M/s. Ranvir Singh & Co., Rohtak V. ITO, Rohtak

ITA 3778/DEL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6975 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 18-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL SENIOR
• Section: 143(3); 54; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-I : NEW DELHI) BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER ITA NOS.3777 & 3778/DEL./2015 (ASSESSMENT YEARS : 2008-09 & 2010-11) SHRI RANVIR SINGH & CO., VS. ITO, WARD 3, C/O N.C. GARG CA, ROHTAK. M.G. ROAD, ROHTAK. (PAN : AABFR3757N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAUTAM JAIN, ADVOCATE REVENUE BY : SHRI ROBIN RAWAL, SENIOR DR DATE OF HEARING : 18.02.2016 DATE OF PRONOUNCEMENT : 19.02.2016 O R D E R THE ASSESSEE AGREED THAT IN BOTH THE APPEALS, THE ISSUE INVOLVED IS COMMON, THEREFORE, BOTH THESE APPEALS BE DECIDED ON THE BASIS OF THE FACTS INVOLVED IN THE ASSESSMENT YEAR 2008-09. 2. THE ONLY ISSUE INVOLVED IN BOTH THE APPEALS RELA TES TO WHERE THERE IS A MISTAKE APPARENT ON RECORD OR NOT IN THE ORDER OF THE AO PASSED U/S 143(3) BY ALLOWING THE SALARY TO THE PARTNERS IN AC CORDANCE WITH CLAUSE 10 READ WITH SECTION 40B(5) OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER THE ACT). ITA NO.3777 & 3778/DEL./2015 2 3. I HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONS IDERED THE SAME. I NOTED THAT IN THIS CASE, THE ASSESSEE FIRM CAME INT O EXISTENCE ON 01.04.1994 BY VIRTUE OF THE PARTNERSHIP DEED EXECUTED MENTIONE D THE PARTNERS ON 02.04.1994. CLAUSE 10 OF THE PARTNERSHIP DEED WHIC H DEALS WITH THE REMUNERATION PAID TO THE PARTNERS READ AS UNDER :- 10. THAT ALL THE PARTNERS ARE WORKING PARTNERS AND THEY SHALL BE ENTITLED TO SALARY OF RS.25,000/- P.A. EACH. HOWEVER, THE PARTIES RESERVE THE RIGHT TO ENHANCE OR REDUCE THE AMOUNT OF SALARY AT ANY TIME BY THEIR MU TUAL CONSENT ORAL OR WRITTEN. THE SALARY WILL BE CREDITED IN TH E ACCOUNTS OF THE PARTY AT THE CLOSE OF THE YEAR. FURTHER THE SA LARY PAYABLE TO PARTNERS SHALL NOT EXCEED THE AMOUNT ALLOWABLE U/S4 0-B OF THE I.T. ACT. THE REDUCTION IN SALARY, IF NEED BE, SHA LL PROPORTIONATE. THE AO IN ACCORDANCE WITH THE PARTNERSHIP DEED THE REMUNERATION TO BE PAID EACH OF THE PARTNER @ RS.25,000/- PER ANNUM. THE REMUNERATION PAID AMOUNTING TO RS.3,24,000/- AS DETAILED BELOW IN ACC ORDANCE WITH SECTION 40(B) :- SHRI RANVIR SINGH RS.90,000/- SHRI RAJINDER SINGH RS.30,000/- SHRI VIJENDER SINGH RS.30,000/- SHRI RAJESH KUMAR RS.30,000/- SHRI NARESH RS.48,000/- SHRI PARVESH RS.48,000/- SHRI RAM KISHAN RS.48,000/- TOTAL : RS.3,24,000/- AS PER SECTION 40(B), AS THIS REMUNERATION WAS ALLO WABLE THE AO, THEREFORE, ALLOWED THE SAME. SUBSEQUENTLY, THE AO INITIATED THE ITA NO.3777 & 3778/DEL./2015 3 PROCEEDINGS U/S 154 BY TAKING A VIEW ON THE BASIS O F THE DECISION IN THE CASE OF SOOD BRIJ & ASSOCIATES VS. CIT (2011) 203 TAXMAN 188 (DELHI) THAT A MISTAKE APPARENT ON RECORD HAS CREPT INTO TH E ASSESSMENT ORDER AND ACCORDINGLY, HE TOOK THE VIEW THAT EACH OF THE PART NER IS ENTITLED FOR REMUNERATION @ RS.25,000/- PER ANNUM AND ACCORDINGL Y, HE AFTER GIVING THE SHOW CAUSE NOTICE TO THE ASSESSEE DISALLOWED A SUM OF RS.1,49,000/- BY PASSING THE IMPUGNED ORDER DATED 22.11.2013 BY HOLD ING THAT A MISTAKE APPARENT ON RECORD HAS CREPT INTO THE ORDER OF THE AO. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A) AND THE CIT (A) CONFIR MED THE ACTION OF THE AO. 4. BEFORE ME, THE LD. AR SUBMITTED THE COPY OF THE ORDER OF THE HONBLE DELHI HIGH COURT (CITED SUPRA) AND CONTENDE D THAT THE ASSESSEE DOES NOT FALL WITHIN THE JURISDICTION OF HONBLE DE LHI HIGH COURT. THE CLAUSES IN THE DECISION REGARDING THE REMUNERATION TO THE PARTNERS ARE ENTIRELY DIFFERENT FROM CLAUSE 10 AS MENTIONED IN T HE PARTNERSHIP DEED OF THE ASSESSEE. THE ORDER OF THE HONBLE DELHI HIGH COURT IS DATED 04.11.2011 WHILE THE ASSESSMENT ORDER IN THE CASE O F THE ASSESSEE HAS BEEN PASSED ON 10.12.2010. HE ALSO RELIED BEFORE ME ON THE ORDER OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ASIAN MARKETING REPORTED IN 254 CTR 453, A COPY OF WHICH IS AVAILAB LE AT PAGES 56 & 57 OF THE PAPER BOOK, AND DRAW MY ATTENTION THAT THE SIMI LAR CLAUSE FOR THE PAYMENT OF THE REMUNERATION WAS THERE AS WAS IN THE CASE OF THE ASSESSEE. ITA NO.3777 & 3778/DEL./2015 4 IN ANY CASE, THE INTERPRETATION OF SECTION 40B WAS DEBATABLE. I HAVE GONE THROUGH THE DECISION OF THE HONBLE DELHI HIGH COUR T IN THE CASE OF SOOD BRIJ & ASSOCIATES (SUPRA). I NOTED THAT IN THAT CA SE, THE CLAUSES WHICH DEALS WITH THE REMUNERATION PAID TO THE PARTNERS READ AS UNDER :- 8. CLAUSES 1 AND 2 OF THE SUPPLEMENTARY PARTNERSHI P DEED DATED 1 ST APRIL, 1992 READ : 1. THAT SUBJECT TO MUTUAL CONSENT OF THE PARTNERS, AND SUBJECT TO THE PROVISIONS OF THE INCOME TAX ACT, 1961, THE WORKING PARTNER OR PARTNERS SHALL BE PAID SUCH REMUNERATION AS MAY BE MUTUALLY AGREED BETWEEN THEMSELVES, FROM TIME TO TIME, AND S UCH REMUNERATION SHALL BE DEDUCTIBLE EXPENSE BEFORE ARR IVING AT THE SHARE OF THE PARTNERS AS ALLOCABLE FROM THE NET PRO FITS. 2. THAT BOTH THE PARTNERS (HEREINAFTER REFERRED AS WORKING PARTNERS), SHALL DEVOTE THEIR TIME AND ATT ENTION IN THE CONDUCT OF THE AFFAIRS OF THE PARTNERSHIP FIRM, AS THE CIRCUMSTANCES AND NEED OF THE FIRMS BUSINESS MAY REQUIRE. THE TOTAL REMUNERATION PAYABLE TO THE WORKING PARTNERS SHALL BE AN AMOUNT PERMISSIBLE AS REMUNERATION TO THE WORKING PARTNERS UNDER THE INC OME TAX ACT, 1961 AND AS APPLICABLE FROM TIME TO TIME. CLAUSE 10 OF THE PARTNERSHIP DEED IN THE CASE OF TH E ASSESSEE READ AS UNDER:- 10. THAT ALL THE PARTNERS ARE WORKING PARTNERS AND THEY SHALL BE ENTITLED TO SALARY OF RS.25,000/- P.A. EACH. HOWEVER, THE PARTIES RESERVE THE RIGHT TO ENHANCE OR REDUCE THE AMOUNT OF SALARY AT ANY TIME BY THEIR MUTUAL CONSEN T ORAL OR WRITTEN. THE SALARY WILL BE CREDITED IN THE ACCOUNTS OF THE PART Y AT THE CLOSE OF THE YEAR. FURTHER THE SALARY PAYABLE TO PARTNERS SHALL NOT EX CEED THE AMOUNT ALLOWABLE U/S40-B OF THE I.T. ACT. THE REDUCTION I N SALARY, IF NEED BE, SHALL PROPORTIONATE. IF WE LOOK TO BOTH THE CLAUSES WHICH IS IN THE CASE OF THE ASSESSEE AND IN THE CASE OF HONBLE DELHI HIGH COURT ARE ENTIRELY D IFFERENT. IN THE CASE BEFORE HONBLE DELHI HIGH COURT, THE PARTNERSHIP DE ED DOES NOT SPECIFY THE REMUNERATION PAID TO THE PARTNERS WHILE IN THE CASE OF THE ASSESSEE ITA NO.3777 & 3778/DEL./2015 5 PARTNERSHIP DEED SPECIFIED THE REMUNERATION PAYABLE TO THE PARTNERS. THE PARTNERSHIP DEED IN THE CASE OF THE ASSESSEE GIVEN THE POWERS TO THE PARTNERS TO ENHANCE OR REDUCE THE SALARY AT ANY TIM E BUT NO SUCH CLAUSE WAS THERE IN THE CASE BEFORE HONBLE DELHI HIGH COURT. THE REMUNERATION HAS TO BE DETERMINED AS MUTUALLY AGREED BETWEEN THE PAR TNERS FROM TIME TO TIME. EVEN I NOTED THAT THE CASE OF THE ASSESSEE I S DULY COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CA SE OF CIT VS. ASIAN MARKETING REPORTED IN 254 CTR 453 IN WHICH ALSO THE SIMILAR CLAUSE REGARDING THE PAYMENT OF THE REMUNERATION TO THE PA RTNERS WAS THERE AS IS IN THE CASE OF THE ASSESSEE. SINCE THERE ARE TWO D ECISIONS OF THE HONBLE HIGH COURT, NONE OF WHICH IS HONBLE JURISDICTIONAL HIGH COURT, THEREFORE, IN THE CASE OF THE ASSESSEE, IT CANNOT BE A CASE OF MISTAKE APPARENT ON RECORD. IT IS A CASE WHERE TWO CONCEIVABLE OPINION S CAN BE THERE. THEREFORE, I QUASH THE ORDER PASSED BY THE AO U/S 1 54 OF THE ACT. 5. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 19 TH DAY OF FEBRUARY, 2016. SD/- (P.K. BANSAL) ACCOUNTANT MEMBER DATED THE 19 TH DAY OF FEBRUARY, 2016 TS ITA NO.3777 & 3778/DEL./2015 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), ROHTAK. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.