The ITO, Ward-5(4), Baroda V. M/s. Sayona Construction, Baroda

ITA 2571/AHD/2004

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7727 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 01-09-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40(b)

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, D - BENCH,AHMEDABAD . BEFORE : SHRI T.K.SHARMA, JUDICIAL MEMBER , AND SHRI P.K.BANSAL, ACCOUNTANT MEMBER. ITA NO. 2571/AHD/2004 (ASSESSMENT YEAR 2001 - 02) THE ITO, WARD 5(4), BARODA. VERSUS M/S.SAYONA CONSTRUCTION, NEAR PARSHOTTAM NAGAR, HARNI WARSIA RING ROAD, BARODA. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI K.MADHUSUDAN, DR FOR THE RESPONDENT SHRI NONE ORDER SHRI T.K.SHARMA, JUDICIAL MEMBER : THE REVENUE HAS FILED THIS APPEAL AGAINST T HE ORDER DT.21.6.2004 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) V., BARODA FOR THE ASSESSMENT YEAR 2001 - 02. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. THE NOTICE OF HEARING SENT THROUGH REGISTERED POST HAS BEEN RETURNED BACK WITH THE POSTAL REMARK NF (NOT FOUND). THEREFORE, WE PROCEEDED TO DECIDE THE APPEAL EXPARTE QUA ASSESSEE AND AFTER HEARING THE LEARNED DR AND PERUSING THE MATERIAL ON RECORD. 3. GROUND NO.1 RELATES TO DELETION OF THE ADDITION OF RS.2,86,503 MADE N ACCOUNT OF UNEXPLAINED CAPITAL OF PARTNERS. 4. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. ON THE GROUND THAT THE CAPITAL INTRODUCED BY THE PARTNERS OF RS.1,27,501 FROM AMITA K.PATEL, RS.56,501 FROM VINITA K.PATEL AND RS.1,02,501 FROM RAMESH G.PATEL (TOTALLING TO RS.2,86,503) REMAINED UNEXPLAINED, THE ASSESSING OFFICER MADE THE ADDITION OF RS.2,86,503 U/S.69 OF THE ACT. IN APPEAL, THE LEARNED CIT(A) HAS DELETED SUCH ADDITION. 5. HEARD THE LEARNED DR AND PERUSED THE RECORD. T HE FACTS UNDISPUTED ARE THA T THE AMOUNT IN QUESTION IS THE CAPITAL INTRODUCED BY THE PARTNERS OF THE ASSESSEE - FIRM. LEARNED CIT(A) HAS DELETED THE ADDITION BY RELYING ON THE DECISION OF THE ITAT, AHMEDABAD IN THE CASE OF ROHINI BUILDERS V. DCIT 117 TAXMAN 25 (AHD)(MAG). LAW IS WELL SETTLED THAT WHERE THE ASSESSEE - FIRM HAD SATISFACTORILY EXPLAINED THE CREDITS STANDING IN THE NAME OF ITS PARTNERS, THE ITA NO. 2571/AHD/2004 2 RESPONSIBILITY OF THE ASSESSEE STANDS DISCHARGED. ONCE IT IS ESTABLISHED THAT THE AMOUNT HAS BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIVIDUAL, THEN THE RESPONSIBILITY OF THE ASSES SEE - FIRM IS OVER. IF THAT PERSON OWNS THE ENTRY, THEN THE BURDEN OF THE ASSES SEE - FIRM IS DISCHARGED. IT IS OPEN TO THE ASSESSING OFFICER TO UNDERTAKE FURTHER INVESTIGATION WITH REGARD TO TH AT INDIVIDUAL WHO HAS DEPOSITED THE AMOUNT INVESTIGATION WITH REGARD TO THAT INDIVIDUAL WHO HAS DEPOSITED THE AMOUNT . IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AND DISMISS GROUND NO.1 OF THE REVENUE. 6. GROUND NO.1(II) RELATES TO RESTRICTING THE DISALLOWANCE OF RS.65,440 TO RS.21,440 U/S.40A(3) OF THE ACT. 7. AFTER HEARING THE LEARNED DR AND PERUSING THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSING OFFICER HAS OBSER VED THAT O N VERIFICATION OF THE ACCOUNTS AND THE BANK STATEMENT, HE NOTICED THAT THE ASSESSEE HAS MADE PAYMENT TO THE PARTIES NAMELY SHREERAM AGENCY, DHAVAL TRANSPORT, BHILEKHUBHAI MISTRY, JALARAM BRICKS, RASHID BRICKS, BHAGYODAY TRANSPORT, AND RASHID BRIC KS AS MENTIONED IN THE ASSESSMENT ORDER BY BEARER CHEQUE S . IT WAS EXPLAINED BY THE ASSESSEE THAT THE PAYMENTS WERE MADE TOWARDS PURCHASE OF CEMENT, BRICKS ETC., WHO GENERALLY MAKE IMMEDIATE DELIVERY OF GOODS ON CASH PAYMENT. AS THE ASSESSEE WAS IN URGENT N EED OF SUCH MATERIAL, THEY WERE FORCED TO PURCHASE THE MATERIAL IN CASH. THE LEARNED ASSESSING OFFICER DID NOT ACCEPT THE ABOVE EXPLANATION OF THE ASSESSEE AND OBSERVED THAT FROM THE BILLS IT WAS NOTICED THAT THE PLACES WHEREFROM THE ASSESSEE HAS PURCHASED THE MATERIAL ARE NOT REMOTE PLACES WHERE THERE IS NO BANK FACILITY AVAILABLE. THE PAYMENTS COULD HAVE EASILY BEEN MADE THROUGH CHEQUE. FURTHER, PURCHASE OF BRICKS OR CEMENT IS NOT AN EMERGENCY. THEREFORE, THE ASSESSING OFFICER WORKED OUT THE PAYMENTS MADE TOWARDS PURCHASES OF CEMENT AT RS.3,27,200 TO THE ABOVE PARTIES AND THEREFORE, BY INVOKING PROVISIONS U/S.40A(3), DISALLOWED AND MADE THE ADDITION OF RS.65,440 I.E., 20% OF THE TOTAL PAYMENTS. ON APPEAL, THE LEARNED CIT(A) ON VERIFICATION OF THE COPY OF L EDGER ACCOUNT OF PARTIES AND BANK STATEMENT FILED BY THE ASSESSEE FOUND THAT IN CASE OF SHREERAM AGENCY, THE PAYMENTS OF RS.54,000 AND RS.53,200 THE BANK HAS SHOWN THE SAME AS CASH ITA NO. 2571/AHD/2004 3 PAYMENT. THEREFORE, HE UPHELD THE DISALLOWANCE U/S.40A(3) WHICH HE WORKED O UT TO 21,440 AND UPHELD THE SAME. BUT IN RESPECT OF PAYMENTS TO OTHER PARTIES, THE LEARNED CIT(A) HAS GIVEN A CATEGORICAL FIND THAT THE SAME WERE NOT CASH PAYMENTS AS INFERRED BY THE ASSESSING OFFICER. THE LEARNED DR COULD NOT CONTROVERT SUCH FINDING OF TH E LEARNED CIT(A). THEREFORE, THERE IS NO COGENT REASON TO DISTURB THE IMPUGNED ORDER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AND DISMISS GROUND NO.1(II) OF THE REVENUE. 8. GROUND NO.1(III) IS AS REGARD DELETION OF THE ADDITION OF RS.28,000 ON ACCOUNT OF EXCESS REMUNERATION PAID TO PARTNERS. 9. HAVING HEARD THE LEARNED DR AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT O N VERIFICATION OF THE PARTNERSHIP DEED ALONGWITH THE RETURN OF INCOME, HE FOUN D THAT THREE PARTNERS NAMELY, SHRI CHHOTABHAI PATEL, ROHITBHAI PATEL AND SHRI RAMESHBHAI PATEL , WO ULD BE GIVEN REMUNERATION AS PER THE PROVISIONS OF SECTION 40(B) OF THE I.T.ACT., ON A MAXIMUM ANNUAL REMUNERATION WOULD NOT EXCEED RS.1,50,000 TO EACH PARTNE RS. SINCE THE FIRM CAME INTO EXISTENCE ON 28.9.200, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE REMUNERATION WOULD BE ALLOWABLE ONLY FOR SIX MONTHS. THEREFORE, ACCORDING TO HIM, EACH PARTNER CAN BE ALLOWED MAXIMUM SALARY OF RS.75,000 PER ANNUM TOTALLING TO RS.2,25,000. SINCE THE ASSESSEE HAS CLAIMED SALARY OF RS.85,334 EACH TOTALLING TO RS.2,56,000, THE ASSESSING OFFICER CONSIDERED A SUM OF RS.28,000 AS EXCESSIVE REMUNERATION AND ADDED THE SAME TO THE TOTAL INCOME. ON APPEAL, THE LEARNED CIT(A) WAS OF TH E VIEW THAT THE REMUNERATION CANNOT BE RESTRICTED TO SIX MONTHS SINCE THE TERMS OF PARTNERSHIP DEED STIPULATES THAT MAXIMUM REMUNERATION FOR THE YEAR SHOULD NOT EXCEED RS.1,50,000 TO EACH PARTNERS AND THAT THE REMUNERATION PAYABLE WAS ANNUALLY AND NOT MONT HLY. FURTHER, HE OBSERVED THAT THE SAME IS INCLUDED IN THE HANDS OF PARTNERS IN THE TAXABLE INCOME. ACCORDINGLY HE DELETED THE IMPUGNED ADDITION OF RS.28,000. THUS, WE FIND THAT THE FINDING OF THE LEARNED CIT(A) IS BASED UPON VERIFICATION OF THE PARTNERSH IP DEED THAT THE REMUNERATION PAYABLE WAS ANNUALLY AND NOT MONTHLY. SINCE THE REMUNERATION HAS BEEN PAID TO PARTNERS IN ACCORDANCE WITH THE PARTNERSHIP DEED, IN OUR CONSIDERED VIEW, DISALLOWANCE OUT OF REMUNERATION ITA NO. 2571/AHD/2004 4 PAID TO PARTNERS IS NOT PROPER. WE, THER EFORE, CONFIRM THE ORDER OF THE LEARNED CIT(A) IN DELETING THE IMPUGNED ADDITION AND DISMISS GROUND NO.1(III) OF THE REVENUE. 10. GROUNDS NO.2 AND 3 ARE GENERAL NATURE AND HENCE, NEED NO SPECIFIC ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 24.07.09 SD/ - SD/ - (P.K.BANSAL) ACCOUNTANT MEMBER. (T.K.SHARMA) JUDICIAL MEMBER DATE: 24.07.09 (H.K.PADHEE) SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORW ARDED TO : 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. THE DR, AHMEDABAD 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, DEPUTY.REGISTRAR.