M/S. Nibhas Sinha, Kolkata V. ACIT, Circle-3, Suri, Birbhum

ITA 353/KOL/2022

AI Insights

The case involves an appeal by M/s. Nibhas Sinha against the order of the PCIT, Burdwan, which set aside the original assessment order passed by the AO under section 143(3) of the Income Tax Act, 1961. The PCIT had found that the assessee firm paid remuneration to its partners in excess of the limit prescribed under section 40(b) of the Act. The Tribunal examined the supplementary partnership deed submitted by the assessee, which clarified the terms of remuneration to the partners, and found that the PCIT had erred in not considering this document during the revisionary proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122906 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-12-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDIPTA GUHA
• Keywords: Revision of order; Assessment record; Set aside
• Section: 263; 143(3); 40(b); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘B’, KOLKATA [Before Dr. Manish Borad, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 353/Kol/2022 Assessment Year : 2012-13 M/s. Nibhas Sinha PAN: AADFN 6908 P Vs. ACIT, CIRCLE-3, Suri, Birbhum Appellant Respondent Date of Hearing 07.12.2022 Date of Pronouncement 03.03.2023 For the Assessee Shri Rajeev Kumar, Advocate For the Revenue Shri Sudipta Guha, CIT, DR ORDER Per Shri Sonjoy Sarma, JM: This appeal of the assessee for the assessment year 2012-13 is directed against the order dated 22.03.2017 passed u/s 263 of the Income-tax Act by the ld. PCIT, Burdwan which is arising out of order passed by the ACIT, Circle-3, Suri, Birbhum vide order dated 14.07.2014 u/s 143(3) of the Act. The assessee has raised following grounds of appeal: “i. That under the facts and in the circumstances of the case, the ld. PCIT, Burdwan erred in setting aside the order dated 14.07.2014 u/s 143(3) of the Income-tax Act, 1961 passed by the AO holding the same to be erroneous so far as it was prejudicial to the interest of revenue in terms of section 263 of the Income-tax Act, 1961. The order, so passed, is unjustified and therefore need to be quashed. ii. That under the facts and in the circumstances of the case, the ld. PCIT, Burdwan erred in determining a sum of Rs. 10,56,000/- to be excess remuneration paid to the partners in terms of the provisions of section 40(b) of the Income-tax Act, 1961. iii. The assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.” 2 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha 2. Brief facts of the case are that in the case of assessee, the ld. AO has passed an order u/s 143(3) for the A.Y. 2012-13 by determining the income of the assessee at Rs. 26,91,190/- as against the return of income of Rs. 22,37,270/-. Subsequently, the ld. PCIT called for assessment records and invoke the jurisdictional revisionary power provided u/s 263 of the Act. During the course of examination of the record, the ld. PCIT has noticed that assessee firm has paid remuneration to the partners in excess limit prescribed u/s 40(b) of the Act. The extract portion of excess remuneration paid to the partners as alleged by ld. PCIT is as follows: Name of the Partner Annual Remuneration as per Clause 13 of partnership deed Remuneration debited in P/L A/c Excess Nibhas Chandra Sinha Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Namita Sinha Rs. 10,000/- x 12 = Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Mousumi Singha Roy Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Rakesh Sinha Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Total Rs. 10,56,000/- 3. According to ld. PCIT, he found that on excess amount of Rs. 10,56,000/- has been paid by the assessee firm which would have been disallowed by the ld. AO but he did not do so while framing the assessment order therefore, ld. PCIT reviewed the assessment order passed by the ld. AO which according to him was erroneous and prejudicial to the interest of revenue. Ld. PCIT has issued statutory notice upon the assessee in relation to the above facts in response to such show cause notice, the AR of the assessee has submitted a written reply stating as follows: 3 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha " We are in receipt of the above mentioned notice wherein it is mentioned that the partners salary /remuneration to its four partners of Rs. 15,36,000/- is not in accordance with the terms of partnership deed that was effective from 01.04.2007. We would like to inform your good-self that the partnership deed as mentioned earlier along with the Supplemental Deed made on 04 April 2008 was placed on record as required by then Assessing Officer during scrutiny assessment u/s. 143(3) of the act. The matter was raised during scrutiny assessment and proper explanation and required Deed of Partnership along with the Supplemental Deed as discussed above was furnished to the satisfaction of the Assessing Officer. The Supplemental Deed clearly discusses the matters relating to clause 13 and clause 11 of page "6” of the Deed of Partnership dated 24"' March, 2008 which are contradictory and accordingly clause 13 of the said deed was deleted. Hence, the partners shall be entitled to draw salary or remuneration as per the limit laid down under section 40(b) of the Income Tax Act 1961. Hence, the partners remuneration of Rs. 15,36,000/- paid to working partners of the firm was within the limits as laid down in section 40(b) of the act and is also authorized and in accordance with the terms of the partnership deed. Hope the above will meet your valued satisfaction. If anything more is needed that may kindly be intimated for proper compliance.” 4. However, the ld. PCIT did not satisfy with the submission made by the ld. AR before him and he has passed an order by which he setting aside the assessment order passed u/s 143(3) by observing as follows: 5. I have considered the above written submission. As regards the payment of remuneration to partners as per the amended partnership deed dated 04/04/2008, on examination of the en ire assessment records, no such amended partnership deed is found to be submitted during the course of assessment proceeding. No explanation in this regard is also found in the assessment records as claimed by the assessee that the same was submitted by him 4 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha during assessment proceedings to me satisfaction of the AO. In the assessment records, only one partnership deed dated 01.04.2007 is found and as per this partnership deed, amount of remuneration payable to each partner is as under:- Nibhas Chandra Sinha @ Rs. 10,000/- p.m Namita Sinha @ Rs. 10,000/- p.m. Mousumi Singha Roy @ Rs. 10,000/- p.m. Rakesh Sinha @ Rs. 10,000/- p.m. Therefore, the amended partnership deed dated 04/04/2008. now submitted by the assessee vide his letter dated 14/03/2017 could not be taken on record as not being available in the assessment records because as per the definition of "record" given in the provision of section 263. record shall include and shall be deemed always to have included all record; relating *o any proceedings under this Act available at the time of examination by the PCIT/CIT. Since the assessment record examined by me before issuing of notice date 06/03/2017 did not contain the amended partnership deed dated 04/04/2008, this amended partnership deed filed by the Id. A/R along with the written submission, could not be considered. Therefore, the plea of the d A/R justifying the excess payment of remuneration to the partners on the basis of amended partnership deed has not been found to be as per Law and hence, the same is rejected and it has been decided to disallow the payment of excess remuneration to partners computed in a tabular form in the above para no. 2 amounting to Rs. 10,56,000/-. 6. In view of my decisions in para 5 above, the assessment order dated 14/07/2014 is set aside and restored to the file of the AO to the extent of revising the original assessment order dated 14/07/2014 passed by the AO on the issue discussed by me in this order in para 3. While revising the said assessment order the AO shall do the needful in the following manner- (a) Excessive remuneration paid to partner in terms of provision of section 40(b) of the Act amounting to Rs.10,56,000/- shall be disallowed. 7. Accordingly, the original assessment order dated 14/07/2014 is set aside limited to the issue discussed in previous para no. 6. Other additions made in the original assessment order dated 14/07/2014 5 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha as reproduced in para no.1 shall remain intact and shall be added again while computing assessed income of the assessee in the revised order. 5. Aggrieved the assessee is now in appeal before the Tribunal raising 3 grounds of appeal out of which ground no. 3 is general in nature and remaining grounds are challenging the invocation of jurisdiction u/s 263 of the Act and also challenging the direction of the setting aside the assessment order. 6. At the time of hearing, ld. AR submitted before us that the impugned order passed u/s 263 of the Act is bad in law as the assessee has submitted a copy of supplementary partnership deed dated 04.04.2008 before the ld. AO to prove the fact that how enhancement amount of remuneration paid to its partners taken place and copy of the same was also filed before the ld. PCIT to controvert the fact. However, the ld. PCIT did not consider the documents placed before him and he simply set aside the assessment order dated 14.07.2014 passed by the ld. AO with the direction to excess remuneration paid to the partners amounting to Rs. 10,56,000/- shall be added to the income of the assessee by revising the order. On the other hand, ld. DR vehemently argued in support of the impugned order passed by the ld. PCIT. 7. We after hearing the rival submission of the parties and perused the material available on record. We find the following are the reasons for carrying out the revisionary order: 6 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha Name of the Partner Annual Remuneration as per Clause 13 of partnership deed Remuneration debited in P/L A/c Excess Nibhas Chandra Sinha Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Namita Sinha Rs. 10,000/- x 12 = Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Mousumi Singha Roy Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Rakesh Sinha Rs. 10,000/- x 12= Rs. 1,20,000/- Rs. 3,84,000/- Rs. 2,64,000/- Total Rs. 10,56,000/- Further on perusal of the impugned order, we noticed that the assessee has filed a copy of supplementary partnership deed dated 04.04.2008 before the ld. PCIT and in the said supplementary deed it had clearly discussed the matter relating to Clause 13 and Clause 11 at page 6 of the deed of partnership dated notarized on 24.03.2008 (executed on 01.04.2007) were contradictory in nature, therefore, Clause 13 of the said deed was deleted. Accordingly, the alleged excess remuneration of Rs. 15,36,000/- paid to the working partners are allowable according to the ld. AR. He further contended that copy of the said supplementary partnership deed was placed before the AO at the time of scrutiny assessment u/s 143(3) of the Act. But those facts were never considered by the ld. PCIT while passing the revisionary order. On the other hand, as per the findings of the ld. PCIT, we noticed that no explanation was found in the assessment record as claimed by the assessee to the fact that such supplementary deed was furnished by the assessee, in fact in the assessment record only partnership deed dated 01.04.2007 (notarized on 24.03.2008) was filed. We also noticed from the index of papers placed before us by the ld. AR which 7 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha contains the original partnership deed dated 01.04.2007 notarized on 24.03.2008 and supplementary deed dated 04.01.2008 respectively and in supplementary deed it has discussed the matter relating to clause 13 & clause 11 of page no. 6 of deed of partnership dated 01.04.2007 (notarized on 24.03.2008). Therefore, it is clearly indicate that the supplementary deed talks only about clauses of original partnership deed dated 01.04.2007 and in view of the supplementary partnership deed, partners shall be entitled to draw salary or remuneration as per the limit laid down u/s 40(b) of the Act and the ld. PCIT failed to advert the facts placed before him by the assessee. Therefore, we are not agree with the findings of the ld. PCIT and the revisionary action taken by the ld. PCIT cannot be sustained and we set aside the order passed by the PCIT hence grounds taken by the assessee are allowed. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 03.03.2023. Sd/- Sd/- (Manish Borad) (Sonjoy Sarma) Accountant Member Judicial Member Dated: 03.03.2023 Biswajit, Sr. PS 8 ITA No. 353/Kol/2022 AY: 2012-13 M/s. Nibhas Sinha Copy of the order forwarded to: 1. Appellant- M/s. Nibhas Sinha, 26A, Tulip Apartment, Charu Chandra Place (East), Charu Market, Kolkata – 700 033. 2. Respondent – ACIT, Circle-3, Suri, Birbhum. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata