Ganapati Sahu & Sons, Berhampur V. ITO, Ward-1, Berhampur, Berhampur

ITA 341/CTK/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4205 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUVENDU DUTTA
• Keywords: Business expenditure; Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK SMC BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER ITA NO. 341/CTK/2014 ASSESSMENT YEAR : 2009 - 2010 M/S. GANAPATI SAHU & SONS, NEAR : VENTATESWAR TEMPLE SQUARE, BEERAKE STREET, BERHAMPUR. VS. ITO, WARD - 1, BERHAMPUR PAN/GIR NO. AADFG 2636 F (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : NONE REVENUE BY : SHRI SUVENDU DUTTA , DR DATE OF HEARING : 23 /11 / 2016 DATE OF PRONOUNCEMENT : 23 /11 / 2016 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGA INST THE ORDER OF CIT(A) - BERHAMPUR , DATED 25.2.2014 , FOR THE ASSESSMENT YEAR 2009 - 2010 . 2. THE NOTICE OF HEARING WAS SENT TO THE ASSESSEE THROUGH LD D.R. A LETTER DATED 2.11.2016 HAS BEEN RECEIVED BY THE REGISTRY ON 8.11.2016 FROM ITO, WARD - 1, BERHAMPUR EVIDENCING THE SERVICE OF NOTICE OF HEARING ON THE ASSESSEE , WHICH IS PLACED ON RECORD . WHEN THE CASE WAS CALLED FOR HEARING, 2 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 NONE WAS PRESENT ON BEHALF OF THE ASSESSEE AND NEITHER ANY ADJOURNMENT PETITION WAS FILED. THEREFORE, THE BENCH PROCEE DED TO DISPOSE OF THE APPEAL OF THE ASSESSEE EXPARTE - QUA - THE ASSESSEE AFTER CONSIDERING THE SUBMISSIONS OF LD D.R. AND ON THE BASIS OF MATERIALS AVAILABLE ON RECORD. 3. THE APPEAL FILED BY THE ASSESSEE IS BARRED BY LIMITATION OF 95 DAYS. THE ASSESSEE HAS FILED CONDONATION PETITION DATED 26.8.2014 STATING THE CAUSE OF DELAY IN NOT FILING THE APPEAL WITHIN THE DUE DATE. AFTER GOING THROUGH THE CONDONATION PETITION, I FIND THAT THE ASSESSEE HAD REASONABLE CAUSE FOR NOT FILING THE APPEAL WI THIN THE STIPULATED TIME. LD D.R. DID NOT HAVE ANY OBJECTION FOR CONDONING THE DELAY. I, THEREFORE, CONDONE THE DELAY OF 95 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL AND ADMIT THE APPEAL FOR HEARING. 4. IN GROUND NOS.1 OF THE APPEAL, THE GRIEVANCE O F THE ASSESSEE IS THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITI ON OF R S.3,25,016/ - BEING SALARY AND COMMISSION PAID TO THE PARTNERS ALTHOUGH THE SAME IS WITHIN THE LIMIT PRESCRIBED U/S.40(B) OF THE I.T.ACT. 5. I HAVE HEARD LD D.R. AND PERUS ED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.40(B) ON ACCOUNT OF SALARY PAYMENT TO TWO PARTNERS @ RS.1,62,508/ - EACH TOTALING TO 3 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 RS.3,25,016/ - . REFERRING TO THE PARTNERSHIP DEED, HE OBSERVED THAT IN PARA 11 PAGE 4, IT HAS BEEN STATED THAT THE SALARY TO PARTNERS WILL BE PAID @ RS.2000/ - PER MONTH. THEREFORE, ACCORDING TO THE ASSESSING OFFICER, THE SALARY PAYABLE TO BOTH THE PARTNER S DURING THE YEAR IS RS.48,000/ - BUT THE ASSESSEE HAS SHOWN SALARY PAYMENT OF RS.3,25,016/ - . HE ALSO NOTED THAT AS PER COLUMN 12 OF THE DEED, IT IS STATED THAT THE PARTNERS SHALL BE FURTHER ENTITLED TO COMMISSION/BONUS AT THE END OF EACH YEAR, WHICH TOGET HER WITH THE REMUNERATION PAYABLE TO THE AFORESAID WORKING PARTNERS DURING THE YEAR SHALL BE EQUAL TO SUM COMPUTED ACCORDING TO THE METHOD OF COMPUTATION AS LAID DOWN IN SUB CLAUSE(V) OF CLAUSE (B) OF SECTION 40, READ WITH EXPLANATION 3 OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER NOTED THAT FROM THE ACCOUNTS OF THE ASSESSEE, IT IS NOT AT ALL APPARENT THAT THE EXCESS AMOUNT OF PAYMENT, THAN WHAT IS STIPULATED IN THE INSTRUMENT OF PARTNERSHIP, CONSTITUTES EITHER COMMISSION OR BONUS. HE, THEREFORE, D ISALLOWED THE ENTIRE AMOUNT OF RS.3,25,016/ - SHOWN UNDER THE HEAD SALARY. 6. ON APPEAL, LD CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT AS PER CAPITAL ACCOUNT FORMING PART OF BALANCE SHEET SHOWS THAT THE ENTIRE PAYMENT OF RS.3, 25,016/ - AS SALARY. 7. LD D.R. SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 4 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 8. I FIND THAT SECTION 40(B) OF THE I.T.ACT, 1961 PROVIDES THAT IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH (I) ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED (HEREINAFTER REFERRED AS REMUNERATION) TO ANY PARTNER WHO IS NOT A WORKING PARTNER; OR (II) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN EITHER CASE, IS NOT AUTHORIZED BY, OR IS NOT IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED, SHALL NOT BE ALLOWED DEDUCTION TO THE ASSESSEE. THUS, A READING OF THE PROVISION SHOWS THAT THE TOTAL REMUNERATION PAYABLE TO THE PARTNERS SHALL BE IN ACCORDANCE WITH THE PARTNERS DEED AND SHALL N OT EXCEED THE LIMIT PRESCRIBED U/S.40(B) OF THE ACT. IN THE INSTANT CASE, IT IS NOT DISPUTED BY THE LOWER AUTHORITIES THAT THE PARTNERS WERE NOT ENTITLED TO SALARY PER MONTH @ RS.2000/ - PER MONTH AND FURTHER COMMISSION/BONUS AT THE END OF THE YEAR, WHICH TOGETHER WITH THE REMUNERATION PAYABLE TO THE WORKING PARTNERS DURING THE YEAR SHALL BE EQUAL TO THE SUM COMPUTED ACCORDING TO THE METHOD OF COMPUTATION AS LAID DOWN IN SUB - CLAUSE(V) OF CLAUSE (B) OF SECTION 40, READ WITH EXPLANATION 3 OF THE INCOME TAX ACT, 1961. I FIND THAT EVEN AFTER EXAMINING THE PART NERSHIP DEED, WHEREIN IT IS PROVIDED THAT TWO PARTNERS SHALL BE ENTITLED TO SALARY @ RS.2000/ - PER MONTH EACH , THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION FOR RS.48,000/ - AS SALARY PAID TO TWO PARTNERS OUT OF THE TOTAL PAYMENT OF RS.3,25,016/ - , WHICH WA S DISALLOWED BY HIM. FURTHER, IT IS ADMITTED BY THE 5 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 ASSE SSING OFFICER AS WELL AS LD CIT (A) THAT IN THE PARTNERSHIP DEED, IT IS CLEARLY PROVIDED THAT TOTAL REMUNERATION PAYABLE SHALL NOT EXCEED THE COMPUTATION PROVIDED U/S.40(V)(B) OF THE ACT. IT IS ALSO NOT DISPUTED THAT THE REMUNERATION OF RS.3,25,016/ - PAID TO PARTNERS BY WAY OF SALARY, COMMISSION/BONUS, ETC DID NOT EXCEED THE LIMIT PRESCRIBED U/S.40(V)(B) OF THE ACT. THEREFORE, IN MY CONSIDERED OPINION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER A ND SUSTAINED BY THE LD CIT(A) ONLY ON THE GROUND THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS SHOWN THE ENTIRE REMUNERATION TO THE PARTNERS UNDER THE HEAD SALARY OF RS.3,25,016/ - IS NOT JUSTIFIED . IN MY CONSIDERED OPINION, FOR A DIFFERENT PRESE NTATION OF THE REMUNERATION PAID TO THE PARTNERS IN THE ACCOUNT, THE DISALLOWANCE CANNOT BE MADE AS PER LAW. I, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND VACATE THE DISALLOWANCE OF RS.3,25,016/ - AND ALLOW THE GROUND OF THE ASSESSEE. 9. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE LEGITIMATE BUSINESS EXPENSES OF RS.81,000/ - . 10. I HAVE HEARD THE LD D.R. AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED RS.2,50,722/ - UNDER THE HEAD OTHE R EXPENSES, OUT OF WHICH RS.1,0 6,000/ - HAS BEEN SHOWN AS DUSSEHRA DONATION AT DIFFERENT PLACES LIKE PHULBANI, PARELAKHEMUNDI, BOUDH AND TO 6 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 ASSESSES STAFF. THE ASSESSING OFFICER CONSIDERED SUCH DONATION TOWARDS DUSSEHRA EXPENSES AS NOT INCIDENTAL TO THE PURPOSE OF BUSINESS AND, ACCORDIN GLY, DISALLOWED THE SAME. 11. ON APPEAL, LD CIT(A) OBSERVED THAT THE ENTIRE AMOUNT OF RS. 1,06,000/ - HAS BEEN PAID AS DUSSEHRA DONATION AS PER LEDGER ACCOUNT. OUT OF THIS, AN AMOUNT OF RS.25,000/ - CONSISTING OF RS15,000/ - AND RS.10,000/ - HAS BEEN PAID TO S TAFF OF THE ASSESSEE. THE BALANCE AMOUNT HAS BEEN PAID AT BOUDH, PKD, PHULBANI GUG AND BSNL STAFF. NO FURTHER DETAIL IS AVAILABLE IN RESPECT OF THESE DONATIONS. THEREFORE, LD CIT(A) GRANTED RELIEF OF RS.25,000/ - WHICH WAS PAID TO STAFF AS DUSSEHRA DONATIO N, WHICH HE CONSIDERED IN THE NATURE OF BONUS/EXGRATIA AND CONFIRMED THE BALANCE AMOUNT OF RS.81,000/ - . 12. I FIND THAT THE LD CIT(A) AFTER ANALYZING THE ENTIRE FACTS OF THE ISSUE AT HAND HAS DELETED THE ADDITION OF RS.25,000/ - AND SUSTAINED THE ADDITION O F RS.81,000/ - OUT OF THE EXPENSES CLAIMED UNDER THE HEAD OTHER EXPENSES. HENCE, I FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF LD CIT (A), WHICH IS HEREBY CONFIRMED. HENCE, THIS GROUND OF THE ASSESSEE IS DISMISSED. 13. GROUND NO.3 OF THE APPEAL I S DIRECTED AGAINST SUSTAINING THE DISA LLOWANCE OF FREIGHT CHARGES OF R S.10,000/ - AND TRAVELLING EXPENSES OF RS.12,873/ - . 7 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 14. I HAVE HEARD LD D.R. AND PERUSED THE ORDERS OF AUTHORITIES BELOW AND MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE HAS CLAIMED FREIGHT CHARGES OF RS.23,263/ - IN THE P&L ACCOUNT. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEES BUSINESS CONSTITUTES SALE OF MOBILE PHONE , SIM CARDS AND RECHARGE VOUCHERS OF BSNL, WHICH CAN BE CARRIED IN A SMALL BAG OR S UIT CASE AND FOR WHICH INCURRING FREIGHT CHARGES IS NOT NECESSARY. THEREFORE, HE DISALLOWED RS.23,263/ - . FURTHER, HE OBSERVED THAT THE ASSESSEE HAS CLAIMED TRAVELLING EXPENSES OF RS.1,28,726/ - . THE ASSESSING OFFICER OBSERVED THAT THE EXPENSES ARE NOT PRO PERLY VOUCHED, THEREFORE, HE MADE AN ESTIMATED DISALLOWANCE AT RS.20,000/ - . 15. ON APPEAL, LD CIT(A) OBSERVED THAT THE SUBMISSION OF THE ASSESSEE IS THAT IT WILL INCUR SOME EXPENSES BY WAY OF PAYMENT TO THE PLYING BUSES TO CARRY THE RECHARGE VOUCHERS. THE EXPENDITURE HAS BEEN CHARACTERIZED BY THE ASSESSEE AS FREIGHT. LD CIT(A) OBSERVED THAT COMPLETE DETAILS AND VOUCHERS ARE NOT FURNISHED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM, THEREFORE, SOME DISALLOWANCE IS IN ORDER. THEREFORE, HE RESTRIC TED THE DISALLOWANCE OF FREIGHT EXPENSES TO RS.10,000/ - AS AGAINST THE DISALLOWANCE OF RS.23,263/ - MADE BY THE ASSESSING OFFICER AND REGARDING THE TRAVELLING EXPENSES, LD CIT(A) RESTRICTED THE DISALLOWANCE TO 10% OF THE CLAIM. HENCE, HE SUSTAINED THE DI SALLOWANCE OF RS.12,873/ - AND GRANTED RELIEF OF RS.7,127/ - TO THE ASSESSEE. 8 ITA NO. 341/CTK/2014 ASSESSMENT YEAR :2009 - 2010 16. I FIND THAT THE LD CIT(A) AFTER ANALYZING THE ENTIRE FACTS OF THE ISSUE AT HAND HAS RESTRICTED THE FREIGHT EXPENSES AT RS.10,000/ - AND 10% OF THE CLAIM SO FAR AS TRAVELLING EXP ENSES, WHICH WORKED OUT TO RS.12,873/ - . HENCE, I FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF LD CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 17 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCE D IN THE OPEN COURT ON 23 / 11 /2016 IN THE PRESENCE OF PARTIES. S D / - ( N.S SAINI) A CCOUNTANT MEMBER CUTTACK; DATED 23 /11 /2016 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASST.REGISTRAR, ITAT, CUTTACK 1. THE APPELLANT : M/S. GANAPATI SAHU & SONS, NEAR : VENTATESWAR TEMPLE SQUARE, BEERAKE STREET, BERHAMPUR. 2. THE RESPONDENT. ITO, WARD - 1, BERHAMPUR 3. THE CIT(A) , BERHAMPUR 4. CIT , BHUBANESWAR. 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//