Balaji Enterprisers, Bhubaneswar V. ITO, Bhubaneswar

ITA 324/CTK/2012

• Counselvise Citation: 32422114 RSA 2012
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Keywords: Additional evidence

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 324 /CTK/2012 / ASSESSMENT YEAR 2007 - 08 BALAJI ENTERPRISERS, PLOT NO.1636, FISHERI LANE, CENAL ROAD, CHINTAMANISWAR, BHUBANESWAR,ODISHA 751 006. PAN: AADFB 6373 L - - - VER SUS - INCOME - TAX OFFICER, WARD 1(2), BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : NONE / FOR THE RESPONDENT: / SHRI S.C.MOHANTY, DR / DATE OF HEARING: 08.11.20 12 / DATE OF PRONOUNCEMENT: 30.11.2012 / ORDER . . . , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DT.29.2.2012 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE AS SESSMENT YEAR 2007 - 08. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. NEITHER ANY PETITION SEEKING ADJOURNMENT WAS MOVED. THEREFORE, THE APPEAL WAS HEARD EXPARTE QUA ASSESSEE AND THE LEARNED DR WAS HEARD. 3. GROUND NO.1 RELATES TO CONFIRMATION OF THE DISALLOW ANCE OF 70,000 PAID AS PARTNERS REMUNERATION. 3.1. AFTER HEARING THE LEARNED DR AND GOING THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THE SAID CLAIM OF THE ASSESSEE HOLDING THAT CLAUSE 13 OF THE PARTNE RSHIP DEED IS IN VOLITION OF THE PROVISIONS OF SECTION 40(B) OF THE I.T.ACT READ WITH CIRCULAR NO.739 DT.25.3.1996 AND THE LEARNED CIT(A) HAS UPHELD THE SAME. I.T.A.NO. 324 /CTK/2012 2 IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS CONTENDED THAT SECTION 40 ( B)(V) ALLOWS A DEDUCTION OF PAYMENT OF REMUNERATION TO A WORKING PARTNER IF IT AUTHORIZED BY THE PARTNERSHIP DEED AND NOT IN EXCESS OF THE LIMIT. S. 40(B) (V) DOES NOT LAY - DOWN ANY CONDITION THAT THE PARTNERSHIP DEED SHOULD FIX THE REMUNERATION OR THE METHOD OF QUANTIFYING REMUNERATI ON. ACCORDINGLY, CBDT CIRCULAR NO. 739 DATED 25.3.1996 WHICH REQUIRES THAT EITHER THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL SHOULD BE FIXED IN THE AGREEMENT OR THE PARTNERSHIP DEED SHOULD LAY DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. TH IS HAS BEEN DECIDED IN CASE OF M/S DURGA DASS DEVKI NANDAN VS. ITO, HP HIGH COURT (108.3 KIB 791 DLS) . A PARTNERSHIP DEED WHICH PROVIDES THAT THE REMUNERATION WOULD BE AS PER THE PROVISIONS OF THE ACT MEANING THEREBY THAT THE REMUNERATION WOULD NOT EXCEED THE MAXIMUM REMUNERATION PROVIDED IN THE ACT IS VALID AND DEDUCTION IS ADMISSIBLE. AS CAN BE SEEN FROM THE ASSESSMENT ORDER AT PAGE 2, THE ASSESSING OFFICER HAS EXTRACTED THE GIST OF CIRCULAR NO.739 DT.25.3.1996.THE SAID CIRCULAR CATEGORICALLY STATES THAT SINCE THE AMENDED PROVISIONS OF SECTION 40(B) HAVE BEEN INTRODUCED ONLY W.E.F. THE ASSESSMENT YEAR 1993 - 94 AND THESE MAY NOT HAVE BEEN UNDERSTOOD CORRECTLY, LIBERAL APPROACH MAY BE TAKEN FOR THE INITIAL YEARS. SO, FOR THE AYS 1993 - 94 TO 1996 - 97 DEDUCTION F OR REMUNERATION TO A WORKING PARTNER MAY BE ALLOWED ON THE BASIS OF CLAUSES OF THE PARTNERSHIP DEED IN QUESTION. IN CASE WHERE NEITHER THE AMOUNT HAS BEEN QUANTIFIED NOR EVEN THE LIMIT OF TOTAL REMUNERATION HAS BEEN SPECIFIED BUT THE SAME HAS BEEN LEFT TO BE DETERMINED BY THE PARTNERS AT THE END OF THE ACCOUNTING PERIOD, IN SUCH CASES PAYMENT OF REMUNERATION TO PARTNERS CANNOT BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF FIRMS INCOME. FOR THE ASSESSMENT YEARS SUBJECT TO THE ASSESSMENT YEAR 1996 - 96, NO DE DUCTION UNDER SECTION 40(B)(V) WILL BE ADMISSIBLE UNLESS THE I.T.A.NO. 324 /CTK/2012 3 PARTNERSHIP DEED EITHER SPECIFIES THE AMOUNT OF REMUNERATION PAYABLE TO EACH INDIVIDUAL WORKING PARTNER OR LAYS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. IN THE PRESENT CASE, THE ASSESSIN G OFFICER HAS RELIED ON CLAUSE 13 OF THE PARTNERSHIP DEED WHEREIN IT WAS CATEGORICALLY NOTED THAT BOTH THE WORKING PARTNERS WILL BE ENTITLED TO COMMISSION BONUS OF THE PROFITS OR EXCESS PROFITS TO BE SHARED EQUALLY BUT SUCH COMMISSION BONUS ALONG WITH SALA RY SHALL NOT EXCEED THE CEILING LAID DOWN IN SECTION 40(B) OF THE I.T.ACT CALCULATED IN THE MANNER AS FOLLOWS: BOOK PROFIT REMUNERATION (I) ON THE FIRST RS.75,000 OF THE BOOKPROFIT. HIGHER OF RS.50,000 OR AT THE RATE OF 900% (II) ON THE NEXT RS.75,000 O F THE BOOK PROFIT AT THE RATE OF 60% (III) ON THE BALANCE OF THE BOOK PROFIT AT THE RATE OF 40% FROM THIS CLAUSE, IT IS CLEAR THAT THERE IS SPECIFIC DETERMINATION OF THE PROFITS TO BE SHARED BY THE PARTNERS AS WELL AS THE REMUNERATION PAYABLE TO THE PAR TNERS. SO IT CANNOT BE SAID THAT THE REMUNERATION TO THE PARTNERS WAS NOT QUANTIFIED IN THE PARTNERSHIP DEED. THEREFORE, THE VIEW TAKEN BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) IS NOT SUSTAINABLE FOR LEGAL SCRUTINY. WE, THEREFORE, SET A SIDE THE FINDING OF THE LOWER AUTHORITIES ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE REMUNERATION PAID TO PARTNERS AS CLAIMED BY THE ASSESSEE. GROUND NO.1 IS ALLOWED. 4. GROUND NO.2 RELATES TO CONFIRMATION OF THE ADDITION OF RS.9,47,863 ON ACCOUNT OF BOGUS CREDITORS. 4.1. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE AUTHORITIES BELOW, DURING THE ASSESSMENT PROCEEDINGS ON VERIFICATION OF THE ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THE ASSESSEE TO HAVE SHOWN BALANCES OF RS 1,83 ,070/ - IN CASE OF M/S VICIEOCON INDUSTRIES , RS 3,59,280/ - IN CASE OF M/S MAHAVIR ENTERPRISERS AND RS 4 , 04 513/ - IN CASE OF M/S USHA INTERNATIONAL. THE ASSESSING OFFICER OBSERVED THAT M/S. VIDEOCON INDUSTRIES HAS CONFIRMED I.T.A.NO. 324 /CTK/2012 4 NIL BALANCE VIDE DT.17.12.2009 WHE REAS THE CREDIT SHOWN IN THE BOOKS OF THE ASSESSEE IS RS.1,83, 070. IN THE CASE OF MAHAVIR ENTERPRISERS NO INFORMATION COULD BE GATHERED BY THE ASSESSING OFFICER A S IT WAS REPORTED THAT THE BUSINESS WAS CLOSED TWO YEARS BACK. A LETTER ISSUED TO USHA INTER N ATIONAL, CUTTACK WAS RETURNED UNSERVED W ITH POSTAL REMARK NOT KNOWN. ACCORDINGLY, THE ASSESSING OFFICER ADDED THE TOTAL AMOUNT OF RS.9,47,863 AS BOGUS CREDITS. ON APPEAL, THE ASSESSEE FURNISHED CONFIRMATION CERTIFICATES FROM THE CREDITORS, BUT THE LEARN ED CIT(A) DID NOT CONSIDER THE SAME ON THE GROUND THAT THOSE WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER AND NO REQUEST WAS MADE BY THE ASSESSEE TO ADMIT THE SAME AS ADDITIONAL EVIDENCE. WITH THESE OBSERVATIONS THE LOWER AUTHORITIES, IT IS CLEAR THAT T HE CREDITOS WERE NOT DISPUTED BY THE PARTIES EQUALLY. IT IS ONLY INTERPRETATION OF THE LOWER AUTHORITIES OF THE CONFIRMATION LETTERS. THEY HAVE NOT CARE D TO VERIFY THE GENUINENESS OF THESE CONFIRMATIONS BY REFERRING THE SAME TO THE CONCERNED PARTIES. THEREF ORE, SUCH TYPE OF APPRECIATION OF FACTS IS UNCALLED FOR WHILE ADMINISTRATION OF JUSTICE AND IT IS IN A WAY EQUALLY AGAINST THE PRINCIPLES OF APPRECIATION OF FACTS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE REASONS GIVEN BY THE LOWER AUTHORITIES FOR MAKING THIS IMPUGNED ADDITION IS NOT SUSTAINABLE FOR LEGAL SCRUTINY. THE IMPUGNED ORDER IN THIS REGARD IS SET ASIDE THE ADDITION IN QUESTION IS DIRECTED TO BE DELETED. GROUND NO.2 OF THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( ) DATE: 30.11.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRET ARY. I.T.A.NO. 324 /CTK/2012 5 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : INCOME - TAX OFFICER, WARD 1(2), BHUBANESWAR. 2 / THE RESPONDENT: BALAJI ENTERPRISERS, PLOT NO.1636, FISHERI LANE, CENAL ROAD, CHINTAMANISWAR, BHUBANESWAR,ODISHA 751 006. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 26.11.2012 . 2 . DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.11.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.11.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..