M/S NATIONAL SANITATION, JAIPUR V. INCOME TAX OFFICER, WARD-2(3), JAIPUR

ITA 231/JPR/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7853 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 15-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANOOP SINGH JCIT DHK
• Assessee Lawyers: TANUJ AGARWAL
• Keywords: Depreciation; Principle of natural justice; Bad and doubtful debts; Corroborative evidences
• Section: 44AD; 40A(3); 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 231/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. M/S. NATIONAL SANITATION, E-27, ROOP VIHAR, NEW SANGANER ROAD, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD 2(3), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AADFN 1103 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI TANUJ AGARWAL (ADVOCATE) JKTLO DH VKSJ LS@ REVENUE BY : SHRI ANOOP SINGH (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 13.08.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 14/08/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28 TH DECEMBER, 2017 OF LD. CIT (A)-I, JAIPUR FOR THE A SSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INVOCATION OF THE PROVISION OF SECTION 147/148 OF T HE INCOME TAX ACT, 1961 AND THE REASSESSMENT ORDER PASSED THEREAFTER I N ITSELF IS ILLEGAL, WITHOUT JURISDICTION AND DESERVES TO BE QUASHED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSL Y ERRED IN UPHOLDING APPLICATION OF NET PROFIT RATE OF 10% TO GROSS CONTRACT RECEIPTS OF RS. 53,34,397/- INSTEAD OF 8% PROVIDED UNDER SECTION 44AD OF THE INCOME TAX ACT, 1961. 2 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSL Y ERRED IN SUSTAINING A DISALLOWANCE OF RS. 1,27,200/- U/S 40( B) OF INCOME-TAX, 1961, IN RESPECT OF REMUNERATION PAID TO WORKING PA RTNERS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW AND IN THE PRINCIPLES OF NATURAL JUSTICE, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN REJECTING SUPPLEMENT ARY PARTNERSHIP DEED SUBMITTED BY THE APPELLANT AS AN ADDITIONAL EV IDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962. 5. THAT THE HUMBLE APPELLANT CRAVES LEAVE TO ADD, A MEND, ALTER, MODIFY, SUBSTITUTE OR DELETE ANY GROUND OR GROUNDS OF APPEA L ON OR BEFORE THE HEARING OF THE APPEAL. GROUND NO. 1 IS REGARDING VALIDITY OF REOPENING OF THE ASSESSMENT. 2. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 AND THE SAME M AY BE DISMISSED AS NOT PRESSED. THE LD. D/R RAISED NO OBJECTION IF THE GRO UND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCORDINGLY, THE GROU ND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. GROUND NO. 2 IS REGARDING ESTIMATION OF INCOME BY T HE AO BY APPLYING NET PROFIT RATE OF 10% ON THE CONTRACT REC EIPTS AS AGAINST THE NET PROFIT DECLARED BY THE ASSESSEE AT 8%. 3. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED I N THE BUSINESS OF CIVIL CONSTRUCTION WORK. DURING THE YEAR UNDER CONSIDERA TION, THE ASSESSEE FILED ITS RETURN OF INCOME IN RESPONSE TO NOTICE UNDER SECTION 148 O F THE IT ACT ISSUED BY THE AO AND DECLARED THE INCOME UNDER SECTION 44AD OF THE A CT AT 8% NET PROFIT ON THE TURNOVER OF RS. 53,34,397/-. AFTER REDUCING THE RE MUNERATION PAID TO THE PARTNERS OF RS. 2,23,200/-, THE ASSESSEE DECLARED THE TOTAL INC OME OF RS. 2,03,550/-. THE AO 3 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. NOTED THAT THE PROVISIONS OF SECTION 44AD ARE NOT A PPLICABLE IN THE CASE OF THE ASSESSEE AS THE GROSS RECEIPTS OF THE ASSESSEE ARE MORE THAN RS. 40 LACS. ACCORDINGLY, THE AO ESTIMATED THE NET PROFIT @ 10% AND COMPUTED THE INCOME OF THE ASSESSEE AT RS. 5,33,438/-. THE ASSESSEE CHALL ENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED. 4. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT DURING THE YEAR UNDER CONSIDERATION THE TOTAL REVENUE OF THE ASSESS EE WAS RS. 53,34,398/- OUT OF WHICH MAJOR CONTRIBUTION WAS FROM THE EXECUTION OF TWO CONTRACTS WORTH RS. 21,80,059/- AWARDED BY M/S. MARUDHAR HOTELS PVT. LT D., JODHPUR WHICH WAS A VERY LOW MARGIN WORK AND FURTHER A WORK OF RS. 27,69,122 /- AWARDED BY SRI SHIKHA SANSTHAN (SANSKAR SCHOOL, JAIPUR) AND MAJOR PORTION OF THE CONTRACT AMOUNT WAS BAD DEBTS FOR THE ASSESSEE. THUS THE LD. A/R HAS S UBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ACTUAL PROFIT OF THE ASSESS EE WAS VERY LESS BUT SINCE THE ASSESSEE WAS NOT MAINTAINING THE BOOKS OF ACCOUNT, IT DECLARED TOTAL PROFIT IN ACCORDANCE WITH THE SECTION 44AD OF THE ACT @ 8%. THE LD. A/R HAS FURTHER SUBMITTED THAT THE AO HAS APPLIED THE NET PROFIT RA TE OF 10% WITHOUT ANY BASIS WHICH IS ALSO EXCESSIVE. IN SUPPORT OF HIS CONTENT ION HE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUBODH GUPTA, 229 TAXMAN 367 (DELHI) AND SUBMITTED THAT EVEN THOUGH THE PROVISIO NS OF SECTION 44AD ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE IT CAN BE TA KEN AS A GUIDANCE FOR ESTIMATION OF THE INCOME OF THE ASSESSEE WHEN THE ASSESSEE IS NOT MAINTAINING THE BOOKS OF ACCOUNT AND PARTICULARLY WHEN THE AO HAS NOT BROUGH T ON RECORD ANY COMPARABLE CASE WHERE THE CONTRACTOR HAS DECLARED A HIGHER PRO FIT RATE. THUS THE LD. A/R HAS 4 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. SUBMITTED THAT THE ADDITION MADE BY THE AO IS NOT J USTIFIED AND SAME MAY BE DELETED. 4.1. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED T HAT THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON AND ONLY WHEN THE AO ISSUED THE NOTICE UNDER SECTION 148 OF THE ACT, THE ASSESS EE FILED THE RETURN OF INCOME AND DECLARED THE INCOME ON ESTIMATED BASIS WITHOUT SUPP ORTING WITH DOCUMENTARY EVIDENCE OR BOOKS OF ACCOUNTS. THUS THE AO HAS ESTI MATED THE INCOME OF THE ASSESSEE @ 10% NET PROFIT ON TURNOVER. HE HAS RELI ED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE ESTIMATED ITS INCOME @ 8% OF TURNOVER UNDER THE PROVISIONS OF SECTION 44AD OF THE ACT THOUGH THE ASSESSEE IS E NGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. HOWEVER, SINCE THE TURNOVER OF THE ASSESSEE IS MORE THAN RS. 40 LACS, THEREFORE, THE PROVISIONS OF SECTION 44AD ARE NOT A PPLICABLE IN THE CASE OF THE ASSESSEE. THE ESTIMATION OF INCOME WAS THE ONLY OP TION THAT LEFT WITH THE ASSESSEE AS WELL AS WITH THE AO IN THE ABSENCE OF BOOKS OF A CCOUNTS AS WELL AS THE SUPPORTING EVIDENCE. THE ASSESSEE HAS APPLIED NET PROFIT RATE OF 8% BY TAKING THE SUPPORT FROM THE PROVISIONS OF SECTION 44AD WHEREAS THE AO HAS E STIMATED THE INCOME BY APPLYING THE NET PROFIT RATE OF 10%. THUS IT IS CL EAR THAT THE RATE APPLIED BY THE ASSESSEE IS BASED ON THE PROVISIONS OF SECTION 44AD WHICH PROVIDES A GUIDING FACTOR THOUGH STRICTLY NOT APPLICABLE IN THE FACTS OF THE CASE. HOWEVER, THE NON APPLICATION OF PROVISIONS OF SECTION 44AD IS ONLY FOR THE PURPO SE OF COMPULSORY REQUIREMENT OF MAINTENANCE OF BOOKS OF ACCOUNT AND, THEREFORE, FOR THE PURPOSE OF ESTIMATING THE 5 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. INCOME, THE SAID PROVISION CAN BE CONSIDERED AS A G UIDING FACTOR. ON THE OTHER HAND, THE LD. AO HAS NOT BROUGHT ON RECORD ANY BASIS OR C OMPARABLE CASE TO SUPPORT THE RATE OF NET PROFIT AT 10%. THUS WHEN THE ASSESSEE S ESTIMATION IS BASED ON THE PROVISIONS OF SECTION 44AD AND THE AO HAS NOT BROUG HT ANY CONTRARY CASE TO SHOW THAT THE ASSESSEES DECLARATION IS SUBSTANTIALLY LO WER THAN THE PROFITS DECLARED BY ANY COMPARABLE CIVIL CONTRACTOR, WE FIND FORCE IN THE C ONTENTION OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHR I SUBODH GUPTA (SUPRA) WHILE CONSIDERING THE ISSUE HAS HELD AND ANALYZED THIS IS SUE IN PARA 5 & 6 AS UNDER :- 5. AGGRIEVED, THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL, PRIMARILY RAISING THE GROUND THAT SECTION 44AD WAS NOT APPLIC ABLE AS THE ASSESSEE'S TURNOVER WAS IN EXCESS OF RS.40 LACS AND THE ASSESS ING OFFICER WAS JUSTIFIED IN MAKING ADDITION OF RS.10,61,49,773/- IN VIEW OF CON TRAVENTION OF SECTION 40A(3) OF THE ACT. IT WAS ALSO STATED THAT 20% DISA LLOWANCE OF EXPENSES ON ACCOUNT OF CAR RUNNING AND MAINTENANCE, TELEPHONE E XPENSES, BUSINESS PROMOTION, DEPRECIATION ON CAR ETC. SHOULD BE ALSO RESTORED. THE TRIBUNAL DID NOT AGREE AND HAS HELD THAT THE ASSESSEE WAS IN BUS INESS OF CIVIL CONSTRUCTION AND DISALLOWING EXPENDITURE OF RS.10.98 CRORES WOUL D GIVE AN ABNORMAL PROFIT RATE OF 59.60% ON THE TOTAL TURNOVER OF RS.18.43 CR ORES. THIS WOULD BE ILLUSORY AND ILLOGICAL. THEY AGREED THAT SECTION 44AD WOULD NOT BE APPLICABLE BUT THERE WAS NO OTHER MATERIAL OR BASIS TO REASONABLY ESTIMATE INCOME OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD ADOPTED A REASONABLE NET PROFIT RATE OF 8% TO E STIMATE THE INCOME. THEY DID NOT FIND ANY INFIRMITY IN ESTIMATING INCOME ON THE SAID BASIS. IT WAS OBSERVED THAT THE COMMISSIONER OF INCOME TAX (APPEA LS) HAD RIGHTLY ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THIS CASE WAS COVERED UNDER THE EXCEPTIONAL CIRCUMSTANCES STIPULATED IN CLAUSE (G) TO RULE 6DD OF THE RULES. FURTHER, THE ASSESSEE HAD ASSERTED THAT THE PAYMENT S IN CASH AT A PARTICULAR POINT OF TIME (I.E. EACH DAY) DID NOT EXCEED RS.20, 000/-. THIS SUBMISSION WAS MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS ), BUT THE FIRST APPELLATE AUTHORITY HAD NOT ELUCIDATED AND VERIFIED FACTS AS DETAILS COULD NOT BE ASCERTAINED IN THE ABSENCE OF BOOKS. THE TOTAL T URNOVER OR QUANTUM OF WORK DONE BY THE ASSESSEE WAS UNDISPUTED AS THE ASSESSEE HAD ONLY WORKED FOR THE GREATER NOIDA AUTHORITY. 6. LEARNED COUNSEL FOR THE REVENUE SUBMITS THAT SECTI ON 44AD HAS NO APPLICATION AS THE TURNOVER OF THE RESPONDENT ASSES SEE WAS RS.18.43 CRORES AND THE SAID SECTION PRESCRIBES A THUMB RULE OR PRE SUMPTIVE NET PROFIT RATE IF 6 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. THE TURNOVER OF AN ASSESSEE IS LESS THAN RS.40 LACS . THIS IS CORRECT AND HAS BEEN NOTICED BY THE COMMISSIONER OF INCOME TAX (APP EALS) AND THE TRIBUNAL. THE DIFFICULTY IN THE PRESENT CASE IS THAT THE ASSE SSING OFFICER DID NOT CONDUCT ANY INQUIRY AND ASCERTAIN THE NET PROFIT RATE OF OT HER COMPARABLE CONTRACTORS. ON THE OTHER HAND, HE DISALLOWED EXPENDITURE OF RS. 10.61 CRORES RESULTING IN ABNORMAL GROSS PROFIT RATE OF 59.60%, WHICH SHOULD NOT BE ACCEPTED. THE EFFECT THEREOF WAS THAT 70% OF THE EXPENDITURE ON A CCOUNT OF PURCHASES WORTH RS.10.61 CRORES OUT OF TOTAL PURCHASES OF RS.14 CRO RES WAS DISALLOWED. THE APPELLATE AUTHORITIES HAVE TAKEN A HOLISTIC AND BRO ADER VIEW AND HELD THAT AS THE BOOKS OF ACCOUNTS HAD NOT BEEN PRODUCED AND WER E NOT REGULARLY MAINTAINED, THE BOOK RESULTS SHOULD BE REJECTED. WE AGREE WITH THE COUNSEL FOR THE REVENUE THAT THE ASSERTION THAT THE BOOKS OF AC COUNTS WERE STOLEN HAD A HIDDEN MOTIVE AND THE ASSERTION IS RATHER UNBELIEVA BLE. THE RESPONDENT ASSESSEE THEREFORE MUST SUFFER ADVERSE CONSEQUENCES . THE ONLY QUESTION IS WHETHER THE ADDITION OF RS.1,13,22,334/- TO DECLARE D INCOME OF RS.34,21,970/- IS ADEQUATE OR A HIGHER ADDITION WOULD BE JUSTIFIED . AS FAR AS TOTAL TURNOVER IS CONCERNED, THE APPELLATE AUTHORITIES ARE RIGHT IN H OLDING THAT THE FIGURE OF RS.18.43 CRORES CANNOT BE DISPUTED AS THE ASSESSEE WAS ONLY DOING DEVELOPMENT WORK FOR THE GREATER NOIDA AUTHORITY. T HE TOTAL TURNOVER IS ALSO SUPPORTED BY THE TAX AT SOURCE CERTIFICATE. THE QUA NTUM OF TURNOVER WAS NOT ADVERSELY COMMENTED UPON BY THE ASSESSING OFFICER. IN VIEW OF THE AFORESAID POSITION, WE WANTED THE COUNSEL FOR THE REVENUE TO ASCERTAIN THE GROSS PROFIT OR NET PROFIT RATES DECLARED AND ACCEPTED BY THE AS SESSING OFFICER IN CASE OF OTHER CONTRACTORS ENGAGED IN SIMILAR WORK. WE WANTE D ASCERTAINMENT OF THIS ASPECT AS THE COUNSEL FOR THE REVENUE HAD SUBMITTED THAT NET PROFIT @ 8% WAS INADEQUATE AND LOW AND A HIGHER PROFIT RATE SHOULD BE ATTRIBUTED. BY ORDER DATED 19.08.2014, COUNSEL FOR REVENUE WAS REQUIRED TO ASCERTAIN THE SAID ASPECT. IT IS STATED AT BAR THAT THE ASSESSING OFFI CER HAS NOT GIVEN ANY COMMENTS IN THIS REGARD. NOTICEABLY, COUNSEL FOR TH E ASSESSEE HAD EARLIER PRODUCED BEFORE US A COPY OF THE ASSESSMENT ORDER R ELATING TO ASSESSMENT YEAR 2010-11, WHEREIN THE ASSESSING OFFICER HIMSELF HAD APPLIED NET PROFIT RATE OF 8% ON CONTRACTUAL RECEIPT OF RS.6.66 CRORES AND NET PROFIT RATE OF 3% ON SUPPLY RECEIPTS OF RS.7.21 CRORES. AS PER THE SAID ORDER, THE TOTAL RECEIPTS WERE TO THE TUNE OF ABOUT RS.14 CRORES. IN THE PRESENT A SSESSMENT YEAR THE TOTAL TURNOVER OF THE ASSESSEE WAS ABOUT RS.18 CRORES. IN THESE CIRCUMSTANCES WE ARE NOT INCLINED TO ACCEPT THE PRAYER OF THE COUNSE L FOR THE REVENUE THAT AN ORDER OF REMAND MAY BE PASSED. THE ASSESSING OFFICE R IN THE SUBSEQUENT YEARS HAS ACCEPTED THE FIGURE OF 8% NET PROFIT, WHICH IS THE FIGURE WHICH HAS BEEN ADOPTED BY THE APPELLATE AUTHORITIES IN THE PRESENT CASE. RELIANCE PLACED BY COUNSEL FOR THE REVENUE ON CIT V. SOBTI CONSTRUCTIO N (INDIA) LTD. [2008] 307 ITR 374/[2008] 174 TAXMAN 39 (DELHI) IS MISPLACED. IN THE SAID CASE, SECTION 44AD HAD BEEN APPLIED THOUGH THE TURNOVER OF THE AS SESSEE WAS ADMITTEDLY ABOVE RS.40 LACS. IN THE CASE IN HAND, THE APPELLAT E AUTHORITIES HAVE NOT APPLIED SECTION 44AD AS SUCH. DIFFICULTY AROSE AS T HEY HAD TO ESTIMATE REASONABLE RATE OF NET PROFIT. IN THE ABSENCE OF AN Y DATA AND DETAILS, THEY APPLIED THE NET PROFIT RATE AS MENTIONED IN SECTION 44AD. AS RECORDED ABOVE, WE HAD ASKED COUNSEL FOR THE REVENUE TO ASCERTAIN W HETHER SIMILAR CONTRACTORS HAVE DECLARED A HIGHER PROFIT RATE. COU NSEL FOR THE REVENUE HAS 7 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. NOT BEEN ABLE TO POINT OUT OR STATE THAT THE OTHER CONTRACTORS HAVE A HIGHER PROFIT RATE, THAN THE NET PROFIT RATE OF 8% AS HELD BY THE APPELLATE AUTHORITIES. THE SAID RATE WAS ALSO APPLIED IN THE ASSESSMENT YE AR 2010-11. ACCORDINGLY, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ACTION OF THE AO APPLYING THE NET PROFIT RATE OF 10 % IS BASELESS AND ARBITRARY AND HENCE THE ADDITION MADE BY THE AO ON ACCOUNT OF EST IMATION OF INCOME BY APPLYING THE NET PROFIT RATE OF 10% IS DELETED. GROUND NO. 3 IS REGARDING DISALLOWANCE OF REMUNERAT ION PAID TO THE PARTNERS TO THE EXTENT OF RS. 1,27,200/-. 6. THE ASSESSEE AFTER ESTIMATION OF INCOME HAS FURT HER REDUCED THE REMUNERATION PAID TO THE PARTNERS OF RS. 2,23,200/- . THE AO NOTED THAT AS PER THE PARTNERSHIP DEED THE REMUNERATION TO EACH PARTNER I S PROVIDED @ RS. 4,000/- PER MONTH AND HENCE THE AO ALLOWED THE REMUNERATION OF RS. 96,000/- AS AGAINST THE CLAIM OF THE ASSESSEE OF RS. 2,23,200/-. THE ASSES SEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED. H OWEVER, THE LD. CIT (A) HAS DIRECTED THE AO TO AMEND HIS ORDER AS INSTEAD OF AL LOWING THE DEDUCTION, THE AO ADDED THIS AMOUNT OF RS. 96,000/- TO THE INCOME OF THE ASSESSEE. 7. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. A/R OF THE ASSESSEE HA S SUBMITTED THAT THE REMUNERATION PAID TO THE PARTNERS IS WITHIN THE LIM ITATION AS PROVIDED UNDER SECTION 40(B)(V) OF THE IT ACT AND, THEREFORE, THE SAME IS AN ALLOWABLE EXPENDITURE. HE HAS FURTHER SUBMITTED THAT THOUGH THE PARTNERSHIP DEED PROVIDES MONTHLY SALARY/REMUNERATION OF RS. 4,000/- BUT THE SAME CAN BE ALTERED OR VARIED AS PER THE 8 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. PROFITS OF THE BUSINESS. HENCE THE LD. A/R HAS SUB MITTED THAT THE CLAIM OF REMUNERATION PAID TO THE PARTNERS MAY BE ALLOWED. 7.1. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED T HAT AS PER THE PROVISIONS OF SECTION 40(B)(V) OF THE ACT, THE REMUNERATION CANNO T BE PAID MORE THAN THE AMOUNT PROVIDED IN THE PARTNERSHIP DEED AND FURTHER WITH A CAP OF PERCENTAGE AS PROVIDED UNDER THE PROVISIONS OF SECTION 40(B)(V) OF THE ACT . 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT UNDISPUTEDLY THE PARTNERSHIP D EED OF THE ASSESSEE FIRM PROVIDES FOR PAYMENT OF MONTHLY SALARY/REMUNERATION @ RS. 4, 000/- TO EACH PARTNER. THEREFORE, THE REMUNERATION TO THE PARTNERS HAS TO BE PAID IN TERMS OF THE PARTNERSHIP DEED AND IF THE PAYMENT SO MADE AS ALLO WED BY THE PARTNERSHIP DEED IS EXCEEDING THE LIMIT PROVIDED UNDER CLAUSE (V) OF SE CTION 40(B) OF THE ACT THEN THE CLAIM WOULD BE RESTRICTED TO THE AMOUNT COMPUTED AS PER THE PROVISION OF SECTION 40(B)(V) OF THE ACT. THE AO HAS CONSIDERED THIS ISS UE AS UNDER :- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A/R OF THE ASSESSEE FILED COPY OF PARTNERSHIP DEED WHICH WAS E XECUTED ON 19 TH DAY OF MAY, 2001. ON GOING THROUGH THE PARTHERSHUIP DEED, IT IS GATHERED THAT BOTH THE PARTNERS ARE WORKING PARTNER S AND THEY WILL BE ALLOWED TO DRAW MONTHLY SALARY/REMUNERATION OF RS. 4,000/- PER MONTH. PARA NO. 7 OF THE PARTNERSHIP DEED IS REPROD UCED AS UNDER :- 7. THAT BOTH THE PARTNERS SHALL BE THE WORKING PAR TNER AND SHALL BE LOOKING AFTER THE DAY TO DAY BUSINESS ACTI VITY OF THE FIRM FOR WHICH THEY SHALL BE ENTITLED TO DRAW M ONTHLY SALARY/REMUNERATION OF RS. 4,000/- WHICH CAN BE ALTERED/REDUCED BOOKING TO THE PROFIT OF THE BUSINE SS. 9 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. IN VIEW OF THE ABOVE CLAUSE INCORPORATED IN THE PAR TNERSHIP DEED, BOTH THE PARTNERS ARE ELIGIBLE FOR REMUNERATION OF RS. 4 ,000/- PER MONTH ONLY. HOWEVER, THE ASSESSEE FIRM HAS CLAIMED PAYMEN T OF REMUNERATION AS PER PROVISIONS OF SECTION 40(B)(V). AS SUCH, IT HAS NOT BEEN MENTIONED IN THE PARTNERSHIP DEED THAT THE AMO UNT OF REMUNERATION WILL BE ALLOWABLE UNDER THE PROVISIONS OF SECTION 40(B)(V), THEREFORE, REMUNERATION CLAIMED BY THE AS SESSEE AT RS. 2,23,200/- IS NOT ALLOWABLE. THE POSITION HAS FURTH ER BEEN CLARIFIED BY THE CBDT VIDE THEIR CIRCULAR NO. 739 DATED 25 TH MARCH, 1996 THAT : IT IS CLARIFIED THAT FOR THE ASSESSMENT YEARS SUB SEQUENT TO THE ASSESSMENT YEAR 1996-97, NO DEDUCTION UNDER SECTION 40(B)(V) WILL BE ADMISSIBLE UNLESS HE PARTNERSHIP DEED EITHE R SPECIFIES THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL W ORKING PARTNER OR LAYS DOWN THE MANNER OF QUALIFYING SUCH REMUNERATION 7-19. IN VIEW OF THE PROVISIONS OF SECTION 40(B)(V) OF TH E I.T. ACT AND ALSO IN VIEW OF THE CLARIFICATION MADE BY THE CBDT, NEW DEL HI, THE TOTAL AMOUNT OF REMUNERATION ALLOWABLE TO BOTH THE WORKIN G PARTNER IS RS. 96,000/- (RS. 48,000/- EACH). THUS, THE BALANCE AM OUNT OF RS. 1,27,200/- (RS. 2,23,200/- MINUS RS. 96,000/-) IS A DDED BACK TO THE TOTAL INCOME OF THE ASSESSEE FIRM. THE FACTS RECORDED BY THE AO REGARDING THE CLAUSE O F THE PARTNERSHIP DEED IS NOT IN DISPUTE AND, THEREFORE, AS PER THE PARTNERSHIP DEED , AN AMOUNT OF RS. 4,000/- PER MONTH IS PAYABLE TO THE PARTNER AS REMUNERATION. I T IS ALSO NOT IN DISPUTE THAT FOR THE YEAR UNDER CONSIDERATION THE PARTNERSHIP DEED H AS BEEN CONSIDERED BY THE AO IS RELEVANT AND ANY AMENDMENT IN THE PARTNERSHIP DEED SUBSEQUENT TO THE YEAR UNDER CONSIDERATION IS NOT RELEVANT FOR THIS ISSUE. HENCE IN VIEW OF THE FACTS AND 10 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR. CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 14/08 /2018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 14/08/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. NATIONAL SANITATION, JAIPUR. 2. THE RESPONDENT THE ITO, WARD 2(3), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 231/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 11 ITA NO. 231/JP/2018 M/S. NATIONAL SANITATION, JAIPUR.