A.C.I.T.. Cir.-3, Nagpur V. M/s Weldwell Electrodes, Nagpur

ITA 296/NAG/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9652 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 26-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J M RANADE
• Keywords: Business income; Tax effect
• Section: 133A; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SH. G.D.AGRAWAL, HONBLE PRESIDENT AND SH. MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.296, 297/NAG/2015 & 136/NAG/2017 (ASSESSMENT YEAR: 2011 -12, 2012-13 & 2013-14) ACIT, CIRCLE-3, SARAF CHAMBERS, SADAR, NAGPUR-440001. VS WELDWELL ELECTRODES, D-59, HINGNA ROAD, MIDC, NAGPUR-440028. PAN-AAAFW2633B (APPELLANT) (RESPONDENT) APPELLANT BY SH. GITESH KUMAR, SR.DR RESPONDENT BY SH. J.M.RANADE, CA DATE OF HEARING 08.03.2018 DATE OF PRONOUNCEMENT 08.03.2018 O R D E R PER BENCH THESE THREE APPEALS BY REVENUE IS ARISING OUT OF T HE ORDER OF LD.CIT(A)-II, NAGPUR IN ORDER NO.CIT(A)-II/347/14-15; CIT(A)-II/ 353/14-15; AND CIT(A)- 2/488/15-16 VIDE ORDER DATED 24.09.2015; 24.09.2015 ; AND 12.01.2017 RESPECTIVELY FOR THE A.Y. 2011-12 TO 2013-14. 2. THE ONLY COMMON ISSUE IN THESE THREE APPEALS OF REVENUE IS AGAINST THE ORDER OF LD.CIT(A) DELETING THE ADDITION MADE BY TH E AO BY DISALLOWING THE REMUNERATION PAID TO NON-WORKING PARTNER BY INVOKIN G OF PROVISIONS OF SECTION 40(B)(I) OF THE INCOME TAX ACT, 1961 (IN SHORT AC T). FOR THIS, REVENUE HAS RAISED IDENTICALLY WORDED GROUNDS IN ALL THE THREE YEARS I.E. A.Y. 2011-12 TO 2013-14. THE FACTS AND GROUNDS ARE TAKEN FROM ITA NO.296/NAG/2015 WHILE ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 2 DECIDING THE ISSUE. FOR THIS ISSUE, REVENUE HAS RA ISED FOLLOWING THREE GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A ERRED IN DELETING THE ADDITION MADE U/S 40(B)(I) IN RESPECT OF REMUNERATION PAID TO NON WORKING PARTNER MRS. MANJU SHREE SOMAN AS UNDER:- SR.NO. A.YEAR(S) REMUNERATION PAID 1. 2011-12 1,37,55,999/- 2. 2012-13 1,67,16,629/- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT MRS. MANJUSHREE SOMAN IS A WORKING PARTNER ELIGIBLE FOR REMUNERATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) WAS NOT RIGHT IN BEING INFLUENCED BY THE CHARGES MADE I N THE PARTNERSHIP DEED IN THE F.YEAR 2013-14. WHILE CONTEMPORANEOUS EVIDENCE SHOULD RELATE TO THE YEARS UNDER APPEAL. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE AS W ELL AS LD. DR AGREED THAT EXACTLY IDENTICAL ISSUE WAS DEALT BY THE TRIBUNAL I N EARLIER YEARS IN ASSESSEES OWN CASE IN ITA NO.262, 263 & 265/NAG/2015 IN ACIT VS WELDWELL ELECTRODES VIDE ORDER DATED 24.11.2017 WHEREIN TRIBUNAL HAS DE LETED THE ADDITION VIDE PARA 7 TO 9 AS UNDER:- 7. WE NOTED THAT THE CIT(A) HAS DELETED THE ADDITI ON MADE BY THE ASSESSING OFFICER IN EACH OF THE ASSESSMENT YEA R BY HOLDING AS UNDER : 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE APPELLANT. THERE IS SUBSTANTIAL MERIT IN THE VARIO US SUBMISSIONS MADE. THE MAIN ARGUMENTS RAISED BY THE APPELLANT I N ITS SUBMISSIONS ARE AS UNDER : 1. THE ACTION OF THE ID. AO IS REVENUE NEUTRAL. ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 3 2. ON THE BASIS OF THE STATEMENTS RECORDED IT CAN NOT BE CONCLUDED THAT MRS. SOMAN IN NOT ACTIVELY INVOLVED IN THE BUS INESS. 3. EVIDENCES WERE PRODUCED TO ESTABLISH THAT MRS. SOMAN WAS INVOLVED IN VARIED ACTIVITIES OF THE BUSINESS OF TH E FIRM 4. THE PARTNERS ARE JOINTLY AND SEVERALLY LIABLE FOR ACTS OF OTHER PARTNER AND THAT THE LIABILITY OF EACH PARTNER IS U NLIMITED. 5. MRS. SOMAN IS PRESENTLY HAVING 75% SHARE IN PR OFIT / LOSS AND IS THE . MAIN WORKING PARTNER AS MR. SUDHIR SOMAN HAS RETIRED FROM PARTNERSHIP FIRM W.E.F 01.10.2013 WH ICH WOULD ESTABLISH THAT SHE HAS ALWAYS BEEN ACTIVELY INVOLVE D IN THE BUSINESS. 5.4 THERE IS MERIT IN EACH OF THE ABOVE ISSUES RAIS ED- TAKING UP THE FIRST ARGUMENT OF THE APPELLANT, IT HAS BEEN CORREC TLY POINTED OUT BY THE APPELLANT THAT THIS ENTIRE EXERCISE IS REVENUE NEUTRAL AS BOTH THE INDIVIDUAL PARTNER AS WELL AS THE FIRM ARE TAXED AT THE SAME RATE AND THEREFORE THE PAYMENT OF REMUNERATION TO THE PARTNE R CANNOT BE VIEWED AS AN ATTEMPT TO CONCEAL INCOME TO REDUCE TA X LIABILITY. THE EXPENSES DEBITED IN THE BOOKS OF THE FIRM WOULD BEC OME INCOME IN THE HANDS OF THE PARTNER.IF THE ID. AO TAXES THE FI RM BY DISALLOWING THE REMUNERATION, HE WILL ALSO HAVE TO ISSUE REFUND TO MRS. SOMAN AS THE SAME WOULD NOT BE TAXABLE IN THE PARTNERS HAND AS IT IS DISALLOWED IN FIRMS CASE. THUS THE NET EFFECT OF TH IS EXERCISE IS TAX NEUTRAL FOR THE DEPARTMENT AS BOTH THE FIRM AND PAR TNER FALL IN HIGHEST TAX SLAB. 5.5 VARIOUS CASE LAWS HAVE COMMENTED UPON THE FUTIL ITY OF UNDERTAKING SUCH AN EXERCISE WHERE INCREASING INCOM E IN ONE HAND AND REDUCING THE INCOME IN OTHER HAND WITH ALMOST T HE SAME TAX EFFECT DOES NOT RESULT IN ANY NET BENEFIT TO THE RE VENUE. IN THE CASE OF SHRI. MOHD. NIZAMUDDIN VS. ACIT, ON SIMILAR FACTS, THE HON'BLE JAIPUR ITAT BENCH IN ITA NO.41/JP/2013 HELD AS UNDE R :- '4.6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY BOTH THE PARTIES... WE DO NOT AGREE WITH THE CONTENTION OF T HE ID. CIT (A) THAT A/I THE PARTNERS WERE NOT WORKING PARTNERS, WHICH F INDING IS RECORDED WITHOUT ANY BASIS... 7T IS NOTICED THAT AL THOUGH THE FIRM WAS CONSTITUTED IN A. Y. 2004-05 AND IT IS NOT DISP UTED THAT THE ASSESSEE FIRM HAS BEEN MAKING THIS CLAIM RIGHT SINC E A.Y. 2004-05 BUT ALL ALONG THE REVENUE HAS BEEN ACCEPTING SUCH A CLAIM EVEN IN THE ASSESSMENT MADE UNDER SCRUTINY HENCE WE DO NOT FIND ANY JUSTIFICATION TO MAKE A DEPARTURE FROM THE SETTLED POSITION IN THE PAST WITHOUT BRINGING ANY MATERIAL CHANGE IN THE FACTS A ND THE ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 4 CIRCUMSTANCES OF THE CASE IN THIS YEAR. IN ANY CASE , THE ISSUE IN HAND IS REVENUE IS NEUTRAL IN AS MUCH AS EVEN ASSUM ING A CERTAIN PART OF THE CLAIMED REMUNERATION IS DISALLOWED IN T HE HANDS OF THE FIRM, THE SAME CANNOT BE TREATED TO BE AN INCOME FR OM BUSINESS IN THE HANDS OF THE PARTNERS AND A NECESSARY SAFEGUARD HAS ALREADY BEEN PROVIDED UNDER THE PROVISO BELOW THE SEC.28(V) AGAINST THE DOUBLE TAXATION OF THE SAME INCOME HENCE, EVEN IF T HE DISALLOWANCE SO MADE IS UPHELD, DEDUCTION TO THAT EXTENT HAS TO BE ALLOWED IN THE HANDS OF THE PARTNERS/S. THUS, REVENUE SHALL NOT BE PUT TO ANY LOSS IF THE REMUNERATION AS CLAIMED, IS ALLOWED IN THE HAND S OF THE ASSESSEE FIRM. WE THUS, FIND NO JUSTIFICATION IN TH E DISALLOWANCE SO MADE AND CONFIRMED, FOR THE DETAILED REASONS STATED HEREIN ABOVE, HENCE, THE DISALLOWANCE OF-RS. 20,47,QOO/- MADE U/S 40(B) IS HEREBY DELETED. THEREFORE, GROUND NO. 2 RAISED BY T HE ASSESSEE IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED.' 5.6 THUS THE HON'BLE JAIPUR BENCH HAS HELD THE REVE NUE SHALL NOT TO BE PUT TO ANY LOSS IF THE REMUNERATION CLAIMED IS A LLOWED IN THE HANDS OF THE ASSESSEE FIRM AS SAME CANNOT BE TREATE D AS INCOME FROM BUSINESS IN THE HANDS OF THE INDIVIDUAL PARTNE R. SIMILARLY IN THE CASE OF M/S OM TERRACE, SURATVS DCIT SURAT ITA NO. 440/AHD/2012, IT WAS HELD BY THE HON'BLE ITAT AHMED ABAD BENCH AS UNDER- NO DISALLOWANCE FROM PARTNERS' REMUNERATION WAS TH EREFORE WARRANTED. IN ANY CASE, THE WHOLE EXERCISE OF DISAL LOWING PARTNERS' REMUNERATION IS TAX NEUTRAL AS ONLY THE AMOUNT ALLO WED AS DEDUCTION IS REQUIRED TO BE TAXED IN THE HANDS OF T HE PARTNERS. ' 5.7 ATTENTION IS ALSO INVITED TO THE DECISION OF HO N'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS NAGARI MILLS CO. LTD 33 ITR 681 & DELHI HIGH COURT'S JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME TAX VS, SHRI RAM PISTONS AND RINGS LTD. (220 CTR 404} WHEREIN IT WAS HELD THAT THE DEPARTME NT SHOULD NOT FRITTER AWAY ITS ENERGY IN SUCH MATTERS WHICH ARE T AX NEUTRAL AND THAT IT IS A PITY THAT SO MUCH TIME AND ENERGY ARE SPENT TO DETERMINE THE YEAR OF TAXABILITY OF THE INCOME, THE SAID JUDG MENTS HAVE BEEN EXTENSIVELY FOLLOWED IN A LARGE NUMBER OF CASES IN WHICH A EXERCISE UNDERTAKEN BY THE DEPARTMENT WAS FUNDAMENTALLY TAX NEUTRAL. IN THIS CONTEXT JUDGMENT OF HON'BLE DELHI HIGH COURT I N THE CASE OF COMMISSIONER OF INCOME TAX VS TRIVENI ENGINEERING & INDUSTRIES (ITA NO. 346 OF 2009) IS REPRODUCED HERE UNDER :- ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 5 '...12. WE ARE REMINDED OF THE CLASSIC OBSERVATIONS MADE BY JUSTICE TENDOLKER IN THE CASE OF THE COMMISSIONER OF INCOME -TAX, VS. NAGRI MILLS CO. LTD. [33 ITR 681], WHICH READS AS UNDER: 'WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORIT IES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSL Y A PERMISSIBLE DEDUCTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL W HEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEA RS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTR ACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DE PARTMENT WOULD NOT FRITTER . AWAY ITS ENERGIES IN FIGHTING M ATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAI CO ME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY O F THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FR OM HIM WHETHER IN ONE YEAR OR THE OTHER.' 13. THE AFORESAID OBSERVATIONS OF THE BOMBAY HIGH C OURT WERE REITERATED BY THIS COURT IN THE CASE OF COMMISSIONE R OF INCOME TAX VS. SHRI RAM PISTONS AND RINGS LTD. [220 CTR 404], AS UNDER: 'FINALLY, WE MAY ONLY MENTION WHAT HAS BEEN ARTICUL ATED BY THE BOMBAY HIGH COURT INCOMMISSIONER OF INCOME TAX, DEL HI, AJMER, RAJASTHA AND MADHYA PRADESH VS. NAGRI MILLS CO. LTD . [1958] 33 ITR 681 AS FOLLOWS: IN THE REFERENCE THAT IS BEFORE US THERE IS NO DOUB T THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE. THE ONLY DISPUTE IS RE GARDING THE DATE ON WHICH THE LIABILITY !IAD CRYSTALLIZED. IT APPEAR S THAT THERE WAS NO CHANGE IN THE RATE OF TAX FOR THE ASSESSMENT YEAR 1 983-84 WITH'WHICH WE ARE CONCERNED. THE QUESTION, THEREFOR E, IS ONLY WITH REGARD TO THE YEAR OF DEDUCTION AND IT IS A PITY TH AT ALL OF - US HAVE TO EXPAND SO MUCH TIME AND ENERGY ONLY TO DETERMINE TH E YEAR OF TAXABILITY OF THE AMOUNT. 14. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT INSOFAR AS PRESENT APPEAL IS CONCERNED, SUBSTANTIAL QUESTIONS OF LAW T HAT NEED TO BE ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 6 ANSWERED DOES NOT ARISE. WE, THEREFORE, DISMISS THI S APPEAL ON THIS GROUND ALONE.' 5.8 THUS FROM THE ABOVE JUDGMENT IT IS SEEN THAT WH EN THE ACTION OF THE DEPARTMENT IS TAX NEUTRAL, NO PURPOSE IS SERVED BY. ADDING THE AMOUNT IN ONE CASE AND GIVING CORRESPONDING RELIEF IN ANOTHER CASE. HERE, HOWEVER, TF-.S ACTION OF THE LD.AO IS ALL THE MORE OBJECTIONABLE IN VIEW OF THE FACT THAT WHILE HE HAS DISALLOWED TH E CLAIM OF REMUNERATION, HE HAS NOT GIVEN CORRESPONDING RELIEF IN THE CASE OF INDIVIDUAL PARTNER BY REDUCING HER INCOME TO THE EX TENT OF DISALLOWANCE MADE IN THE CASE OF THE FIRM. IF THE L D.AO WAS OF THE VIEW THAT THE REMUNERATION WAS NOT ALLOWABLE IN THE CASE OF THE FIRM, CORRESPONDING RELIEF IN THE CASE OF THE PARTNER SHO ULD HAVE BEEN SIMULTANEOUSLY INITIATED AND THE INCOME OF THE PART NER SHOULD HAVE BEEN REDUCED ACCORDINGLY. ONCE HAVING HELD THAT THE REMUNERATION WAS NOT ALLOWABLE AS EXPENDITURE IN THE CASE OF THE APPELLANT FIRM, THE DEPARTMENT CANNOT TAKE THE CONTRADICTORY VIEW I N THE HANDS OF THE RECIPIENT OF REMUNERATION AND DECIDE THAT NO RE LIEF IS REQUIRED TO BE GIVEN IN THE HANDS OF INDIVIDUAL PARTNER. THE DE PARTMENT CANNOT APPROBATE AS WELL AS REPROBATE. THE MAXIM QUI APPRO BATION REPROBATE (ONE WHO APPROBATES CANNOT REPROBATE) IS FIRMLY EMBODIED IN ENGLISH COMMON LAW AND OFTEN APPLIED BY COURTS I N THIS COUNTRY. IT IS AKIN TO THE DOCTRINE OF BENEFITS AND BURDENS, WHICH AT ITS MOST BASIC LEVEL PROVIDES THAT A PERSON TAKING ADVANTAGE UNDER AN INSTRUMENT THAT BOTH GRANTS A BENEFIT AND IMPOSES A BURDEN, CANNOT TAKE THE FORMER WITHOUT COMPLYING WITH THE LATTER. A PERSON CANNOT APPROBATE AND REPROBATE OR ACCEPT AND REJECT THE SA ME INSTRUMENT. HE CANNOT, TO USE THE WORDS OF HONYMAN, J. IN SMITH V. BAKER (1878) LR 8 CP 350 AT P. 357 AT THE SAME TIME BLOW HOT AN D COLD', HE CANNOT SAY AT ONE TIME THAT THE TRANSACTION IS VALI D AND THEREBY OBTAIN SOME ADVANTAGE TO WHICH HE COULD ONLY BE ENT ITLED ON THE FOOTING THAT IT IS VALID, AND AT ANOTHER TIME SAY I T IS VOID FOR THE PURPOSE OF SECURING SOME FURTHER ADVANTAGE. THE FAC T THAT THE LD.AO HAS DISALLOWED REMUNERATION ON ONE HAND AND HAS NOT GIVEN CORRESPONDING RELIEF IN THE CASE OF THE PARTNER IN HER INDIVIDUAL CAPACITY AND THIS ITSELF SHOWS THAT THE LD.AO IS NO T VERY SURE OF THE VIEW TAKEN BY HIM. 5.9 THUS IT IS EVIDENT THAT SINCE THE APPELLANT FIR M AND THE PARTNER ARE BOTH SUBJECT TO BE TAXED AT THE MAXIMUM RATE, T HE PAYMENT OF REMUNERATION IS IN NO WAY A SCHEME TO CONCEAL INCOM E OR EVADE TAX, THERE IS EVIDENTLY NO TAX PLANNING OR TAX SAVING ME CHANISM EMPLOYED BY THE ASSESSEE OR ITS PARTNERS. THE DEPAR TMENT WILL TAX THE FIRM BY DISALLOWING THE REMUNERATION ON ONE HAN D AND ON OTHER HAND DEPARTMENT WILL HAVE TO ISSUE REFUND TO INDIVI DUAL PARTNER ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 7 (MRS. SOMAN) AS THE SAME WOULD NOT BE TAXABLE IN PA RTNERS HAND AS IT IS DISALLOWED IN FIRMS CASE. THUS THE NET EFFECT OF THIS EXERCISE IS TAX NEUTRAL FOR DEPARTMENT AS BOTH THE FIRM AND PAR TNER FALL IN HIGHEST TAX SLAB. HENCE ON THIS GROUND ITSELF, THIS ADDITION IS UNWARRANTED AND UNJUSTIFIED SOLELY ON GROUND OF TAX NEUTRALITY. 6. COMING TO THE SECOND ARGUMENT OF THE APPELLANT, ON PERUSAL OF THE SUBMISSION MADE BY THE APPELLANT BEFORE THE LD.AO, THE FACTS BROUGHT ON RECORD IN THE ASSESSMENT ORDER AND ON PE RUSAL OF THE TWO STATEMENTS RECORDED OF SMT. SOMAN, IT IS SEEN THAT THERE IS NO MATERIAL BEFORE THE LD.AO TO CO'ME TO THE CONCLUSIO N THAT SMT. SOMAN IS NOT A WORKING PARTNER OR THAT SHE IS NOT ACTIVEL Y ENGAGED IN THE BUSINESS ACTIVITY OF THE APPELLANT FIRM. IN THE TWO STATEMENTS RECORDED DURING AND AFTER THE SURVEY U/S. 133A ABOU T 30 QUESTIONS WERE ASKED TO SMT. SOMAN AND THE LD.AO HAS BASED TH E ENTIRE DISALLOWANCE ON ABOUT 5-6 ANSWERS AND HAS COME TO T HE CONCLUSION THAT SHE IS NOT ACTIVELY INVOLVED IN THE BUSINESS A CTIVITIES. IN THE PROCESS THE LD.AO HAS TOTALLY IGNORED ANSWERS GIVEN TO 24-25 QUESTIONS FROM WHICH IT BECOMES EVIDENT THAT SMT. S OMAN IS A PARTNER WHO IS ACTIVELY INVOLVED IN THE BUSINESS AC TIVITY.. 6.1 IN ITS SUBMISSION, THE APPELLANT FIRM HAS GIVEN DETAILED EXPLANATION WITH REGARD TO EACH OF THE QUESTIONS TH AT THE LD.AO HAS FOCUSED UPON. THE EXPLANATION OF THE APPELLANT CLEA RLY ESTABLISHES THAT THE CONCLUSION DRAWN BY THE LD.AO TO THE SAID QUESTION ARE ERRONEOUS AND MISLEADING. THE APPELLANT FIRM IS 30 YEARS OLD, WELL ESTABLISHED AND IS STAFFED WITH PERSONS HAVING DESI GNATION OF MANAGER, GENERAL MANAGER ETC. WHO ARE ABLE TO TAKE CARE OF DAY TO DAY BUSINESS ACTIVITIES AND HENCE REQUIREMENT OF TH E PARTNERS TO BE INVOLVED IN THE DAY TO DAY ACTIVITY DOES NOT ARISE. THE ROLE OF THE PARTNER WOULD BROADLY BE TO DECIDE POLICIES, GIVE S TRATEGIC INPUTS AND TO MONITOR VARIOUS ASPECTS OF BUSINESS. 6.2 THE FACT THAT SMT. SOMAN STATED IN AN ANSWER TH AT SHE ONLY OCCASIONALLY GOES TO THE FIRM PREMISES OR THAT SHE IS NOT ASSOCIATED WITH DAY TO DAY WORKING OF THE FIRM OR THAT SHE HAS NOBODY REPORTING TO HER, CANNOT LEAD TO THE CONCLUSION THAT SHE IS N OT ACTIVELY INVOLVED IN THE BUSINESS ACTIVITIES OF THE FIRM. MODERN BUS INESS ARE COMPLEX ENTITIES THAT REQUIRES CONTINUE STRATEGIC THINKING PLANNING, FORMULATION OF BUSINESS POLICIES AND EVOLVED SENIOR LEVEL INTERVENTION. ANY PARTNER WHO IS EVEN SLIGHTLY INVO LVED IN SUCH MATTERS WOULD BE CONTRIBUTING IMMENSELY TO THE BUSI NESS ACTIVITY OF THE FIRM. BEING A PARTNER,SMT. SOMAN IN ADDITION TO POLICY FORMULATION AND STRATEGIC THINKING ALONG WITH THE O THER PARTNER, COULD IN ANY CASE CALL FOR ANY EMPLOYECTO DIRECT OR TO GUIDE HIM / HER. THE FACT THAT NOBODY REPORTS TOSMT. SOMAN DOES NOT BY ITSELF ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 8 LEAD TO CONCLUSION THAT SHE IS NOT ACTIVELY INVOLVE D IN THE BUSINESS ACTIVITIES OF THE FIRM AS SHE CAN CALL ANY EMPLOYEE AND ENSURE COMPLIANCE TO THE NEEDS AND REQUIREMENTS OF THE ORG ANIZATION. 6.3 IN THE ABOVE CONTEXT, IT IS ALSO VITAL TO SEE T HE ANSWERS GIVEN BY SMT. SOMAN TO VARIOUS QUESTIONS ASKED TO HER. IN HE R STATEMENT RECORDED ON 08-11-2012 SMT. SOMAN GAVE DETAILS LIKE .ASSESSING OFFICER, PAN AND DETAILS REGARDING THE FIRM AND ALS O INFORMED THE LD.AO THAT SHE VISITS THE PREMISES WHEN THE OTHER P ARTNER IS ABSENT AND THAT AS A PARTNER SHE IS GETTING REMUNERATION A ND PROFIT FROM THE FIRM. SHE HAS FURTHER STATED THAT SHE IS A POSTGRAD UATE IN ENGLISH LITERATURE AND MUSIC AND IS LOOKING AFTER THE ADMIN ISTRATION AND PERSONAL RELATION OF THE FIRM AND ENSURES FRIENDLY RELATION WITH THE STAFF. ON BEING ASKED TO GIVE DETAILS OF STAFF WHO ARE ON PAY ROLL OF THE FIRM SHE GAVE NAMES OF FOUR STAFF MEMBERS AND T HEIR AREA OF SPECIALIZATION AND ON BEING ASKED WHERE THE BOOKS O F ACCOUNTS ARE MAINTAINED, SHE EXPLAINED THAT THE SAME ARE MAINTAI NED IN THE COMPANY PREMISES ITSELF. FURTHER, ON BEING ASKED RE GARDING THE INSTANCES OF SALE AND PURCHASE OF PROPERTY BY THE F IRM, SHE EXPLAINED THAT A LAND HAD BEEN PURCHASED ALONGWITH SHED IN PLOT NO.57 ABOUT 3 YEARS BACK AND THAT AN ADVANCE OF RS. 1,5 CRORES HAS BEEN 'GIVEN IN JANUARY 2012 TO ONE M/S J.D. BUILDER S FOR PURCHASE OF ONE PLOT IN SHIVAJI NAGAR, NAGPUR THOUGH THE SAL E DEED HAS NOT BEEN EXECUTED AS YET. ON BEING ASKED SHE FURTHER IN FORMED THAT SHE SIGNED THE INCOME TAX RETURNS AND DOCUMENTS REGARDI NG THE PURCHASE OF LAND OF THE FIRM. THUS ON PERUSAL OF ST ATEMENT RECORDED ON 08-11-2012 IT BECOMES EVIDENT THAT SMT. SOMAN IS ACTIVELY INVOLVED IN BUSINESS ACTIVITY OF THE FIRM AND IS AW ARE OF THE STAFF MEMBERS, THE NATURE OF WORK THEY TOOK AFTER AND IS ALSO WELL AWARE REGARDING BOOKS OF ACCOUNTS AND SALE / PURCHASE OF IMMOVABLE PROPERTY BY THE APPELLANT FIRM. 6.4 ALSO IN THE STATEMENT RECORDED ON 29-11-2012, S HE EXPLAINED THAT SHE HAS NO OTHER BUSINESS INTEREST OTHER THAN THE APPELLANT FIRM AND ON BEING ASKED BANK ACCOUNT DETAILS, SHE GAVE I NFORMATION ABOUT THE PRATAP NAGAR, BANK OF INDIA BRANCH. ONBEI NG ASKED REGARDING OWNERSHIP OF MOVABLE ASSETS SHE STATED TH AT THE FIRM OWNED TOYOTA ALTIS AND HYUNDAI I-10 AND ON BEING AS KED TO GIVE DETAILS OF WITHDRAWALS DURING THE F.Y. 2011-12, SHE EXPLAINED THAT THE WITHDRAWAL OF RS.1.5 CRORES WAS MADE FROM BANK OF INDIA. ON BEING ASKED IF SHE WAS ASSOCIATED WITH DECISION MAK ING IN THE FIRM SHE REPLIED IN THE AFFIRMATIVE. SHE FURTHER STATED THAT SHE IS INVOLVED IN PURCHASE OF LAND, MACHINE, APPLYING FOR BANK LOA N ETC. THOUGH SHE DOES NOT REMEMBER THE EXACT NAMES OF THE PARTIES FR OM WHOM THE MACHINES WERE PURCHASED. SHE FURTHER EXPLAINED TH E SOURCES OF ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 9 FUNDS, INVESTMENTS IN VARIOUS MUTUAL FUNDS, INSURAN CE POLICIES ETC. ARE HER SALARY. HERR AGAIN SMT. SOMAN IS VERY CLEA RLY ABLE TO ESTABLISH THE FACT THAT SHE IS ACTIVELY INVOLVED IN THE BUSINESS ACTIVITIES OF THE FIRM AND IS AWARE OF ALL BUSINESS RELATED ASPECTS AS OTHERWISE SHE WOULD NOT BE IN A POSITION TO GIVE SU CH DETAILS AS THE BANK ACCOUNT, MOVABLE ASSETS, SOURCES OF HER VARIOU S INVESTMENTS, DETAILS OF WITHDRAWALS FROM BANK ACCOUNT ETC. 6.5 IN THE FACE OF SUCH CLEAR ASSERTIONS BY SMT. SO MAN OF HER CONTINUED INVOLVEMENT IN ALL FACETS OF BUSINESS ACT IVITIES, THE CONCLUSION OF THE LD.AO THAT SNE IS ACTIVELY INVOLV ED IN THE BUSINESS ON THE BASIS OF 4-5 ANSWERS IS MISPLACED AND INCORR ECT. EVIDENTLY SMT. SOMAN IS ABLE TO ESTABLISH THAT SHE IS ACTIVEL Y INVOLVED IN EVERY ASPECT OF BUSINESS THOUGH SHE MAY BE VISITING THE P REMISES OCCASIONALLY. THERE IS ABUNDANT JUDICIAL AUTHORITY IN THIS REGARD. 6.6 THE HONORABLE GUJARAT HIGH COURT IN THE CASE OF CIT VS NATWARLAL TRIBHOVANDAS REPORTED IN 87 ITR 703 ANSWE RED IN THE AFFIRMATIVE THE QUESTION AS TO WHETHER EXPRESSION ' ACTIVELY ENGAGED IN CONDUCT OF BUSINESS' OCCURRING IN SECTION 2(7)(I II){B) DOES NOT NECESSARILY SIGNIFY ACTIVE AND CONTINUOUS PARTICIPA TION IN ACTUAL TRANSACTION OF DAY-TO-DAY BUSINESS OF FIRM AND HELD THAT IT IS FLEXIBLE ENOUGH TO TAKE IN CASE OF' A PARTNER WHO DEVOTES TI ME, ATTENTION AND LABOUR TO SOME ACTIVITY OR ASSIGNMENT CALCULATED OR DESIGNED TO LEAD TO PRESERVATION, GROWTH OR ADVANCEMENT OF BUSINESS OF FIRM. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER: 'ACCORDINGLY, BEFORE THE BUSINESS INCOME OF AN ASSE SSES, WHO IS 3 PARTNER OF A FIRM, COULD BE TREATED AS EARNED INCOM E, THE CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED ARE THAT THE ASS ESSEE SHOULD BE: (I) ACTIVELY, (II) ENGAGED IN, (HI) THE CONDUCT OF THE BUSINESS OF THE FIRM, (IV) FOR THE WHOLE OF THE PREVIOUS YEAR. THE SUBMIS SION WAS THAT THE FIRST THREE OF THE FOUR CONDITIONS ARE EXPRESSLY FO UND IN SECTION 2(7)(III)( B) AND THE FOURTH CONDITION IS NECESSARI LY IMPLIED THEREIN HAVING REGARD TO THE MANNER IN WHICH A PARTNERSHIP FUNCTIONS AND ITS ACCOUNTS ARE MADE UP. UNLESS THE ASSESSEE IS AB LE TO SHOW, THEREFORE, THAT FOR THE WHOLE OF THE RELEVANT PREVI OUS YEAR HE WAS CONTINUOUSLY AND IN AN ACTIVE MANNER OCCUPIED OR BU SY WITH THE WORK OF CARRYING ON OR TRANSACTING THE BUSINESS OF THE FIRM, THE BUSINESS INCOME EARNED BY HIM AS A PARTNER WOULD NO T QUALIFY FOR THE EARNED INCOME RELIEF. MR. KAJI, LEARNED COUNSEL FOR THE ASSESSEE, CONTEND ED ON THE OTHER HAND THAT THE WORDS NOW UNDER CONSIDERATION REQUIRE TO BE CONSTRUED BROADLY HAVING , REGARD TO THE CONTEXT IN WHICH THEY ARE ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 10 USED. HE URGED THAT IT IS NOT UNKNOWN THAT IN A PAR TNERSHIP THERE ARE PARTNERS WHO, IN POPULAR PARLANCE, ARE CALLED 'SLEE PING PARTNERS' AND WHO ARE BROUGHT INTO THE FIRM EITHER BECAUSE OF THEIR FINANCIAL CONTRIBUTION OR FAMILY TIES OR THE LIKE. A SLEEPING PARTNER, THOUGH REALLY NOT ENGAGED IN THE CONDUCT OF THE BUSINESS O F THE FIRM, WOULD NEVERTHELESS BE CONSIDERED AS HAVING BEEN SO ENGAGE D IN THE EYE OF LAW BECAUSE OF THE PRINCIPLE OF MUTUAL AGENCY INVOL VED IN PARTNERSHIP AND HIS SHARE IN THE PROFITS OF THE FIR M WOULD, THEREFORE, QUALIFY FOR THE EARNED INCOME RELIEF IN HIS HANDS. THE WORD 'ACTIVELY', WHICH IS PREFIXED TO THE EXPRESSION 'ENGAGED IN THE CONDUCT OF THE BUSINESS', IS USED PRECISELY WITH A VIEW TO ENSURIN G THAT A PARTNER WHO PARTICIPATES IN THE CONDUCT OF THE BUSINESS OF THE FIRM ONLY THROUGH THE AGENCY OF HIS CO-PARTNERS DOES NOT GET THE BENEFIT OF THE EARNED INCOME RELIEF. THE EXPRESSION 'ACTIVELY ENGA GED IN THE CONDUCT OF THE BUSINESS', PROCEEDED THE ARGUMENT, R EAD IN THE CONTEXT AND AS A WHOLE, MEANT THAT THE PARTNER SHOU LD PERSONALLY PARTICIPATE IN SOME MANNER IN THE BUSINESS OF THE F IRM, THAT IS, UNDERTAKE SOME ACTIVITY WHICH IS NECESSARY OR DESIR ABLE FOR THE PRESERVATION AND GROWTH OF THE BUSINESS OF THE FIRM . THE EXPRESSION, ACCORDING TO THE ASSESSEE, DID NOT SIGNIFY THAT THE PARTNER SHOULD TAKE ACTIVE PART IN THE ACTUAL DAY-TO-DAY TRANSACTI ON OF THE BUSINESS OF THE FIRM. IT WAS ALSO URGED THAT PARTICIPATION IN THE CONDUCT OF THE BUSINESS NEED NOT HAVE CONTINUED FOR THE WHOLE OF T HE PREVIOUS YEAR AND THAT IF IT IS SHOWN THAT THE CONCERNED PARTNER HIS PARTICIPATED IN THE CONDUCT OF THE BUSINESS OF THE FIRM FOR A SUBST ANTIAL PART OF THE PREVIOUS YEAR, THE BUSINESS INCOME EARNED BY HIM W OULD QUALIFY FOR THE EARNED INCOME RELIEF. THE QUESTION IS AS TO WHICH OUT OF THE TWO RIVAL CO NSTRUCTIONS SUGGESTED AT THE BAR SHOULD BE PREFERRED. LEAVING O UT OF CONSIDERATION FOR THE TIME BEING THE QUESTION WHETH ER OR NOT THE ENGAGEMENT IN THE CONDUCT OF THE BUSINESS MUST BE F OR THE WHOLE OF THE PREVIOUS YEAR, WE SHALL FIRST ATTEMPT: NO ASCER TAIN THE PLAIN GRAMMATICAL MEANING OF THE EXPRESSION 'ACTIVELY ENG AGED IN THE CONDUCT OF THE BUSINESS'. THE WORD 'ACTIVELY' ORDIN ARILY MEANS IN AN ACTIVE MANNER, THAT IS, EFFECTIVELY, ENERGETICALLY AND DILIGENTLY. IT IS SOMETIMES ALSO USED TO SIGNIFY DIRECT PARTICIPATION IN CONTRADISTINCTION TO IMPERSONAL INTEREST OR PASSIVE ROLE. THE EXPRESSION 'ENGAGED IN' IS A TERM OF VARIOUS MEANIN GS ' DEPENDING ON THE CONTEXT IN WHICH IT IS USED BUT ORDINARILY I T IS INTENDED TO SIGNIFY CONTINUOUS OCCUPATION OR EMPLOYMENT; IT INV OLVES THE CONCEPT OF CONTINUITY OF ACTION AS WELL AS OF PHYSICAL PART ICIPATION. HOWEVER, THE TERM IS. OFTEN EMPLOYED TO DENOTE A PRESENT OBL IGATION TO DEVOTE TIME, ATTENTION AND EFFORTS TO A PARTICULAR ACTIVIT Y, ALTHOUGH, FOR THE TIME BEING, THERE MAY NOT BE ANY ACTIVE PARTICIPATI ON OR WHOLETIME INVOLVEMENT IN SUCH ACTIVITY, THE EXPRESSION 'THE C ONDUCT OF THE ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 11 BUSINESS' IN A NARROWER SENSE MEANS ACTUAL DIRECTIO N, HANDLING, MANAGEMENT OR REGULATION OF BUSINESS DAY-AFTER-DAY. IN A BROADER SENSE, HOWEVER, IT IS ALSO CAPABLE OF CONNOTING CON TRIBUTION TO THE BUSINESS BY CARRYING OUT SOME ASSIGNMENT OR UNDERTA KING, SOME ACTIVITY UNCONNECTED WITH THE DAY-TO-DAY MANAGEMENT OF THE BUSINESS, WHICH MIGHT ULTIMATELY LEAD TO THE PRESER VATION AND DEVELOPMENT OF THE BUSINESS. IT WOULD THUS APPEAR T HAT ON A PLAIN MEANING OF THE WORDS COMPRISED IN THE RELEVANT PHRA SE, BOTH CONSTRUCTIONSTHE NARROWER AS WELL AS THE BROADERF OR WHICH THE PARTIES HAVE CONTENDED ARE POSSIBLE. WE WOULD, IN T HESE CIRCUMSTANCES, NATURALLY PREFER THAT CONSTRUCTION W HICH FAVOUR THE ASSESSEE...' 6.7 THE HONORABLE ITAT DELHI, IN THE CASE OF VIVEK ISPAT UDYOG VS INCOME TAX OFFICER (2005) 95 TTJ DELHI 1090 HELD AS UNDER: ' '9. ON GOING THROUGH THE OBSERVATIONS OF THE LEARNE D CIT(A), IT IS FOUND THAT HE HAS NOT TREATED SHRI PAWAN KUMAR PAHA DIA AS A WORKING PARTNER ON THE GROUND THAT HE WAS NOT A WHO LE-TIME WORKER. THIS APPROACH CANNOT BE SAID TO BE JUSTIFIED. A PAR TNER MAY SUPERVISE AND CONTROL IN A CASE OF A FIRM AT DIFFER ENT PLACE. IF HE DEVOTES TIME AND REMAINS ENGAGED IN THE BUSINESS OF THE FIRM, IT CANNOT BE SAID THAT HE IS NOT ACTIVELY ENGAGED IN T HE BUSINESS OF THE FIRM. IT MAY BE POINTED OUT THAT THE SAME CIT(A) HA S UPHELD THE ACTION OF THE AO IN ALLOWING REMUNERATION TO SHRI S UNIL KUMAR NAVETIA WHO TOO WAS RESIDING AT CALCUTTA AND WAS SU PERVISING THE AFFAIRS OF THE FIRM AT GHAZIABAD. J'HE ONLY REASON FOR ALLOWING REMUNERATION TO THAT PARTNER IS THAT THE TELEPHONE NUMBER OF CALCUTTA BELONGED TO HIM. SO FAR AS OTHER PARTNER, NAMELY, SHRI PAWAN KUMAR PAHADIA IN WHOSE CASE REMUNERATION HAS BEEN DISALLOWED IS CONCERNED, IN MY VIEW, THE DIFFERENCE MADE BY THE LEARNED CIT(A) CANNOT BE APPRECIATED. FROM THE DOCU MENTS CONTAINED IN THE PAPER BOOK, IT IS FOUND THAT HE WAS MAKING C ORRESPONDENCE TO THE FIRM AND WAS ALSO ISSUING INSTRUCTIONS ON TELEP HONE. THUS, IT CANNOT BE SAID THAT HE WAS NOT CONDUCTING THE AFFAI RS OF THE BUSINESS OR NOT ENGAGED IN THE CONDUCT OF THE WORKI NG OF THE FIRM. IN THE CASE OF CIT V. NATWARIALTRIBHOVANDAS (SUPRA), T ERM 'ACTIVELY ENGAGED IN THE CONDUCT OF THE BUSINESS' OCCURRING I N SECTION 2(7)(III)(B) OF THE FINANCE (NO. 2) ACT 1962, WAS EXPLAINED BY THE HON'BLE GUJARAT HIGH COURT AND IT WAS OBSERVED THAT THE EXPRESSION MUST BE GIVEN LIBERAL MEANING. IT WAS HELD THAT THE SAID EXPRESSION DOES NOT NECESSARILY SIGNIFY ACTIVE OR CONTINUOUS P ARTICIPATION IN THE ACTUAL TRANSACTION OF THE DAY-TO-DAY BUSINESS OF TH E FIRM AND IT IS FLEXIBLE ENOUGH TO TAKE IN THE CASE OF A PARTNER WH O DEVOTES TIME, ATTENTION AND SUPERVISE THE WORK. THUS, A PARTNER TO BE A WORKING PARTNER FOR THE PURPOSE OF SECTION 2(7)(III)(B) ALS O, IT CAN BE SAID THAT ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 12 SUFFICIENT REQUIREMENTS OF LAW FOR THE SAID PARTNER TO WHOM THE REMUNERATION IS PAID IS TO SUPERVISE THE WORK OF TH E FIRM FROM DIFFERENT PLACE AND MAY BE BY DEVOTING HOURS AND NO T A WHOLE DAY. IN MY CONSIDERED OPINION, THE CLAIM OF THE ASSESSEE -FIRM WAS FULLY JUSTIFIED AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE VIEW OF THE AO. THE DISALLOWANCE OF REMUNERATION TO THE PARTNER TO THE TUNE OF RS. 39,100 AND THE ADDITION OF THE SAME AMOUNT JS, THEREFORE, DELETED. THE GROUND NO. 2 IS, THEREFORE, ALLOWED IN FAVOUR OF THE ASSESSES,' 6.8 THE HONORABLE ITAT KOLKATA, IN THE CASE OF S.B.AGEN CIES, KOLKATA VS ACIT IN ITA NO. 680/KOL/2012 DECIDED A C ASE ON SIMILAR FACTS. IN THE SAID CASE, THE CLAIM OF RS. 2,20,OOQ/ - REMUNERATION TO ONE OF THE PARTNERS HAD BEEN RESTRICTED TO RS. 36;0 00/- BY THE ID. AO AND IN APPEAL THE LEARNED COMMISSIONER OF INCOME- T AX (APPEALS) ALLOWED THE SAME TO THE EXTENT OF RS. 1.20 LAKH. TH E REASON FOR MAKING THE DISALLOWANCE WAS HER STATEMENT WHICH HAD BEEN TAKEN WHEREIN, AS PER THE ID. AO, IT WAS PROVED THAT SMT. MADHUMITA PAUL DID NOT KNOW OF THE OPERATIONS OF THE ASSESSEE'S BU SINESS. IN SUCH FACTS IT WAS HELD AS UNDER: '6. WE HAVE CONSIDERED THE RIVAL SUBMISSION. A PERU SAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT SMT. MADHUMITA PAUL, HAD BEEN SUMMONED U/S. 131 OF THE ACT AND HER STATEMENT S HAVE BEEN RECORDED. IT IS SHOWN IN THE STATEMENTS RECORDED TH AT SMT. MADHUMITA PAUL DID DO WORK AT THE BUSINESS PREMISES OF THE ASSESSES FIRM. HOWEVER, THE AO HAD RESTRICTED THE S ALARY ALLOWABLE TO SMT. MADHUMITA PAUL AT RS. 36,000/~. IT IS ALSO NOTICED THAT THE AO HAS MENTIONED THAT THERE WERE DISCREPANCIES IN H ER STATEMENTS RECORDED U/S. 131 OF THE ACT A PERUSAL OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX('APPEALS) CLEARLY SHOWS THAT THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HAS CONSIDERED THE OBJECTIONS OF THE AO, BUT LOOKING INTO THE QUALIFICATION AND A GE FACTOR OF SMT. MADHUMITA PAUL RESTRICTED THE DISALLOWANCE TO RS. 1 LAKH. HERE IT IS NOTICED THAT THE AO AND THE LD,CIT(A) HAS ESTIMATED THE SALARY OF SMT. MADHUMITA PAUL WITHOUT ANY COMPARATIVE CASE OR WITHOUT LAYING ANY FOUNDATION FOR SUCH ESTIMATION ITSELF. I N THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS HO GROUND FOR RESTRICTING THE SALARY PAID TO SMT. MADHUMITA PAUL AT RS. 1.20 LAKH AS AGAINST THE CLAIM OF RS, 2.20 LAKH. IN THE CIRCU MSTANCES, THE AQ IS DIRECTED TO ITA. NO. 680/KOL/12-B-GM ALLOW THE ASSE SSEE'S CLAIM OF THE SALARY PAID TO SMT. MADHUMITA PAUL AT RS. 2.20 LAKH P.A. IN THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSEE IS ALLOWE D.' 6.9 SIMILARLY, THE HONORABLE ITAT KOLKATA, HELD THA T EVEN A FULL TIME ENGINEERING STUDENT IS ACTIVELY INVOLVED IN THE BUS INESS OF THE FIRM IF ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 13 HE IS LOOKING AFTER SOME ASPECT OF BUSINESS. IN THE CASE OF KALIPADA PACKAGING INDUSTRIES VS. ITO (I.T.A. NO.09/KOL/2013 ) IT WAS HELD AS UNDER: '4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS CONTENDED THAT SHRI SOUMEN PAUL, THE PARTNER WAS ENGAGED IN P ROCUREMENT OF ORDERS FOR THE FIRM DESPITE THE FACT THAT HE WAS A STUDENT OF ENGINEERING COLLEGE, JALPAIGURI. SIMPLY ON THE STAT EMENT OF SHRI BHUSAN CHANDRA PAUL, ONE OF THE RETIRED PARTNERS AN D THAT ALSO DURING THE COURSE OF SURVEY CANNOT BE THE SOLE BASI S FOR DISALLOWING REMUNERATION CO TNE PARTNER. HERE, ADMITTEDLY, THE ASSESSEE F'S ENGAGED IN THE PROCUREMENT OF ORDERS AND ONCE HE IS ENGAGED IN THE PROCUREMENT OF ORDERS, HE CAN SAFELY BE STATED THAT HE IS WORKING PARTNER. ACCORDINGLY, WE DELETE THE DISALLOWANCE AN D APPEAL OF ASSESSEE IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ' 6.10 THUS, THE CONCEPT OF BEING ACTIVELY ENGAGED IN THE CONDUCT OF THE BUSINESS HAS TO BE GIVEN A BROADER AND LIBERAL MEANING AND DOES NOT NECESSARILY SIGNIFY ACTIVE OR CONTINUOUS P ARTICIPATION IN THE ACTUAL TRANSACTION AND CONDUCT OF THE DAY-TO-DAY BU SINESS OF THE FIRM AND IT IS FLEXIBLE ENOUGH TO TAKE IN THE CASE OF A PARTNER WHO DEVOTES SOME TIME AND ATTENTION TO THE WORK OF THE FIRM. IN THE CASE OF MRS. SOMAN HOWEVER, IT IS EVIDENT THAT HER PARTI CIPATION IN THE ACTIVITY OF THE FIRM IS MORE THAN A PARTNER WHO DEV OTES ONLY 'SOME' TIME AND ATTENTION TO THE WORK OF THE FIRM. 7. THIS BECOMES EVIDENT FROM THE THIRD ARGUMENT OF THE APPELLANT. DOCUMENTS WERE FILED BEFORE THE ID. AO THAT EVIDENC E MR;,. SOMAN'S ACTIVE INVOLVEMENT IN THE AFFAIRS OF THE FIRM. THE ID. AO HOWEVER SIMPLY BRUSHED ASIDE THE SAID DOCUMENTS WITHOUT GIV EN ANY COGENT REASONS. THE ID. AO HAS NOT TAKEN EFFORTS TO ESTABL ISH THAT THE DOCUMENTS PRODUCED BEFORE HIM ARE MISLEADING OR FRA UDULENT. IT IS ALSO A FACT THAT BY SIGNING THE DOCUMENTS SHE TAKES FULL PERSONAL RESPONSIBILITY OF THE CORRECTNESS OF THE CONTENTS O F THE DOCUMENTS. SOME SUCH DOCUMENTS PRODUCED DURING APPELLATE PROCE EDINGS ARE AS UNDER: ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 14 SR. NO. NATURE OF DOCUMENTS 1. APPLICATION FOR INDUSTRIAL PLOT TO MIDC 2. APPLICATION FOR POWER SUPPLY TO M.S.E.B. 3. POSSESSION RECEIPTS FOR PURCHASE OF PLOT NO A-6 & A-7 IN MIDC INDUSTRIAL AREA, NAYPUR DT. 14. 03. 2011 4. PAPERS REGARDING A GRATUITY SCHEME FOR THE EMPLOYEES 5. CORRESPONDENCE WITH STATE BANK OF INDIA, HINGNA INDUSTRIAL ESTATE BRANCH, NAGPUR 6. APPLICATION FOR AMENDMENT IN EM TO DISTRICT INDUSTRIES CENTRE 7. TRIPARTITE AGREEMENT WITH MIDC & SBI 8. MINUTES OF MANAGEMENT REVIEW MEETING WITH GENERA! MANAGER, MANAGER MARKETING, WORKS MANAGER & MANAGEMENT REPRESENTATIVE 9. DEED OF ASSIGNMENT CUM SALE DT. 22.03.2011 FOR PURCHASE OF PLOT NO. D57 MIDC, HINGNA ROAD, NAGPUR FROM RAJ WIRE INDUSTRIES, NAGPUR 10. WAGES REGISTER SINGED BY MRS. SORNAN MONTHLY 7.1 THE APPELLANT HAD SUBMITTED ABOVE EVIDENCES TO ESTA BLISH THE FACT THAT MRS. SOMAN IS ACTIVELY INVOLVED IN THE BU SINESS ACTIVITY OF THE FIRM AND THE SAME HAVE BEEN PERUSED. PERUSAL OF THE SAID DOCUMENTS CLEARLY ESTABLISHES THE FACT THAT THE APP ELLANT IS INVOLVED IN VARIED ACTIVITIES AND HAS TAKEN RESPONSIBILITIES OF VARIOUS TYPES AND IS COMPLETELY INVOLVED IN THE BUSINESS OF THE F IRM. THE DOCUMENTS PRODUCED INCLUDES APPLICATIONS MADE BEFOR E THE STATUTORY / PRIVATE AUTHORITIES LIKE MIDC, MSEB, ST ATE BANK OF INDIA ETC. THE APPELLANT HAS ALSO PRODUCED COPIES OF WAGE REGISTER, WHICH IS DULY SIGNED BY MRS. SOMAN. ALSO OTHER DOCUMENTS LIKE POSSESSION ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 15 RECEIPT FOR PURCHASE OF PLOT, MINUTES OF REVIEW MEE TING, DEED OF ASSIGNMENT CUM SALE FOR PURCHASE OF PLOT ETC. HAVE BEEN FILED. THESE DOCUMENTS CLEARLY ESTABLISH THE ACTIVE AND CO NTINUOUS ROLE OF MRS. SOMAN IN ALMOST ALL FACETS OF ORGANIZATION WOR K. SPECIAL MENTION MAY BE MADE OF MINUTES OF MANAGEMENT REVIEW MEETING WHEREIN IN THE PRESENCE OF MRS. SOMAN WIDE VARIETY OF SUBJECTS HAVE BEEN DISCUSSED. THUS, THE ABOVE DOCUMENTS PRODUCED BY THE APPELLANT CLEARLY ESTABLISH THE ACTIVE INVOLVEMENT OF MRS. SOMAN IN THE FIRM. 8. IT IS ALSO A FACT THAT THE PARTNERS IN A FIRM AR E JOINTLY AND SEVERALLY LIABLE FOR ACTS OF OTHER PARTNER. THE LIABILITY OF EACH PARTNER IS UNLIMITED. BOTH THE PARTNERS HAVE TAKEN RISK LIABIL ITIES AND UNCERTAINTIES OF BUSINESS AND IF THERE IS ACCIDENT, THEFT, FIRE, DISABILITY / DEATH OF WORKER IN FACTORY OR A CRIMIN AL CASE BOTH THE PARTNERS ARE JOINTLY AND SEVERALLY LIABLE. IT IS AL SO A FACT THAT FOR ALL PRACTICAL PURPOSES MRS. SOMAN IS INDIVIDUALLY LIABL E UNDER LABOUR LAWS LIKE PF ACT, TAX LAWS LIKE EXCISE ACT, MAHARAS HTRA VAT ACT, CST ACT, AND FACTORY ACT ETC. AND SHE IS ALSO LIABL E FOR THE BANK LOAN TAKEN BY THE.FIRM.-IN THAT SENSE ALSO IT WOULD BE U NFAIR IF THE REMUNERATION IS MEASURED ONLY BASED ON TIME GIVEN B Y EACH PARTNER FOR DAY TO DAY WORKING OF THE FIRM AS THE BUSINESS RISKS AND LIABILITIES OF EACH PARTNER ALSO HAVE TO BE TAKEN I NTO CONSIDERATION FOR DECIDING THE ALLCWABILITY OF REMUNERATION TO THE PA RTNER. 9. THE LAST ARGUMENT OF THE APPELLANT IS ALSO A VAL ID ARGUMENT. IT IS STATED THAT CHANGES HAVE BEEN MADE IN THE PARTNERSH IP W.E.F. 1ST OCT. 2013 AND THE RESPECTIVE SHARES NOW ARE AS UNDE R :- MRS. MANJUSHREE SORRIAN 70% MR. SHANTANU.SOMAN (SON) 15% MR. SHAUNAK SOMAN (SON) 15% 9.1 IT IS STATED THAT MR. SUDHIR SOMAN HAS SINCE RE TIRED FROM PARTNERSHIP FIRM W.E.F 01.10.2013 AND THAT THEREFOR E THE ASSESSE FIRM IS BEING CURRENTLY RUN MAINLY BY MRS. MANJUSHR EE SOMAN (HAVING 70% SHARE IN PROFIT / LOSS) AS MAIN WORKING PARTNER HAVING 90% SHARE IN REMUNERATION. THERE IS MERIT IN THE SU BMISSION AS THIS STRONGLY INDICATES THAT MRS. SOMAN WAS ACTIVELY ENG AGED IN BUSINESS OF THE ASSESSEE FIRM FROM THE VERY BEGINNI NG. 10. TAKING INTO CONSIDERATION THE ABOVE TOTALITY OF FACTS OF THE CASE AND THE CLEAR JUDICIAL POSITION ON THE ISSUES CONCE RNED, THE ACTION OF THE ID. AO OF DISALLOWING THE CLAIM OF REMUNERATION TO THE PARTNER MRS. SOMAN IN EACH OF THE YEARS IS HELD TO BE INCOR RECT AND CONSEQUENTLY THE ADDITIONS MADE IN RESPECTIVE YEARS ARE HEREBY DELETED. CONSEQUENTLY THE DISALLOWANCES MADE OF RS. 12,00,000/-, ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 16 RS.32,81,326/-, RS.47,72,505/- & RS.68,66,620/- FOR ASSESSMENT YEARS 2006-07, 2007-08, 2008-09 & 2009-10 RESPECTIV ELY ARE HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED. 11. IN THE RESULT THESE FOUR APPEALS ARE HEREBY P ARTLY ALLOWED. 8. IN OUR VIEW, THE CIT(A) HAS WHILE DELETING THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER, HAS EXHAUSTIVELY AND EXTENSIVELY DEALT WITH WHETHER MRS.MANJUSHREE SOMAN CAN BE REGA RDED TO BE IN WHOLE TIME PARTNER OR NOT. HE HAS ALSO WHILE HOLDI NG IN FAVOUR OF THE ASSESSEE TAKEN INTO ACCOUNT RE-CONSTITUTED PARTNERS HIP DEED AMENDED WITH EFFECT FROM 01.10.2013. WE DO AGREE T HAT THE FINDING OF THE CIT(A) THAT WHETHER PARTNER IS WORKING OR NO T, NOT TO BE DECIDED ON THE BASIS OF THE TIME GIVEN BY EACH PART NER IN DAY TO DAY WORKING, BUT IT HAS TO BE DECIDED WITH OVERALL LIAB ILITIES, RESPONSIBILITIES AS WELL AS WORK UNDERTAKEN BY THE PARTNER. 9. IN OUR OPINION, THIS IS NOT A FIT CASE WHICH WAR RANT OUR INTERFERENCE. WE, ACCORDINGLY CONFIRMED THE ORDER OF THE CIT(A) BY ENDORSING THE FINDING GIVEN BY THE CIT(A). 4. AT THE TIME OF HEARING, LD SR DR COULD NOT POINT OUT ANY DIFFERENCE IN FACTS AND HENCE, RESPECTFULLY FOLLOWING THE EARLIER YEARS DECISION OF TRIBUNAL (CITED SUPRA), WE CONFIRM THE ORDER OF LD.CIT(A) DE LETING THE ADDITION. 5. IN THE RESULT, ALL THREE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH MARCH, 2018. SD/- SD/- (G.D.AGRAWAL) (MAHAVIR SINGH) HONBLE PRESIDENT JUDICIAL MEMBER DATED: 08 TH MARCH, 2018 *AMIT KUMAR* ITA NO. 296 & 297/NAG/2015 & 136/NAG/2017 PAGE | 17 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), NAGPUR 4. THE CIT, NAGPUR 5. THE DR, BENCH, ITAT, NAGPUR BY ORD ER ASSISTANT REGISTRAR ITAT, NAGPUR BENCH, NAGPUR