Vardhman Trade Linkers, Delhi V. JCIT, New Delhi

ITA 4241/DEL/2015

• Counselvise Citation: 424120114 RSA 2015
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 25-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNA L
• Assessee Lawyers: JAGJIT SINGH
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-2 NEW DELHI) BEFORE SHRI I.C. SUDHIR: HONBLE JUDICIAL MEMBER ITA NO. 4241/DEL/2015 ASSESSMENT YEAR: 2011-12 VARDHMAN TRADE LINKERS, VS. JCIT, 568 KATRA MITTAN LAL, RANGE-39, SADAR BAZAR, DELHI. NEW DELHI. (PAN: AAAFV0018R) (APPELLANT) (RESPONDENT) ITA NO. 4242/DEL/2015 ASSESSMENT YEAR: 2011-12 BAJAJ BROS.,, VS. JCIT, 569 KATRA MITTAN LAL, RANGE-39, SADAR BAZAR, DELHI. NEW DELHI. (PAN: AAAFB5529P) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI JAGJIT S INGH, ADV. DEPARTMENT BY: SMT. ANIMA BARNA L, JCIT DATE OF HEARING : 28.08.2015 DATE OF PRONOUNCEMENT: 20 :11.2015 ORDER THE FIRST APPELLATE ORDERS HAVE BEEN QUESTIONED BY THE ABOVE ASSESSEES ON COMMON GROUNDS RAISING IDENTICAL ISSUE S. THESE GROUNDS ARE AS UNDER: 1. THAT THE LEARNED CIT(APPEALS) GROSSLY ERRED BY CONF IRMING THE REMUNERATION PAID TO PARTNER OF RS.150000 BY IGNORI NG THE CLAUSE 2 8, 9, 10 AND 11 OF THE PARTNERSHIP DEED AND BY IGNO RING PARA NO. 2 OF STATEMENT OF FACTS AND ALSO IGNORED THE CALCULAT ION OF REMUNERATION PAID TO PARTNER, WHICH IS AS PER THE P ROVISION OF INCOME-TAX ACT AMENDED W.E.F. 01.04.2010 AS UNDER: A) ON THE FIRST RS.300000/- RS.150000 OR AT THE RATE OF THE BOOK PROFIT OR IN OF 90% OF BOOK PROFIT CASE OF A LOSS. WHICHEVER IS MORE; B) ON THE BALANCE OF THE AT THE RATE OF 60% BOOK PROFIT. WHEREAS LEARNED CIT(APPEALS) ERRONEOUSLY SHOWING PR OVISION OF SEC. 40(B)(V) OF SALARY REMUNERATION PAID TO PARTNE R AS IT WAS PRIOR TO THE AMENDMENT OF INCOME-TAX ACT, 1961 WHICH IS A S UNDER: A) ON THE FIRST RS.75000 OF THE BOOK PROFIT OR IN THE CASE OF A LOSS RS.50000 OR AT THE RATE OF 90% OF THE BOOK PRO FIT, WHICHEVER IS MORE; B) ON THE NEXT RS.75000 OF THE BOOK PROFIT AT THE RATE OF 60%; C) ON THE BALANCE OF THE BOOK PROFIT AT THE RAT OF 40% LEARNED CIT(APPEALS) ERRONEOUSLY RELIED UPO N THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN SOOD BHA NDARI & CO. VS. CBDT (2012) TAXMAN.COM 99 (P&H) AND THE HON'BLE DELHI HIGH COURT IN SOOD BRIJ& ASSOCIATES VS. CIT, NEW DELHI ( 2011) 15 TAXMANNCOM 76 (DELHI) AS IT IS NOT APPLICABLE TO TH E FACTS OF THIS CASE 3 AS THE REMUNERATION CLAUSE IN THE PARTNERSHIP DEED IS TOTALLY DIFFERENT THAN THE PARTNERSHIP DEED OF THIS CASE. FURTHER LEARNED CIT(APPEALS) BY IGNORING THE JUDGME NT OF HON'BLE RAJASTHAN HIGH COURT, JAIPUR, APPEAL NO. 275/2010 D ECIDED ON 11 TH OF APRIL, 2012 CIT, JAIPUR-II, JAIPUR VS. M/S. THE ASI AN MARKETING. FURTHER THIS HONBLE TRIBUNAL HAS ALREADY SETTLED T HIS ISSUE WHICH IS SIMILAR TO THE FACTS IN QUESTION IN THE CASE OF ITA T DELHI CASE NO. 98/DEL/2012 DCS INTERNATIONAL TRADING, NEW .. VS. D EPARTMENT OF INCOME-TAX WHICH IS ALSO OVERLOOKED BY THE LEARNED CIT(APPEALS). 2. THAT THE LEARNED CIT(APPEALS) GROSSLY ERRED BY CONF IRMING THE 10% EXPENSES ON TELEPHONE AND ON VEHICLE RUNNING WI THOUT LOOKING THE NATURE OF BUSINESS AND TURNOVER OF THE ASSESSEE. 3. THAT ORDER OF THE COURTS BELOW ARE BAD-IN-LAW AND C ONTRARY TO THE FACTS OF THE CASE. 2. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY T HE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILA BLE ON RECORD AND THE DECISIONS RELIED UPON. 3. GROUND NO. 1 : THE FACTS IN BRIEF ARE THAT THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,50,000 ON ACCOUNT OF PARTNERS REMUNERATION ON THE BASIS THAT THE ASSESSEE IN ITS PARTNERSHIP DEEDS HA D ONLY QUANTIFIED 4 REMUNERATION TO THE EXTENT OF RS.5,000 PER MONTH OF EACH OF THE TWO PARTNERS (RS.1,20,000 AND HAD NOT QUANTIFIED THE ADDITIONAL REMUNERATION. HE ACCORDINGLY ALLOWED THE CLAIM OF REMUNERATION TO TH E EXTENT OF RS.1,20,000 AND DISALLOWED RS.1,50,000. AS PER THE PROFIT AND L OSS ACCOUNT, THE ASSESSEE HAD CLAIMED THAT WORKING ALLOWANCE TO THE PARTNERS WAS PAID AT RS.2,70,000, RS.60,000 AND RS.2,10,000 TO HAVE BEEN PAID TO TWO PARTNERS AS AGAINST ENTITLEMENT OF RS.5,000 PER MONTH TO EACH AS PER TH E PARTNERSHIP DEED. THE ASSESSING OFFICER DID NOT AGREE AND AS DISCUSSED AB OVE MADE DISALLOWANCE OF RS.1,50,000 UNDER SEC. 40(B)(V) OF THE INCOME-TA X ACT, 1961. THE LEARNED CIT(APPEALS) HAS UPHELD THE SAME. 4. THE CONTENTION OF THE LEARNED AR REMAINED THAT T HE LEARNED CIT(APPEALS) WHILE UPHOLDING THE DISALLOWANCE HAS F AILED TO APPRECIATE THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE AMENDED PROVISIONS OF SEC. 40(B)(V) OF THE ACT W.E.F. 01.04.2010 ARE APPL ICABLE AS PER WHICH ON THE FIRST RS.3,00,000 OF THE BOOK PROFIT OR IN CASE OF A LOSS, RS.1,50,000 OR AT THE RATE OF 90% OF BOOK PROFIT, WHICHEVER IS MORE, IS A LLOWABLE TOWARDS REMUNERATION TO THE PARTNERS AND ON THE BALANCE OF BOOK PROFIT, IT IS ALLOWABLE AT THE RATE OF 60%. THE LEARNED CIT(APPEA LS) HAS, HOWEVER, ERRONEOUSLY APPLIED THE PROVISIONS OF SEC. 40(B)(V) PRIOR TO ITS AMENDMENT. HE HAS ALSO RELIED UPON THE DECISION IN THE CASES O F SOOD BHANDARI & CO. VS. 5 CBDT (2012) TAXMAN. COM 99 (P&H) AND BRIJ & ASSOCIA TES VS. CIT (2011) 15 TAXMAN.CO. 76 (DEL.) WHICH ARE BASED ON THE PROVISIONS BEFORE AMENDMENT AND DISTINGUISHABLE TERMS AND CONDITIONS IN THE PARTNERSHIP DEED. THE LEARNED CIT(APPEALS) HAS ALSO IGNORED TH E CLAUSES 8, 9, 10 AND 11 OF THE PARTNERSHIP AS WELL AS PARA NO. 2 OF THE STATEMENT OF FACT AND CALCULATION OF REMUNERATION PAID TO THE PARTNERS AS PER THE AMENDED PROVISIONS OF SEC. 40(B)(V) OF THE INCOME-TAX ACT, 1961. THE LEARNED AR POINTED OUT THAT THE ISSUE RAISED IS SQUARELY COVER ED BY THE FOLLOWING DECISIONS: I) CIT VS. VAISH ASSOCIATES ITA NO. 50/2014 ORD ER DATED 11.8.2015 (DELHI HIGH COURT); II) CIT VS. THE ASIAN MARKETING APPEAL NO. 275/20 10 DATED 11.4.2012 (RAJ.); III) M/S. DCS INTERNATIONAL TRADING VS. ACIT ITA NO. 98/DEL/2012 ORDER DATED 22.11.2013; 5. THE LEARNED DR ON THE OTHER HAND TRIED TO JUSTIF Y THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING GONE THROUGH THE ABOVE CITED DECISIONS, I FIND THAT THE ISSUE RAISED IN THE PRESENT CASE IS FULLY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF C IT VS. VAISH ASSOCIATES 6 (SUPRA). THE RELEVANT PARAGRAPH NOS. 8 OF THE SAID DECISION OF HON'BLE HIGH COURT IS BEING REPRODUCED HEREUNDER FOR A READY REF ERENCE: 8. HAVING HEARD THE SUBMISSIONS OF MS. SURUCHI AGG ARWAL, LEARNED SENIOR STANDING COUNSEL FOR THE REVENUE AND MS. KAVITA JHA, LEARNED COUNSEL FOR THE RESPONDENT ASSESSEE, THE CO URT FINDS NO REASON TO TAKE A VIEW DIFFERENT FROM THE ONE TAKEN BY THE ITAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. CLAUSE 6(A) OF THE PARTNERSHIP DEED DATED 20 TH JUNE 2008 CLEARLY INDICATES THE METHODOLOGY AND TH E MANNER OF COMPUTING THE REMUNERATION OF PARTNERS. T HE REMUNERATION OF THE PARTNERS HAS BEEN COMPUTED IN TERMS THEREOF. THE COURT ADDITIONALLY NOTES THAT UNDER SEC. 28(V) OF THE ACT , ANY SALARY OR REMUNERATION BY WHATEVER NAME CALLED RECEIVED BY PA RTNERS OF A FIRM WOULD BE CHARGEABLE TO TAX UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION. THE PROVISION TO SECTION 28 (V) STATES THAT WHERE SUCH SALARY HAS BEEN ALLOWED TO BE DEDUCTED U NDER SEC. 40(B)(V), THE INCOME SHALL BE ADJUSTED TO THE EXTEN T OF THE AMOUNT NOT SO ALLOWED TO BE DEDUCTED. FURTHER SECTION 155(1A) OF THE ACT STATES THAT WHERE IN RESPECT OF A COMPLETED ASSESSMENT OF A PARTNER IN A FIRM, IT IS FOUND ON THE ASSESSMENT OR REASSESSMENT OF TH E FIRM THAT ANY REMUNERATION TO ANY PARTNER IS NOT DEDUCTIBLE UNDER SEC. 40(B), THE A.O. MAY AMEND THE ORDER OF THE ASSESSMENT OF THE P ARTNER WITH A VIEW TO ADJUSTING THE INCOME OF THE PARTNER TO THE EXTENT OF THE AMOUNT NOT SO DEDUCTIBLE. A CONSPECTUS OF THESE PROVISIONS MAKES THE OPINION OF THE ITAT CONSISTENT WITH THE LEGAL POSITION. 7 7. BESIDES IN THE PRESENT CASE IN CLAUSES 8 TO 11 O F THE PARTNERSHIP DEED, REPRODUCED HEREUNDER, NOWHERE THE REMUNERATION OF P ARTNERS HAS BEEN RESTRICTED TO RS.5,000 PER MONTH BUT AS PER THESE TERMS, THE PARTNERS WERE ENTITLED TO CLAIM MORE SALARY IF THERE WAS MORE PRO FIT OF THE FIRM SUBJECT TO CEILING LIMIT AS PROVIDED IN THE INCOME-TAX ACT, 19 61: CLASUE NO. 8 : THAT THE IST AND 2 PARTY ARE WORKING/ACTIVE PARTN ER OF THE FIRM. THEY ARE ENTITLED TO SALARY OF RS.5000 P.M. EACH. THEY M AY BY MUTUAL CONSENT CHARGE LESS SALARY, IF THERE IS LESS PROFIT OF THE FIRM. THEY ARE ENTITLED TO CLAIM MORE SALARY IF THERE IS MORE PROF IT OF THE FIRM SUBJECT TO CEILING LIMIT AS PROVIDED IN THE INCOME-TAX ACT. THE SALARY MAY BE PAID OR ACCOUNTED FOR BY THE FIRM PERIODICALLY, I.E . MONTHLY, QUARTERLY, HALF-YEARLY OR ANNUALLY AS THE CASE MAY BE. CLAUSE NO. 9 : THAT IN ADDITION TO THE SALARY TO WORKING/ACTIVE PA RTNERS THEY ARE ALSO ENTITLED TO AMOUNT OF BONUS NOT EXCEEDING 20% OF TH EIR SALARY, WHICH SHALL BE BASED ON THE NET RESULT OF THE PARTNERSHIP BUSINESS TO BE CALCULATED IN THE END OF THE FINANCIAL YEAR BEFORE CLOSING THE ACCOUNTS. CLAUSE NO. 10 : THAT IN ADDITION TO SALARY AND BONUS TO THE WORKING /ACTIVE PARTNERS HEREIN REFERRED TO ABOVE, THEY ARE ALSO ENTITLED TO COMMISSION BASED ON THE TURNOVER/RECEIPTS TO BE CALCULATED IN THE END O F THE FINANCIAL YEAR. 8 THE SAME SHALL EITHER BE PAID OR ACCOUNTED FOR IN T HE ACCOUNTS BOOKS AS THE CASE MAY BE. CLAUSE 11 : THAT IT HAS FURTHER BEEN AGREED UPON THE PARTIES HE REIN REFERRED TO ABOVE THAT THE AMOUNT OF SALARY, COMMISSION, BONUS TO THE WORKING/ACTIVE PARTNERS SHALL NOT EXCEED THE CEILIN G LIMITS, AS PROVIDED IN THE INCOME-TAX ACT. 8. THE CALCULATION OF SALARY PAID TO PARTNER WAS AS UNDER: THE CALCULATION OF SALARY PAID TO PARTNER AS UNDER : PROFIT BEFORE REMUNERATION 307366 MAXIMUM ALLOWABLE SALARY TO PARTNER 270000 1. 90% ON FIRST 300000 OF BOOK PROFIT 4220 2. 60% OF THE REST (7366*0.6) MAXIMUM ALLOWABLE SALARY TO PARTNER 274420 SALARY PAID 270000 9. IN VIEW OF THE ABOVE CITED DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. VAISH ASSOCIA TES AS WELL AS THE ABOVE MENTIONED CLAUSES OF THE PARTNERSHIP DEED AND THE C ALCULATION OF SALARY PAID TO THE PARTNER, IT CANNOT BE SAID THAT THE CALCULAT ION OF SALARY PAID TO THE PARTNER WAS CONTRARY TO THE TERMS OF THE PARTNERSHI P DEED AS WELL AS THE 9 AMENDED PROVISIONS OF SEC. 40(B)(V) OF THE ACT. THU S THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS.1,50 ,000 BEING EXCESS SALARY PAID TO PARTNERS WITHOUT LOOKING INTO PARTNERSHIP D EED AND GIVING ANY COGENT REASON. I THUS WHILE SETTING ASIDE THE ORDERS OF TH E AUTHORITIES BELOW DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.1,50,000 IN QUESTION MADE IN THE CASE OF BOTH THE ASSESSEES. THE GROUND NO.1 IS ACCORDINGLY ALLOWED. 10. GROUND NO.2 : IT IS REGARDING CONFIRMATION OF 10% EXPENSES ON TELEPHONE AND VEHICLE RUNNING. THE CONTENTION OF TH E LEARNED AR IS THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT LOOKING IN TO TH E NATURE OF BUSINESS AND TURNOVER OF THE ASSESSEE. ON HAVING GONE THROUGH TH E ORDERS OF THE AUTHORITIES BELOW, I FIND THAT THE DISALLOWANCE OF 25% OF THE CLAIMED EXPENSES ON TELEPHONE AND VEHICLE RUNNING WAS DISAL LOWED BY THE ASSESSING OFFICER ON ACCOUNT OF POSSIBILITY OF PERSONAL USE T HEREOF IN ABSENCE OF MAINTAINING OF PROPER RECORD. LOOKING INTO THE NAT URE OF BUSINESS AND TURNOVER OF THE ASSESSEE, THE LEARNED CIT(APPEALS) HAS RESTRITED THE DISALLOWANCE TO 10% OF THE CLAIMED EXPENSES. I THU S FIND THAT THE LEARNED CIT(APPEALS) HAS ALREADY GIVEN SUFFICIENT RELIEF BY MAKING A REASONABLE DISALLOWANCE IN ABSENCE OF MAINTENANCE OF RECORD I N SUPPORT OF THE CLAIMED 10 EXPENSES. THE FIRST APPELLATE ORDER IN HIS REGARD I S THUS UPHELD. THE GROUND NO.2 IS ACCORDINGLY REJECTED. 11. IN RESULT, THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 .11.2015 SD/- ( I.C. SUD HIR ) JUDICIAL MEMBER DATED: 20 /11/2015 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 20.11.2015 DRAFT PLACED BEFORE AUTHOR 20.11.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 23 .11.201 5 KEPT FOR PRONOUNCEMENT ON 20.11.2015 FILE SENT TO THE BENCH CLERK 23.11.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.