ID.MOHD.NIZAMUDDIN, Jaipur V. ACIT, Jaipur

ITA 225/JPR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87576 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DR DHK
• Assessee Lawyers: FAZLUR REHMAN
• Section: 143(3); 244A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 225/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S.ID. MOHD. NIZAMUDDIN SUBHASH BAZAR, TONK CUKE VS. THE ACIT CIRCLE- 7, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAAFI 4581 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA & SHRI FAZLUR REHMAN, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH , JCIT -DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25/02/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 27 /03/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 14-02-2014 FOR THE ASSESSM ENT YEAR 2010-11 RAISING FOLLOWING GROUNDS. 1. THE IMPUGNED ADDITION AND DISALLOWANCES MADE I N THE ORDER DATED 14-02-2014 U/S 143(3) OF THE ACT BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. ITA NO. 225/JP/2014 M/S. ID. MOHD. NIZAMUDDIN VS. ACIT, CIRCLE- 7, JAIP UR . 2 2. THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE FA CTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS. 25,7 7,938/- ON ACCOUNT OF BONUS PAID TO THE FOURTH PARTNER SHR I NIZAMUDDIN. THE DISALLOWANCE SO MADE AND CONFIRMED BY THE LD. CIT(A) IS CONTRARY TO THE PROVISIONS OF LAW AD FACTS HENCE, KINDLY BE DELETED IN FULL. 3. THE LD. AO FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CHARGING INTEREST U/S 234A, 23 4B, 234C AND 234D OF THE ACT AND AS ALSO IN WITHDRAWING OF I NTEREST U/S 244A OF THE ACT. THE APPELLANT TOTALLY DENIES I TS LIABILITY OF CHARGING AND WITHDRAWAL OF ANY SUCH INTEREST. TH E INTEREST SO CHARGED/ WITHDRAWN, BEING CONTRARY TO THE PROVIS IONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 2.1 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE HAS NOT PRESSED THE GROUND NO. 1. HENCE, THE SAME IS DISMIS SED BEING NOT PRESSED. 3.1 AS REGARD GROUND NO. 2, BRIEF FACT OF THE CASE ARE THAT THE ASSESSEE IS A PARTNER FIRM CONSISTING OF 4 PARTNERS, ALL OF THEM WERE WORKING PARTNERS ELIGIBLE FOR SALARY AND BONUS U/S 40(B) OF THE ACT. HOWEVER, SHRI NIZAMUDDIN, GRAND FATHER OF THE OTHER PARTNERS DID NOT CHOOSE TO RECEIVE ONLY BONUS AND NOT THE SALARY, WHICH IS MENTIONED I N THE PARTNERSHIP DEED. ACCORDINGLY BONUS AMOUNTING TO RS. 25,77,938/ - WAS PAID TO HIM AND NOT THE SALARY FOR HIS WORKING. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO PROPOSED TO DISALLOW THE BONUS PAID TO SHRI NIZAMUDDIN HOLDING HIM NOT TO BE A WORKING PARTNER IN TERMS OF SEC. ITA NO. 225/JP/2014 M/S. ID. MOHD. NIZAMUDDIN VS. ACIT, CIRCLE- 7, JAIP UR . 3 40(B). THE AO HELD THAT PARA 5 OF THE PARTNERSHIP D EED STATES THAT THOUGH ALL ARE ACTIVELY ENGAGED IN THE CONDUCT OF THE AFFA IRS OF THE FIRM, ONLY THREE PARTNERS WERE GIVEN SALARY. PARA 6 OF THE PAR TNERSHIP DEED WAS INTERPRETED BY AO TO THE EFFECT THAT WORKING PARTNE RS MEANS DRAWS SALARY AS WELL AS BONUS. SINCE SHRI NIZAMMUDIN WAS NOT GET TING SALARY HE WAS NOT A WORKING PARTNER AND BONUS PAID TO HIM WAS NOT ELIGIBLE FOR DEDUCTION IN THE HANDS OF FIRM U/S 40(B). LD. AO ST RESSED THAT IN PARA 6, IT IS STATED THAT ALL THE WORKING PARTNERS SHALL GE T THE BONUS IN EQUAL PROPORTION. SINCE SHRI NIZAMUDDIN WAS NOT DRAWING A NY SALARY, HE WOULD NOT BE CALLED AS A WORKING PARTNER. IN VIEW OF THE ABOVE, THE BONUS PAID TO FOURTH PARTNER I.E. SHRI NIZAMUDDIN OF RS. 20,47,00 0/- WAS DISALLOWED. 3.2 AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHIC H WAS DISMISSED AGAINST WHICH WE ARE SEIZED WITH THIS APPEAL. 3.3 THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE APPEAL FOR THE ASSESSMENT YEAR 2009-10 HAS BEEN DECIDED BY THIS BE NCH OF ITAT IN ITA NO. 41/JP/2013 VIDE ITS ORDER DATED 28-02-2014 HOLD ING THAT SHRI NIZAMUDDIN WAS A WORKING PARTNER AND THE BONUS WAS PAID U/S 40(V) BY FOLLOWING OBSERVATIONS. 4.6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSION M ADE BY BOTH THE PARTIES. WE HAVE ALSO CAREFULLY PERUSED TH E MATERIAL PLACED ON RECORD AND CONSIDERED THE CASE LAWS CITED. IT IS NEITHER DISPUTED NOR ESTABLISHED BY THE AUTHORITIES BELOW THAT ALL T HE FOUR PARTNERS ITA NO. 225/JP/2014 M/S. ID. MOHD. NIZAMUDDIN VS. ACIT, CIRCLE- 7, JAIP UR . 4 WERE ACTIVELY ENGAGED IN THE CONDUCT OF THE BUSINES S OF THE FIRM AND THUS, ARE THE WORKING PARTNERS. THE PROVISIONS CONT AINED U/S 40(B) PROVIDE THAT ANY REMUNERATION BY WHATEVER NAME CALL ED, SHALL NOT BE ALLOWABLE IF SUCH PAYMENT IS NOT MADE TO A WORKING PARTNER. SECONDLY, SUCH PAYMENT IS NOT FOUND TO BE AUTHORIZE D BY OR IS NOT FOUND TO BE IN ACCORDANCE WITH THE TERMS OF THE PAR TNERSHIP DEED. THUS, THE SUBJECTED PAYMENT HAS TO BE AUTHORIZED BY AND HAS TO BE IN ACCORDANCE WITH THE PARTNERSHIP DEED. THIS FURTHER IMPLIES THAT THE LAW DOES NOT INTERFERE IN THE DECISION MAKING BY TH E PARTNERS AND IT IS WITHIN THE SOLE DISCRETION OF THE PARTNERS TO DECID E THE AMOUNT PAYABLE (WHICH IS CERTAINLY ALLOWABLE AS PER THE LI MITS PRESCRIBED) AND ALSO THE PARTICULAR PARTNER TO WHOM ANY PAYMENT OF SALARY OR BONUS HAS TO BE MADE. THE SAID CLAUSES NO. 5 AND 6 OF THE PARTNERSHIP DEED READS AS UNDER:- 5. THAT THE PARTIES TO THIS DEED ARE ACTIVELY ENGAGED IN THE C ONDUCT OF THE BUSINESS OF THE FIRM BUT ON ACCOUNT OF DEVOTION THE PARTIES FROM SECOND TO FOURTH PART (SHRIMOINUDDIN, SHRIIQBAL ALI AND SHRIZAHIRUDDDIN) SHALL GET SALARY OF RS.7000/- P.M. SINCE 01.04.2003UNLESS OTHERWISE MUTUALLY AGREED UPON BY AND BETWEEN THE PARTIES TO THIS DEED. 6. THAT THE PARTNERS TO THIS DEED AS AFORESAID SHALL BE F URTHER ENTITLED TO BONUS/ COMMISSION AT THE END OF EACH YEAR, WHICH AFTER INCLUDING THE TOTAL AMOUNT OF SALARY PAYABLE TO THE PARTIES FROM SECOND TO FOURTH PART DURING THE YEAR, SHALL BE EQUAL TO THE SUM COMPUTED ACCORDINGLY TO THE METHOD OF COMPUTATION AS L AID DOWN IN SUB-CLAUSE (V)OF CLAUSE (B) OF SECTION 40 OF THE INCOME TAX, AS REPRODUCED BEL OW:- IN THE PRESENT CASE, CLAUSE 5 AUTHORIZED PAYMENT OF SALARY TO THREE PARTNERS WHEREAS CLAUSE 6 AUTHORIZED PAYMENT OF BONUS TO ALL THE FOUR PARTNERS. THIS WAY, ALL THE CONDITIONS PRO VIDED U/S 40(B) STAND FULFILLED. WE DO NOT AGREEWITH THE CONTENTION OF THE LD. CIT (A) THAT ALL THE PARTNERS WERE NOT WORKING PARTNERS, WH ICH FINDING IS RECORDED WITHOUT ANY BASIS. WE FURTHER AGREE WITH T HE CONTENTION OF THE LD. A/R THAT THE AO AND CIT (A) HAVE UNDULY STR ESSED UPON THE ERASING OF THE WORD WORKING BEFORE THE WORD PART NER IN AS MUCH AS CLAUSE 6 OF THE PARTNERSHIP DEED, PROVIDES THAT WORKING PARTNERS TO THIS DEED (ASSUMING THE WORD WORKING IS NOT E RASED) IMPLIES ALL THE FOUR PARTNERS; AND AS AFORESAID IMPLIES THAT THEY ARE ACTIVELY ENGAGED IN CONDUCT OF THE BUSINESS AS PER CLAUSE 5. NOW EVEN IN ABSENCE OF THE WORD WORKING, A COMBINED READING C ONVEYS THE SAME MEANING. FURTHER, IT WAS DECISION TAKEN BY THE PARTNERS BY MUTUAL CONSENT THAT OUT OF ALL THE FOUR PARTNERS, S ALARY WOULD BE PAYABLE TO ONLY THREE PARTNERS AS PER CLAUSE 5 WHER EAS BONUS SHALL PAYABLE TO ALL THE FOUR PARTNERS AS PER CLAUSE 6, I N WHICH T HE LAW DOES ITA NO. 225/JP/2014 M/S. ID. MOHD. NIZAMUDDIN VS. ACIT, CIRCLE- 7, JAIP UR . 5 NOT PERMIT INTERFERENCE BY THE REVENUE. THE LD. CIT (A) FURTHER WRONGLY INTERPRETED SEC. 40(B)(V) WHILE HOLDING THA T THE DEFINITION OF WORKING PARTNERS WAS MEANT ONLY FOR SEC.40(B)(V) WHEREAS EXPLANATION 4 BELOW SEC.40(B) CLEARLY READS THAT FO R THE PURPOSES OF THIS CLAUSE WHICH MEANS CLAUSE (B) TO SECTION 40. I T IS NOTICED THAT ALTHOUGH THE FIRM WAS CONSTITUTED IN A.Y. 2004-05 A ND IT IS NOT DISPUTED THAT THE ASSESSEE FIRM HAS BEEN MAKING THI S CLAIM RIGHT SINCE A.Y. 2004-05 BUT ALL ALONG THE REVENUE HAS BEEN ACC EPTING SUCH A CLAIM EVEN IN THE ASSESSMENT MADE UNDER SCRUTINY HE NCE WE DO NOT FIND ANY JUSTIFICATION TO MAKE A DEPARTURE FROM THE SETTLED POSITION IN THE PAST WITHOUT BRINGING ANY MATERIAL CHANGE IN TH E FACTS AND THE CIRCUMSTANCES OF THE CASE IN THIS YEAR. IN ANY CASE , THE ISSUE IN HAND IS REVENUE IS NEUTRAL IN AS MUCH AS EVEN ASSUMING A CERTAIN PART OF THE CLAIMED REMUNERATION IS DISALLOWED IN THE HANDS OF THE FIRM, THE SAME CANNOT BE TREATED TO BE AN INCOME FROM BUSINES S IN THE HANDS OF THE PARTNERS AND A NECESSARY SAFEGUARD HAS ALREADY BEEN PROVIDED UNDER THE PROVISO BELOW THE SEC.28(V) AGAINST THE D OUBLE TAXATION OF THE SAME INCOME HENCE, EVEN IF THE DISALLOWANCE SO MADE IS UPHELD, DEDUCTION TO THAT EXTENT HAS TO BE ALLOWED IN THE H ANDS OF THE PARTNERS/S. THUS, REVENUE SHALL NOT BE PUT TO ANY L OSS IF THE REMUNERATION AS CLAIMED, IS ALLOWED IN THE HANDS OF THE ASSESSEE FIRM. WE THUS, FIND NO JUSTIFICATION IN THE DISALLOWANCE SO MADE AND CONFIRMED, FOR THE DETAILED REASONS STATED HEREIN A BOVE, HENCE, THE DISALLOWANCE OF RS. 20,47,000/- MADE U/S 40(B) IS H EREBY DELETED. THEREFORE, GROUND NO. 2 RAISED BY THE ASSESSEE IS A LLOWED. IT IS CONTENDED THAT FACTS AND CIRCUMSTANCES BEING SAME THE APPEAL OF THE ASSESSEE DESERVES TO BE ALLOWED. 3.4 THE LD. DR IS HEARD WHO RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 3.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACT AND CIRCUMSTANCES OF THE CASE ARE SIMILAR WHICH IS EVIDENT FROM THE FACT THAT THE LD. CIT(A) RELIED ON HIS ITA NO. 225/JP/2014 M/S. ID. MOHD. NIZAMUDDIN VS. ACIT, CIRCLE- 7, JAIP UR . 6 PREDECESSORS ORDER FOR THE ASSESSMENT YEAR 2009-10 WHILE DISALLOWING THIS AMOUNT. WE FIND FROM THE RECORD THAT THIS BENC H OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2009-10 (SUPRA) ALLOWED ITS APPEAL. RESPECTFULLY FOLLOWING THE ORDER OF THIS BE NCH (SUPRA), THE GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. 4.1 THE GROUND NO. 3 OF THE ASSESSEE IS REGARDING C HARGING OF INTEREST U/S 234A, 234B, 234C AND 234D WHICH ARE CONSEQUENTI AL IN NATURE. 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 /03/ 2015. SD/- SD/- VH-VKJ-EHUK VKJ-IH-RKSYKUH (T.R. MEENA) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 27/03/ 2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. ID. MOHD. NIZAMUDDIN, TONK 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE- 7, JAIPUR 3. VK;DJ VK;QDRVIHY ) @ CIT(A), JAIPUR 4. VK;DJ VK;QDR@ CIT, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.225/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR