Speedways Rubber Co., Jalandhar V. The Dy. Commissioner of Income Tax, Jalandhar

ITA 322/ASR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8734 (ITAT-AMRITSAR)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: (CIRCUIT BENCH AT JALANDHAR) BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER, AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.322/ASR/2016 (ASSESSMENT YEAR-2010-11) SPEEDWAYS RUBBER CO. SUCHI PIND BYEPASS, JALANDHAR. PAN NO.AAEFS9575J (ASSESSEE) VS .. DY. CIT-CIRCLE, (1) JALANDHAR. (REVENUE) ASSESSEE BY SHRI . S.S. KALRA, AR. REVENUE BY SHRI BHAWANI SHANKAR,DR. ORDER PER, A. D. JAIN, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010- 11 AGAINST THE ORDER DATED 21.04.2016 PASSED BY THE LD. CIT(A). 2. VIDE ASSESSMENT ORDER DATED 28.03.2013, THE AO A LLOWED SALARY PAID TO PARTNER OF RS.2,40,000/- AGAINST THE CLAIM OF RS.26 ,04,067/-. THEREAFTER, A NOTICE U/S 154 OF THE I.T. ACT WAS ISSUED, SEEKING TO AMEN D THE ASSESSMENT ORDER BY DISALLOWING SALARY TO THE EXTENT OF RS.60,000/- AS ACCORDING TO THE AO, THE ALLOWABLE SALARY WORKED OUT TO RS.1,80,000/- AS PER THE DEED OF PARTNERSHIP OF THE DATE OF HEARING 20.01.2017 DATE OF PRONOUNCEMENT 22 .02.2017 I.T.A NO.322/ASR/2016 2 ASSESSEE. IN RESPONSE, THE ASSESSEE STATED THAT THE SALARY TO PARTNERS WAS GOVERNED BY CLAUSE 10(C) OF THE PARTNERSHIP DEED, WHICH HAD TO REMAIN WITHIN THE LIMITS PRESCRIBED BY SECTIONS 40A(1) AND 40A(2) OF THE ACT . HOWEVER, THE AO ADDED AN AMOUNT OF RS.60,000/- TO THE RETURNED INCOME OF THE ASSESSEE. AS BEFORE THE AO AND BEFORE THE LD. CIT(A) ALSO, THE ASSESSEE SUBMIT TED THAT THIS ISSUE WAS OUTSIDE THE PURVIEW OF SECTION 154 OF THE ACT, AS IT WAS A DEBATABLE ISSUE. THE LD. CIT(A), HOWEVER, CONFIRMED THE ORDER PASSED BY THE AO. 3. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE LD. CIT(A) HAS ERRED IN FAILING TO APPRECIATE THAT THE ORDER PASSED BY T HE AO U/S 154 OF THE ACT, IS ILLEGAL, SINCE THE ISSUE OF ALLOWABILITY OF SALARY TO THE PARTNERS WAS A DEBATABLE ISSUE; THAT THE LD. CIT(A) ALSO DID NOT TAKE INTO C ONSIDERATION THE FACT THAT ADD BACK U/S 154 OF THE ACT, ON ACCOUNT OF SALARY PAID TO PA RTNERS AMOUNTS TO A REVIEW OF THE ASSESSMENT ORDER, WHICH CANNOT BE DONE BY INVOKING THE PROVISIONS OF SECTION 154; THAT EVEN OTHERWISE, ON FACTS, THE SALARY PAID @ RS .2,40,000/- TO THE PARTNERS IS FULLY ALLOWABLE AS PER THE PROVISIONS OF SECTION 40 B OF THE I.T. ACT. 4. ON THE OTHER HAND, THE LD. DR HAS STRONGLY RELIE D ON THE IMPUGNED ORDER. 5. THE DEED OF PARTNERSHIP STATES RS.1,80,000/- TO BE THE ALLOWABLE SALARY. CLAUSE 10(C) (APB-9) OF THE PARTNERSHIP DEED STATES THAT THE WORKING PARTNER SHALL BE ENTITLED TO HAVE DRAWING ACCOUNT AND IN CASE THE TOTAL WITHDRAWAL DURING THE YEAR EXCEEDS OR DECREASES FROM THE AMOUNT OF REMUNE RATION PAYABLE TO HIM FINALLY I.T.A NO.322/ASR/2016 3 THE SAME SHALL BE ADJUSTED ACCORDINGLY, IF MUTUALLY AGREED. OBVIOUSLY, AS ALSO PROVIDED IN CLAUSE 10(C) OF THE DEED, THE SALARY SH ALL NOT EXCEED THE PROVISIONS PRESCRIBED IN SECTIONS 40(A)(I) AND 40A(2) OF THE A CT. HOWEVER, THE WITHDRAWALS OF THE WORKING PARTNERS WERE FAR IN EXCESS OF RS.1, 80,000/-, AS PER THE COPY OF ACCOUNT FURNISHED, THOUGH THEY REMAINED BELOW THE P ERMISSIBLE LIMIT. THIS DOES NOT STAND DISPUTED. AS CONTENDED, THE INCOME TAX ACT PR OVIDES FOR SPECIFICATION OF SALARY, BUT THE SAME CAN BE ADJUSTED WITH THE MUTUA L CONSENT OF THE PARTNERS, SO LONG AS IT REMAINS WITHIN THE PERMISSIBLE LIMIT. TH US, THE SALARY PAID WAS DIFFERENT FROM THE ONE AUTHORIZED, IN VIEW OF THE RIDER TO TH E MAIN CLAUSE CONCERN, AS CONTAINED IN THE PARTNERSHIP DEED. THEREFORE, EVIDE NTLY, THE ISSUE IS A DEBATABLE ISSUE, HAVING BEEN AGITATED BEFORE VARIOUS COURTS A ND THE TRIBUNAL. NOW, ONCE AN ISSUE IS DEBATABLE, THE PROVISIONS OF SECTION 154 O F THE ACT ARE NOT APPLICABLE THERETO, AS HELD BY THE HONBLE SUPREME COURT IN T S BALARAM VS. VOLKART BROS., 82 ITR 50 (SC). 6. THE LD. CIT(A), HOWEVER, HAS ERRED IN NOT TAKING THE ABOVE POSITION INTO CONSIDERATION AND HOLDING THAT THE ASSESSMENT ORDER , DID CONTAIN A MISTAKE APPARENT FROM RECORD, RECTIFIABLE U/S 154 OF THE ACT. THE RE ASONING ADOPTED BY THE LD. CIT(A) IS NOT IN ACCORDANCE WITH LAW, AS DISCUSSED HEREINABOVE. TO REITERATE, THE ISSUE BEING A DEBATABLE ONE, IT COULD NOT HAVE BEEN RECTIFIED BY INVOKING THE I.T.A NO.322/ASR/2016 4 PROVISIONS OF SECTION 154 OF THE ACT. THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD HAS MERIT. IT IS ACCEPTED. THE ORDER UNDER APPEAL I S REVERSED. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON22/02/2017. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN ) ACCOUTANT MEMBER JUDICIAL MEMBER DATED 22 /02/2017 *AKV* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT BY ORDER AR/SR.P.S./P.S.