 6 - 2013 / ORDER P ER : D.K. TYAGI , JUDICIAL MEMBER : - THIS IS THE REVENUE S APPEAL AG AINST THE ORDER OF LD. CI T(A) - III RAJKOT DATED 29 - 11 - 2012 . 2. THE REVENUE HAS TAKEN FOLLOWING TWO EFFECTIVE GROUNDS. I T A NO . 18 / RJT /20 13 A SSESSMENT YEAR 2009 - 10 I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 2 1. THE LD. CIT(A) III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 12,36,26,954/ - MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE I.T. ACT. 2. THE LD. CIT(A) - III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION OF RS. 17,41,149/ - MADE ON ACCOUNT OF DISALLOWANCE OF REMUNERATION TO PROMOTER. 3. GROUND NO. 1 RELATES TO ADDITION OF RS. 1 2,36,26,954/ - MADE ON ACCOU NT OF DISALLOWANCE U/S 40( A )( I A) OF THE ACT. ASSESSING OFFICER MADE ADDITION OF RS. 12,36,26,954/ - ON GROUND THAT THESE PAYMENTS HAVE BEEN MADE FROM APRIL, 2008 TO FEB, 2009 HENCE TDS WAS TO BE DEPOSITED INTO GOV. ACCOUNT BUT ASSESSEE DEPOSITED THE TDS ON 13 - 05 - 2009 AND 13 - 06 - 2009 WHICH IS LATE AND HENCE DISALLOWED U/S. 40(A)(IA). LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF KOLK A TA HIGH COURT IN THE CASE OF CIT VS. VERGIN CREATIONS IN GA NO. 302 OF 2011 DATED 23 - 11 - 2011 WHEREIN IT WAS HELD THAT THE AMENDMENT IN SECTION 40(A)(IA) VIDE FINANCE ACT 2010 APPLIES RETROSPECTIVELY AND THEREFORE THE PERMISSIBLE DATE OF PAYMENT WAS EXTENDED FROM THE LAST DATE OF PREVIOUS YEAR TO THE DUE DATE OF FILING OF RETURN U/S 139 (I) OF THE ACT. SINCE THE RE IS NO DISPUTE ABOUT THE FACT THAT TDS WAS PAID BEFORE DUE DATE OF FILING OF RETURN BY THE ASSESSEE IN THIS CASE , WE FEE L NO NEED TO INTERFE RE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD . THIS GROUND OF THE REVENUE IS DISMISSED. 4 . SECOND GROUND RELATES TO DISALLOWANCE OF RS. 1 7,47,149/ - ON ACCOUNT OF REMUNERATION PAID TO SHIVRAJ JAYS INGHBHAI. THE FACTS IN RESPECT OF THIS DISALLOWANCE AS THEY EMERGE FROM THE ORDER OF LD. CIT(A) ARE AS UNDER: - I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 3 2 THE ASSESSING OFFICER HAS STATE D IN THE AS SESSMENT ORDER THAT THE APPELLANT HAS CLAIMED DEDUCTION OF RS. 1741149/ - ON ACCOUNT OF REMUNERATION TO ONE PARTNER VIZ , SHRI SHIVRAJ JESINGHBHAI HENNA WHICH IS NOT MENTIONED IN THE PARTNER SHIP DEED NOR THE DEED LAYS DOWN THE MAN NER OF QUALIFYING S UCH REMUNERATION. ASSESSING OFFICER STATED THAT T HIS PAYMEN T WAS MADE IN VIOLA TION OF BOARD'S CIRCULAR NO.739. TH E APPELLANT SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE REMUNERATION IS AS PER THE PARTNERSHIP DEE D AND IT HAS BEEN WORKED OUT AS UNDER: FIRST 75000 OF PROFIT: 90% 67500 NEXT 75000 OF PROFIT: 60% 45000 REMAINING AMOUNT OF PROFIT OF RS. 4071622: 40% 1628449 TOTAL REMUNERATION 1741149 ASSESSING OFFICER DID NOT ACCEPT THE ABOVE WORKING OF REMUNERATION TO THE PARTNER BECAUSE IN THE PARTNERSHIP DEED FURNISHED BY THE APPELLANT, NOWHERE IN THE DEED THE NAME OF WORKING PARTNER IS M ENTIONED. ASSESSING OFFICER STAT ED THAT THE AP PELLANT HAS ALTERED ONE PAGE (I.E. PAGE NO 5) OF THE DEED DURING THE CURRENT ASSESSME NT PROCEEDINGS COMPARED TO PARTNERSHIP DEED SUBMITTED DURING REASSESSMENT PRO CEEDINGS OF ASSESSMENT YEAR 2005 - 06. ASSESSING OFFICER STAT ED THAT DURING THE REASSESSMENT PROCEEDINGS OF ASSESSMENT YEAR 2005 - 06, APPELLANT HAD SUBMITTED THE PARTNERSHIP DEED DATED 29.9 1998 WHOSE PARA 9 DETE RMINED 100% REMUNERATION TO SHIVRAJ JESINGHBHAI HER NA AS UNDER: UPTO 50000 OF PROFIT: 100% FROM 50,000 TO 75,000 OF PROFIT: 60% REMAINING AMOUNT OF PROFIT: 40% ASSESSING OFFICER STATED THAT THE PARTNERSHIP DEED DATED 29.9.1998, SUBMITTED BY APPELLANT DURING THE CURRENT ASSESSM ENT PROCEEDINGS, HAS A CHANGE D PARA 9 AND PA GE 5 WHERE IT IS MENTIONED THAT EACH PARTNER IN THE PARTNERSHIP FIRM WILL BE A WORKING PARTNER AND THE I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 4 REMUNERATION WILL BE PAID AS PER THE MAXIMUM ALLOWABLE LIMIT AS PER INCOME TAX ACT. ASSESSING OFFICER STAT ED T HAT THE ORIGINAL DEED HAS CAST MAXIMUM LIMIT ON THE REMUNERATION PAID TO MR. SHIVRAJ JESINBHBHAI, WHICH HAS BEEN REMOVED IN TH E MANIPULATED DEED SUBMITTED DURING T HE CURREN T ASSESS MENT PROCEEDINGS. ASSESSING OFF ICER STATED THAT MANIPULATION OF SOME PORTI ON OF T HE PARTNERSHIP DEED TANTAMOUNTS TO FRAUD AND HENCE THIS PARTNERSHIP DEED CANNOT BE HELD AS VALID DOCUMENT. ASSESSING OFFICER STATED THAT THE PAYMENT OF REMUNERATION TO DIRECTORS WAS IRREGULAR AND IS IN VIOLATION OF BOND'S INSTRUCTION IN CIRCULAR NO. 739 DATE D 25/03/98 AND THEREFORE THE REM UNERATION CANNOT BE ALLOWED. 'THEREFORE, ON THE ABOVE FACTS OF CASE, T HE AS SESSING OFFICER MADE ADDITION OF 1741149/ - TO THE TOTAL INCOME OF TH E APPELLANT . 5 . BEFORE LD. CIT(A) THE SUBMISSION OF THE ASSESSEE WAS THAT SIMILAR DISALLOWANCE WAS ALSO MADE IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2005 - 06 WHICH WAS DELETED BY LD. CIT(A) . ASSESSEE ALSO PLACED RELI ANCE ON THE DECISION OF SOME OTHER CASE LAWS WHICH HAVE BEEN MENTIONED BY LD. CIT(A) IN HIS ORDER. LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE DIRECTED THE A.O. TO ALLOW DEDUCTION OF 17 , 41,149/ - ON ACCOUNT OF REMUNERATION PAID TO SHIVRAJ JAISHI NGBHAI BY OBSERVING AS UNDER: - 4.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. AS FAR AS APPLICABILIT Y OF CIRCULAR NO.739 OF CBDT DATED 25/03/98 IN RESPECT OF PAYMENT OF REMUNERATION T O PARTNERS BY A FIRM IS CONCERNED, THE ISSUE IS AL READY COVERED BY MY OWN ORDER DATED 16 - 4 - 2012 IN APPELLANT'S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 IN APPEAL NO C1T(A) - II / 0 1 12/10 - 11. 1 HAD FOLLOWED THE DECISION OF THE HIGH COURT OF HIMACHAL PRADESH, IN CASE OF M/S DURGA DASS DEVKI NANDAN VS 1 TO 342 1TR 17 WHERE TH E CIRCULAR NO 739 DATED 25 - 03 - 1996 O F CBDT WAS HELD AS INVALID, H'BL E HIGH COURT H ELD T HAT IF IN I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 5 THE PARTNERSHIP DEED IT WAS CLEARLY MENTIONED THAT THE PAR TNERS , WOULD GET REMUNERATION CALCULATED AS PER THE PROVISIONS OF THE INCOME - TA X ACT, WHICH M EANS THAT THIS WOULD NOT EXCEED THE MAXIMUM AMOUNT PROVIDED UNDER THE ACT. 4.2 IN THE REASSESSMENT PROCEEDINGS THE ASSES SING OFFICER HAD RELIED ON THE SUPPLEMENTARY DEED DATED 01.04.2002 IN ADDITION TO THE ORIGINAL P ARTNERSHIP DEED DATED 20. 9.1998 AND AS PER THIS SUPPLEMENTARY DEED T HE REMUNERATION PAID TO THE PARTNERS DID NOT FUL FILL THE REQUIREMENTS OF BOARD S CIRCULAR. THE ISSUE IN THE APPELLATE PROCEEDING OF ASSESSMENT YEAR 2005 - 06 WAS LIMITED TO THE APPLICABILITY OF THE CIRCULAR NO 739 OF CBDT DATED 25/03/98, WHICH 1 HAVE DECIDED IN FAVOUR OF APPELLANT AS MENTIONED ABOVE. HOWEVER, IN PRESENT ASSESSMENT PROCEEDINGS , ASSESSING OFFICER FOUND THAT T HE APPELLANT HAS MANIPULATED THE ORIGINAL PARTNERSHIP DEED DATED 29.9.1998 ITSELF BY CHANGING IT S 5 TH PAGE OF THIS DEED WHERE PARA 9 OF THE PARTNERSHIP DEED HAS BEEN CHANGED TO INCLUDE ALL PARTNERS AS WORKING PARTNERS WHEREAS IN O RIGINAL PARTNERSHIP DEED 100% OF REMUNERATION TO PARTNERS WAS PAYABLE TO ONLY SHIVRAJ JESINGHBHAI HCRMA. ASSESSING OFFICER STATED THAT IN ORIGINAL PARTNERSHIP DEED THE MAXIMUM AMOUN T OF REMUNERATION OF RS . 2,00,000 / - WAS PAYABLE TO SHIVRAJ JESINGHBHAI HERNIA WHEREAS IN MANIPULATED PAGE NO 5 AND PARA NO 9 OF THIS DEED, MAXIMUM AMOUNT OF REMUNERATION HAS BEEN MENTIONED A S THE MAXIMUM ALLOWABLE AMOUNT FOR DEDUCTION T O PARTNERS UNDER INCOME TAX ACT. IT IS ALSO MENTIONED THAT T HE REMUNERATION AMONGST THE PARTNERS WOULD BE AS PER THEIR MUTUAL CONSENT . THE SUPPLEMENTARY DEED DATED 01.04.2002, IN ADDITION TO THE ORIGINAL PARTN ERSHIP DEED DATE D 29.9. 1998 WHICH WAS CONSIDER ED BY THE ASSESSING OFFICER IN T HE REASSESSMENT ORDER OF ASSESSMENT YEAR 2005 - 06 HAS NOT BEEN REFERRED TO BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER UNDER APPEAL. THERE IS NO DOUBT ABOUT THE FACT THAT MAN IPULATED PARTNERSHIP DEED PRESENTED DURING THE ASSESSMENT PROCEEDINGS OF ASSESSMENT YEAR UNDER APPEAL MUST BE DISCARDED. HOWEVER, 1 DO NOT FIND ANY REASON FOR DISCARDING THE SUPPLEMENTARY DEED DATED 01.04. 2002 WHICH THE ASSESSING OFFICER HAD CONSIDERED IN THE REASSESSMENT ORDER OF ASSESSMENT YEAR 2005 - 06. IN THE SUPPLEMENTARY DEED DAT ED 1 - 4 - 200 2, ALL THE PARTNERS OF APPELLANT I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 6 FIRM RECT IFIED THE PARA 9 OF THE ORIGINAL PARTNERSHIP DEED DATED 29 .9.1998. THEY DECIDED THAT THE REMUNERATION TO SHIVRAJ JESIN GHBH AI HERMA WOULD PAID AS PER THE LIMITS MENTIONED UNDER INCOME TAX ACT AND WITHOUT ANY SUCH LIMITATION AS WAS MENTIONED IN ORIGINAL PARTNERSHIP DEED DATED 29 . 9 . 1998 (I . E RS 2, 0 0,000/ - ) . THEREFORE THE POSITION OF PARTNERSHIP DEED FOR THE ASSESSMENT YEAR UNDE R APP EAL AFTER CONSIDERING THE SUPPLEMENTARY DEED DAT ED 1.4.2002 IS THE SAME AS IT W AS IN ASSESSMENT YEAR 2005 - 06 EVEN AFTER DISCARDING THE MANIPULATED PARTNERSHIP DEED RENTED BY APPELLANT BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING OF AS SESSMENT YEAR UNDER APPEAL . THE ACCOUNTS OF PARTNERS DURING THE FINANCIAL YEAR REL EVANT TO THE ASSESSMENT YEAR UNDER APPEAL SHOW THAT APPEL LANT HAS PAID REMUNERATION RS. 17,41 ,149/ - TO SHIVRAJ JESINGHBHAI HERMA AND NIL REMUNERATIONS TO OTHER TWO PARTNE RS, I . E . NITABEN B HERMA AND KRIS HNABCN K HENNA . APPELLAN T HAD PAID REMUNERATION ONLY SHI VRAJ JESINGHBHAI HERMA WHICH I S AS PER THE SUPPLEMENTARY DEED DATED 2002. TH E REMUNERATION DOES NOT EXCEED T HE MAXIMUM AMOUNT OF RS.17,41,149/ - AL LOWABL E IN CAS E OF APPELLANT U/S 40(B) OF THE IT. ACT WHI C H IS ALSO AS PER SUPPLEMENTARY DEED DATED 1.4.2002. THEREFORE FOLLOWING MY OWN ORDER DATED 16 - 4 - 2012 IN APPELLANT'S OW N CASE FOR ASSESSMENT YEAR 2005 - 06 IN APPEAL NO CIT(A )III/0112/10 - 11 , 1 DIRECT THE A SSESSING O FFICER TO ALLOW THE DEDUCTION OF RS. 17,41, 149/ - ON ACCOUNT OF REMUNERATION PAID T O SHIVRAJ JESINGHBHAI HERMA AND REDUCE THE TOTAL INCOME OF APPELLANT ACCORDINGLY. 6 . THE ABOVE FINDING OF FACT OF LD. CIT(A) IS NOT CONTROVERTED BY THE REVENUE AT THE TI ME OF HEARI NG BEFORE US. WE FURTHER FIND THAT LD. CIT(A) HAD GIVEN RELIEF TO THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF HIMACHAL PRADESH HIGH COURT IN THE CASE OF DURGA DASS DEVKI NANDAN VS. ITO 342 ITR 17. NO CONTRARY DECISION WAS CITED BY THE REVENUE THEREFORE WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. I.T.A NO. 18/RJT/2013 A.Y. 2009 - 10 PAGE NO ACIT VS. M/S KOMAL ARTS 7 7 . IN THE RESULT, REVENU E S APPEAL IS DISMISSED. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ( D. K.TYAGI ) ACCOUNTANT MEM BER JUDICIAL MEMBER AHMEDABAD: DATED /05 /2013 AK ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONED HEREINABOVE AT CAPTION PAGE SD/ - SD/ - (D. K. STIVASTAVA) (T.K.SHARMA ) ACCOUNTANT MEM BER JUDICIAL MEMBER B EB / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - THE A.C.I.T., CIRCLE - 2, RAJKOT 2 . / RESPONDENT - M/S. KOMAL ARTS, 4, CHAMPAK NAGAR, PEDAK ROAD, RAJKOT 3 . O / CONCERNED CIT - II, RAJKOT 4 . - / CIT (A) - III, RAJKOT 5 . O , O , / DR, ITAT, RAJKOT 6 . [ / GUARD FILE. BY ORDER/ , SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL RAJKOT