M/S United Steel Trading, Ranchi V. ITO,Ward-3(2), Ranchi

ITA 241/RAN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1729 (ITAT-RANCHI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 27-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K MONDAL
• Assessee Lawyers: HARI LAL PATEL
• Section: 40(b)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH SMC, RANCHI BEFORE SH. S.S.GODARA, JUDICIAL MEMBER ITA NO.241 & 242/RAN/2018 [ASSESSMENT YEAR: 2011-12 & 2014-15] M/S. UNITED STEEL TRADING, PURULIA ROAD, KANTATOLI, RANCHI-834001. PAN-AABFU6330L VS ITO, WARD-3(2), RANCHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH.HARI LAL PATEL, ADV. RESPONDENT BY SH. P.K.MONDAL, JCIT DATE OF HEARING 10.01.2019 DATE OF PRONOUNCEMENT 15 .0 3 .2019 ORDER PER SH. S.S.GODARA, JUDICIAL MEMBER BOTH ASSESSEES APPEALS FOR AY 2011-12 & 2014-15 ARISE AGAINST THE ORDER DATED 24.05.2018 PASSED BY THE CIT(A), RANCHI IN APPEAL NO.CIT(A), RANCHI/10497/2016-17 & CIT(A), RANCHI/10353/2016-17 IN PROCEEDINGS U/S 147/143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT); RESPECTIVELY. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. I COME TO THE FIRST COMMON ISSUE OF SECTION 40(B) DISALLOWANCE OF RS.3,12,000/- AND RS.10,04,000/- (ASSESSMENT YEAR-WISE RESPECTIVELY) CONFIRMED IN THE LOWER APPELLATE ORDER VIDE FOLLOWING DETAILED DISCUSSION:- 5.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND HAVE PERUSED THE ASSESSMENT ORDER. THIS PARTNERSHIP DEED HAS AUTHORIZED THE REMUNERATION TO BE PAYABLE TO THE PARTNER. THE MAIN CLAUSE OF THE PARTNERSHIP DEED IS 13(A) WHICH STIPULATES THAT THE PARTNERS WOULD BE PAID REMUNERATION @ RS.4,000/- PER MONTH TO BE PROVIDED AT THE END OF THE MONTH. THUS THE QUANTIFICATION OF THE REMUNERATION IS APPARENT FROM THE CLAUSE 13(A) OF THE PARTNERSHIP DEED. THE REQUIREMENT IN LAW IS THAT REMUNERATION SHOULD BE AUTHORIZED AND THE AMOUNT OF REMUNERATION SHALL NOT EXCEED THE AMOUNT AS MENTIONED IN SUB- ITA NO.241 & 242/RAN/2018 [ASSESSMENT YEAR: 2011-12 & 2014-15] PAGE | 2 CLAUSE (V) OF SECTION 40(B) OF THE ACT. THE RELEVANT PROVISIONS HAS USED THE WORD 'AUTHORISED' AND NOT THE WORD USED 'QUANTIFY'. THE SECTION READS: - '40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 88[38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER .THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' : - [(B) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH: - (V) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, WHICH IS AUTHORISED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PERIOD FALLING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FAR AS THE AMOUNT OF SUCH PAYMENT TO ALL THE PARTNERS DURING THE PREVIOUS YEAR EXCEEDS THE AGGREGATE AMOUNT COMPUTED AS HEREUNDER: - 9[(A) ON THE FIRST RS.3,00,000/- OF THE BOOK-PROFIT OR IN CASE OF A LOSS RS.1,50,000/- OR AT THE RATE OF90 PER CENT OF THE BOOK-PROFIT, WHICHEVER IS MORE; (B) ON THE BALANCE OF THE BOOK-PROFIT AT THE RATE OF 60 PER CENT :] PROVIDED THAT IN RELATION TO ANY PAYMENT UNDER THIS CLAUSE TO THE PARTNER DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1993, THE TERMS OF THE PARTNERSHIP DEED MAY, AT ANY TIME DURING THE SAID PREVIOUS YEAR, PROVIDE FOR SUCH PAYMENT. EXPLANATION 1.-WHERE AN INDIVIDUAL IS A PARTNER IN A FIRM ON BEHALF, OR FOR THE BENEFIT, OF ANY OTHER PERSON (SUCH PARTNER AND THE OTHER PERSON BEING HEREINAFTER REFERRED TO AS 'PARTNER IN A REPRESENTATIVE CAPACITY' AND 'PERSON SO REPRESENTED '. RESPECTIVELY) : - ITA NO.241 & 242/RAN/2018 [ASSESSMENT YEAR: 2011-12 & 2014-15] PAGE | 3 (I) INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL OTHERWISE THAN AS PARTNER IN A REPRESENTATIVE CAPACITY SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE: (II) INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL AS PARTNER IN A REPRESENTATIVE CAPACITY AND INTEREST PAID BY THE FIRM TO THE PERSON SO REPRESENTED SHALL BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE. EXPLANATION 2. - WHERE AN INDIVIDUAL IS A PARTNER IN A FIRM OTHERWISE THAN AS PARTNER IN A REPRESENTATIVE CAPACITY, INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE, IF SUCH INTEREST IS RECEIVED BY HIM ON BEHALF, OR FOR THE BENEFIT, OF ANY' OTHER PERSON. EXPLANATION 3. - FOR THE PURPOSES OF THIS CLAUSE, 'BOOK-PROFIT' MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. EXPLANATION 4. - FOR THE PURPOSES OF THIS CLAUSE, 'WORKING PARTNER' MEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING THE AFFAIRS OF THE BUSINESS OR PROFESSION OF THE FIRM OF WHICH HE IS A PARTNER.]' [5.4] THE REQUIREMENT IN LAW IS THAT REMUNERATION SHOULD HAVE BEEN AUTHORIZED AND THE AMOUNT OF REMUNERATION SHALL NOT EXCEED THE AMOUNT AS MENTIONED IN SUB-CLAUSE (V) OF SECTION 40(B) OF THE ACT. THE RELEVANT PROVISIONS HAS USED THE WORD 'AUTHORISED' AND NOT THE WORD USED 'QUANTIFY'. THE IT AT PUNE BENCH IN THE CASE OF ASSTT. CIT V. SUMAN CONSTRUCTION 43 SOT 495 HELD THAT REMUNERATION IS TO BE DEDUCTED IN CASE PARTNERSHIP DEED AUTHORIZES THE PAYMENT OF SALARY. THE PR.CIT IN HIS ORDER HAS GIVEN A CATEGORICAL FINDING AS REGARDS THE LETTER (UNDATED) AUTHORISING THE PARTNERS TO ENHANCE THE ITA NO.241 & 242/RAN/2018 [ASSESSMENT YEAR: 2011-12 & 2014-15] PAGE | 4 REMUNERATION FROM RS.4,000/- TO ~17,000/- PER MONTH (SEE PAGE-7 OF THE ORDER U/S.263 OF THE ACT). IN THE CASE LAWS RELIED UPON BY THE APPELLANT, THE FACT THAT THE REMUNERATION WAS 'AUTHORISED' BY THE PARTNERSHIP DEED WAS NOT DISPUTED. ACCORDINGLY, THE GROUNDS OF APPEAL ARE DISMISSED. 3. IT THEREFORE EMERGES THAT CIT(A) HAS MAINLY GONE BY LACK OF AUTHORIZATION OF PARTNERS REMUNERATION IN ASSESSEES PARTNERSHIP DEED. I FIND THAT THE SAID PARTNERSHIP DEED CLEARLY AUTHORISES THE IMPUGNED PAYMENTS TO ITS PARTNERS AS REMUNERATION. I THEREFORE DELETE THE IMPUGNED DISALLOWANCE ON THIS COUNT ALONE. THE ASSESSEES FORMER GROUND IN FIRST APPEAL AND SOLE GROUND AS SUCH AS LATTER APPEAL ITA NO.242/RAN/2018 SUCCEED THEREFORE. 4. I COME TO THE LATTER ISSUE OF INTERESTS DEBITED BALANCE INVOLVING ADDITION OF RS.1,11,000/-. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS DURING THE COURSE OF HEARING THAT THE LOWER AUTHORITIES HAVE NOT CONSIDERED ALL THE RELEVANT FIGURES BEFORE ARRIVING AT THE IMPUGNED COMPUTATION OF INTEREST AMOUNT. LEARNED DEPARTMENTAL REPRESENTATIVE IS EQUALLY FAIR IN NOT DISPUTING THIS PLEA. I THEREFORE DIRECT THE ASSESSING OFFICER TO FINALISE APPROPRIATE COMPUTATION. 5. THE ASSESSEES FORMER APPEAL I.E. ITA NO.241/RAN/2018 IS PARTLY ALLOWED AND LATTER APPEAL I.E. ITA NO.242/RAN/2018 IS ALLOWED. ORDERED ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 15.03.2019. SD/- (S.S.GODARA) JUDICIAL MEMBER DATE:- 15.03.2019 *AMIT KUMAR* ITA NO.241 & 242/RAN/2018 [ASSESSMENT YEAR: 2011-12 & 2014-15] PAGE | 5 COPY FORWARDED TO: 1. APPELLANT- M/S. UNITED STEEL TRADING, PURULIA ROAD, KANTATOLI, RANCHI-834001. 2. RESPONDENT- ITO, WARD-3(2), RANCHI. 3. CIT-RANCHI 4. CIT(APPEALS)-RANCHI 5. DR: ITAT-RANCHI BENCHES SR.P.S./H.O.O ITAT, RANCHI