M/s. Mana Ram Ganpat Ram & Co., New Delhi V. ACIT, New Delhi

ITA 2246/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7058 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 2246 /DEL/ 2014 ASSESSMENT YEAR: 2009 - 10 M/S. MANA RAM GANPAT RAM & CO., 257, CYCLE MKT., JHANDEWALAN EXTN., NEW DELHI VS. ACIT, CIRCLE - 38(1), NEW DELHI PAN : AAAFM2570Q (APPELLANT) (RESPONDENT) APPELLANT BY SH. K.V.S.R. KRISHNA, CA RESPONDENT BY SH. SURENDER PAL, SR.DR DATE OF HEARING 19.07.2016 DATE OF PRONOUNCEMENT 21.09.2016 ORDER PER O.P. KANT , A. M. : T HIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 27/01/2014 OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - XXVIII, NEW DELHI , RAISING FOLLOWING GROUNDS: I. THE ORDER OF THE ASSESSING OFFICER IS BAD IN LAW & AGAINST THE FACTS OF THE CASE . II. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. III. THE PARTNER SALARY FOR THE PERIOD FROM 01.04.08 TO 17.07.08 AMOUNTING TO RS.9,02,868/ - HAS WRONGLY BEEN DISALLOWED BY ASSESSING OFFICER & UPHE LD BY THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH NEEDS DELETIONS. 2 ITA NO. 2246/DEL/2014 AY: 2009 - 10 IV. THAT APPELLANT PRAYS FOR LEAVE TO ADD, AMEND OR VARY ANY OF THE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. T HE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM , AMENDED THE PARTNERSHIP DEED IN THE YEAR UNDER CONSIDERATION W.E.F. 18/07/2008 QUANTIFYING THE SALARY OF THE PARTNERS. T HE SALARY TO THE PARTNERS IN THE UN - AMENDED PARTNERSHIP DEED DATED 01.04.2008 WAS SPECIFIED IN THE RATIO OF PROFIT - SHARING. THE ADMISSIBLE SALARY AS PER THE TWO PARTNERSHIP DEED WAS AS UNDER: SR . NO. NAME OF THE PARTNER SALARY AS PER PART NERSHIP DEED DATED 01.04.2008 ( IN PROFIT SHARING RATIO - LIMITED TO MAXIMUM ALLOWABLE UNDER I T ACT.) PROFIT SHARING RATIO IS SALARY AS PER PARTNERSHIP DEED DATED 18.07.2008 1. GANPAT RAM CHOUDHARY 25% RS.80,000/ - PER MONTH 2. MADAN LAI CHOUDHARY 40% RS.80,000/ - PER MONTH 3. PRAHLAD SINGH 30% RS.80,000/ - PER MONTH 4. SHIV KUMAR CHOUDHARY 5% RS. 13,000/ - PER MONTH 2.1 IN THE RETURN OF INCOME FILED, THE ASSESSEE CLAIMED REMUNERATION TO THE PARTNERS FOR THE ENTIRE YEAR UNDER CONSIDERATION AS PER THE AMENDED PARTNERSHIP DEED DATED 18.07.2008 . THE ASSESSING OFFICER HELD THAT THE AMENDED PARTNERSHIP DEED WOULD NOT COVER THE PER IOD PRIOR TO THE DATE OF AMENDMENT AND THE EARLIER PARTNERSHIP DEED DID NOT AUTHORIZE THE PAYMENT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT ), AND ACCORDINGLY , HE 3 ITA NO. 2246/DEL/2014 AY: 2009 - 10 DISALLOWED THE REMUNERATION TO PARTNERS FOR THE PERIOD FROM 01/04/2008 TO 18 /07/2008, WHICH AMOUNTED TO RS.9,02, 366/ - . 2.2 THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) HELD THAT THE PARTNERSHIP DATED 01/04/2008 HAS NOT SPECIFIED THE SALARY AMOUNT AND , THUS , RELYING ON THE CBDT C IRCULAR NO. 739 DATED 25/ 03/1996, HE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED, N OW THE ASSESSEE IS BEFORE THE TRIBUNAL RAISING GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US , THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE PARTNERSHIP DEED DATED 01/04/2008 HAD SPECIFIED THE SALARY TO THE PAR TNER IN THE RATIO OF THE PROFIT AND WHICH IS NOT IN VIOLAT ION OF THE PARA - 4 OF THE CBDT C IRCULAR (SUPRA) AS THE MANNER OF QUANTIFYING THE REMUNERATION HAS BEEN LAID DOWN IN THE PARTNERSHIP DEED. IN S UPPORT OF HIS SUBMISSIONS , HE RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL D ATED 22/11/2013 IN THE CASE OF A SSISTANT COMMISSIONER OF INCOME T AX VS. M/S. DCS INTERNATIONAL T RADING , IN ITA NO. 98/DEL/2012 & 694/DEL/2012 AND THE DECISION OF THE HON BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF DURGA DASS DAVKI NANDAN VS. I NCOME TAX O FFICER REPORTED IN (2012) 342 ITR 17 (HP). ACCORDINGLY , HE SUBMITTED THAT SALARY TO THE PARTNERS FOR T HE PERIOD FROM 01/04/2008 TO 18 /07/2008 MIGHT BE ALLOWED IN THE RATIO OF THE SHAR ING PROFIT AMONGST THE PARTNERS SUBJECT TO ALLOWABILITY UNDER INCOME - TAX ACT. 4. ON THE OTHER HAND , LEARNED SR. DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDING OF THE LOWER AUTHORITIES. 4 ITA NO. 2246/DEL/2014 AY: 2009 - 10 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) HAS DISALLOWED THE SALARY FOR THE PERIOD FROM 01/04/2008 TO 1 8 /07/2008 ON THE GROUND THAT THE PARTNERSHIP DEED DATED 01/04/2008 DID NOT SPECIF Y THE REMUNERATION IN TERMS OF PARA - 4 OF T HE CBDT C IRCULAR (SUPRA). THE ISSUE IN DISPUTE BEFORE US IS WHETHER THE SALARY PROVIDED UNDER THE PARTNERSHIP DATED 01/04/2008 SATISFIES THE CONDITIONS MENTIONED IN PARA 4 OF THE CBDT C IRCULAR NO. 739 DATED 25/03/1996. THE RELEVANT PARA OF THE CIRCULAR IS REPRODUCED AS UNDER: 4. IT IS CLARIFIED THAT FOR THE ASSESSMENT YEARS SUBSEQUENT TO THE ASSESSMENT YEAR 1996 - 97, NO DEDUCTION UNDER SECTION 40(B)(V) WILL BE ADMISSIBLE UNLESS THE PARTN ERSHIP DEED EITHER SPECIFIES THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL WORKING PARTNER OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. 6. WE FIND THAT IN TERMS OF THE C IRCULAR (SUPRA), THE SALARY TO THE PARTNER IS DEDUCTIBLE UNLES S THE PARTNERSHIP DEED SPECIFIES EITHER THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL WORKING PARTNER , OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. WE FIND FROM THE F A C T S M E N T I O N E D I N R E S P E C T O F PARTNERSHIP DEED DATED 01/04/2008 THAT THE SALARY/REMUNERATION HAS BEE N SPECIFIED IN TERMS OF PROFIT - SHARING RATIO. THUS , THE PARTNERSHIP DEED HAS LAID DOWN THE MANNER OF QUANTIFYING REMUNERATION IN TERMS OF PR OFIT - SHARING RATIO. ACCORDINGLY, IN OUR OPINION , THE MANNER OF SPECIFYING THE SALARY IN PARTNERSHIP DEED DATED 01/04 /2008 IS NOT IN 5 ITA NO. 2246/DEL/2014 AY: 2009 - 10 CONTRAVENTION OF PARA - 4 OF THE CBDT C IRCULAR (SUPRA). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY TO THE PARTNERS FOR THE PERIOD FROM 01.04.2008 TO 18.07.2008, AS PER THE PARTNERSHIP DEED DATED 01/04/2008 LIMITED TO MAXIMUM AMOUNT ALLOWABLE UNDER SECTION 40(B)(V) OF THE ACT. THE EFFECTIVE GROUND OF THE APPEAL IS ALLOWED. 7. IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 1 S T SEPT., 2016 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 S T SEPTEMBER , 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI