M/s Navyug Industries, Haridwar V. DCIT, Haridwar

ITA 3302/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4779 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 25-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANCHAL KHANDELWAL
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT ITA NO.3302/DEL/2017 ASSESSMENT YEAR : 2013-14 NAVYUG INDUSTRIES, PLOT NO.56-59, SIDCUL, HARIDWAR. PAN: AAFFN8290E VS. DCIT, CIRCLE, HARIDWAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVINDER RATRA, CA DEPARTMENT BY : SHRI ANCHAL KHANDELWAL, SR. DR DATE OF HEARING : 12.09.2017 DATE OF PRONOUNCEMENT : 13.09.2017 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 20.02.2017 IN RELATION TO T HE ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAIN ST THE CONFIRMATION OF DISALLOWANCE OF RS.1,83,467/- MADE BY THE AO U/S 40(B) OF THE ITA NO.3302/DEL/2017 2 INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) ON ACCOUNT OF BONUS PAID TO THE PARTNERS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE PAID SALARY OF RS.1,20,000/- EACH TO ITS PARTNERS, NAMELY, SHRI ANUPAM GULATI AND SHRI MADHUR GULATI. THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE ALSO PAID BONUS TO ITS PARTNERS, RS.1,71,138/- TO SHRI A NUPAM GULATI AND RS.12,336/- TO SHRI MADHUR GULATI. ON CONSIDERING T HE RELEVANT CLAUSE OF THE PARTNERSHIP DEED PROVIDING FOR SALARY TO EACH P ARTNER AT RS.1,20,000/- PER ANNUM, THE ASSESSING OFFICER DISALLOWED BONUS P AID TO THE PARTNERS, AS BEING NOT AUTHORIZED BY THE PARTNERSHIP DEED. T HIS RESULTED INTO AN ADDITION OF RS.1,83,467/-. THE LD. CIT(A) UPHELD T HE ADDITION. THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITION. 4. I HAVE HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD. BEFORE EXAMINING THE DEDUCTIBILITY OR OTHE RWISE OF BONUS PAID BY THE ASSESSEE TO ITS PARTNERS, WHICH IS THE SUBJE CT MATTER OF DISALLOWANCE, IT IS RELEVANT TO GO THROUGH THE RELE VANT CLAUSE OF THE PARTNERSHIP DEED, WHICH READS AS UNDER:- ITA NO.3302/DEL/2017 3 12. REMUNERATION: THAT IT IS AGREED BETWEEN THE PA RTIES THAT BOTH THE PARTNERS SHALL BE WORKING PARTNERS AND SHALL BE ACT IVELY ENGAGED IN CONDUCTING THE AFFAIRS OF THE BUSINESS OF THE PARTNERSHIP FIRM . IT IS HEREBY AGREED THAT IN CONSIDERATION OF THE SAID PARTIES, KEEPING THEMSELV ES ACTIVELY ENGAGED IN THE BUSINESS OF THE PARTNERSHIP FIRM AND WORKING AS WOR KING PARTNERS, SHALL BE ENTITLED TO SUCH REMUNERATIONS AS MAY BE MUTUALLY A GREED UPON FROM TIME TO TIME AND SHALL BE WORKED OUT AS UNDER: THE REMUNERATION PAYABLE TO EACH WORKING PARTNERS S HALL BE AS UNDER: SH ANUPAM GULATI RS.10,000/- P.M. SH MADHUR GULATI RS.10,000/- P.M. HOWEVER REMUNERATION PAYABLE TO THE PARTNERS SHALL NOT EXCEED AMOUNT WORKED AS UNDER: (A) IN THE CASE OF LOSS OR BOOK PROFIT UPTO RS.75,000 R S.50,000/- OR 90% OF THE BOOK PROFIT WHICHEVER IS HIGHER (B) ON THE AMOUNT OF BOOK PROFIT EXCEEDING RS.75,000, BUT NOT EXCEEDING RS.150,000/ - FOR THE YEAR 60% OF THE EXCESS OVER RS.75,000/ - (C) ON THE BOOK PROFIT EXCEEDING RS.1,50,000/- 40% OF T HE EXCESS OVER RS.1,50,000/- HOWEVER FOR THE PURPOSE OF ABOVE CALCULATION THE BO OK PROFIT SHALL BE CALCULATED ON THE BASIS OF THE PROF IT AS SHOWN BY THE BOOKS AND COMPUTED AS PROVIDED UNDER SECTION 28 TO 44 OF THE INCOME TAX ACT, 1961 WITHOUT DEDUCTING TH E REMUNERATION PAID/PAYABLE TO THE PARTNER. 5. IT IS APPARENT FROM THE ABOVE CLAUSE OF THE PART NERSHIP DEED THAT THOUGH REMUNERATION HAS BEEN FIXED AT RS.10,000/- P ER MONTH TO EACH PARTNER IN THE SECOND PART OF THE CLAUSE, BUT, THER E IS ALSO A PROVISION IN THE FIRST PART OF THE CLAUSE THAT THE PARTNERS SHA LL BE ENTITLED TO SUCH REMUNERATION AS MAY BE MUTUALLY AGREED UPON FROM TI ME TO TIME. THE ITA NO.3302/DEL/2017 4 THIRD PART OF THE CLAUSE OF THE PARTNERSHIP DEED RE STRICTS THE REMUNERATION PAYABLE IN TERMS OF THE LANGUAGE OF SECTION 40(B) O F THE ACT. THUS, IT IS EVIDENT THAT THE PARTNERSHIP DEED CLEARLY PROVIDES THAT THE FIRM MAY PAY REMUNERATION TO THE PARTNERS AS MAY BE MUTUALLY AGR EED UPON. THE SECOND PART OF CLAUSE PROVIDING FOR PAYMENT OF RS .10,000/- PER MONTH TO EACH OF THE PARTNERS IS SUBJECT TO THE REMUNERA TION AS MAY BE MUTUALLY AGREED UPON. ON A CONJOINT READING OF TH E THREE PARTS OF THE CLAUSE, IT BECOMES APPARENT THAT THOUGH THERE IS A FIXED SALARY CLAUSE OF RS. 10,000 P.M. TO EACH PARTNER, BUT IT IS NOT THE FINAL AMOUNT AND THE FIRM CAN PAY HIGHER REMUERATION AS MAY BE MUTUALLY AGREED UPON. HOWEVER, THE ULTIMATE CAP IS THAT THE AMOUNT PAID I N TOTAL CANNOT EXCEED THE LIMITS SET OUT IN SECTION 40(B) OF THE ACT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE TOTAL REMUNERATION PAID BY THE ASSESSEE TO ITS PARTNERS INCLUDING BONUS, EXCEEDED THE MAXIMUM AMOU NT IN TERMS OF SECTION 40(B) OF THE ACT. UNDER THESE CIRCUMSTANCE S, I AM SATISFIED THAT BONUS PAID TO THE PARTNERS AMOUNTING TO RS.1,83,476 /- CANNOT BE DISALLOWED. SETTING ASIDE THE IMPUGNED ORDER, I OR DER FOR THE GRANTING OF THE DEDUCTION AS CLAIMED. ITA NO.3302/DEL/2017 5 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.09.2017. SD/- [R.S. SYAL] VICE PRESIDENT DATED, 13 TH SEPTEMBER, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.