Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 0526 (ITAT-AGRA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 7 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
16-05-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
24-06-2013
Assessment Year
2000-2001
Appeal Filed On
17-09-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NOS.434, 435 & 436/AGR/2012 ASSESSMENT YEARS: 2000-01, 2001-02 & 2002-03 RESPE CTIVELY M/S. SANT LAL AGARWAL & SONS, VS. ASSTT. COMMISSI ONER OF INCOME TAX, CLUB GHAR, KANPUR. CENTRAL CIRCLE, AGRA. (PAN : AACFS 7254 C). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPENDRA MOHAN, C.A. RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D.R. DATE OF HEARING : 24.06.2013 DATE OF PRONOUNCEMENT : 28.06.2013 ORDER PER BENCH: THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THR EE DIFFERENT ORDERS, ALL DATED 30.03.2012, PASSED BY THE LD. CIT(A)-I, AGRA FOR THE ASSESSMENT YEARS 2000-01, 2001-02 & 2002-03 RESPECTIVELY. 2. SOME COMMON GROUNDS HAVE BEEN RAISED IN THESE AP PEALS BASED ON IDENTICAL SET OF FACTS. THEREFORE, FOR THE SAKE OF CONVENIEN CE, ALL THESE APPEALS ARE DECIDED BY THIS COMMON ORDER. 2 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 3. THE FIRST COMMON GROUND IS THAT CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ASSESSMENT ORDER PASSED BY THE A.O. UNDER SECTION 153A OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) READ W ITH SECTION 143(3) OF THE ACT IN THE ABSENCE OF PROPER SEARCH WARRANT AGAINST THE ASSESSEE. 4. THE LD. AUTHORISED REPRESENTATIVE WITHDRAWN THIS GROUND OF THE APPEAL FOR ALL THE THREE ASSESSMENT YEARS. THEREFORE, THE SAM E IS DISMISSED AS WITHDRAWN FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEAL. 5. SECOND EFFECTIVE COMMON GROUND RAISED IN THESE A PPEALS PERTAINS TO DISALLOWANCE OF SALARY/REMUNERATION TO PARTNERS AND CAR EXPENSES. 6. THE QUANTUM INVOLVED IN DIFFERENT YEARS UNDER AP PEAL ARE AS UNDER :- ASSESSMENT YEAR PARTNERS SALARY AND REMUNERATION CAR EXPENSES 2000-01 1,49,604/- 2,423/- 2001-02 1,47,223/- 10,156/- 2002-03 49,831/- 3,008/- 7. THE BRIEF FACTS LEADS IN A.Y. 2000-01 ARE THAT A SEARCH UNDER SECTION 132(1) OF THE ACT AND SURVEY UNDER SECTION 133A OF THE ACT WERE CONDUCTED ON 05.01.2006. THE ASSESSEE IS ENGAGED IN THE BUSINES S OF REGARDING OF TRADING OF FERTILIZER IN THE STATUS OF PARTNERSHIP FIRM. DURI NG THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED PAYMENT OF SALARY/REMUNERATION TO 3 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 PARTNERS. THE A.O. NOTICED THAT IN THE PARTNERSHIP DEED SALARY/REMUNERATION TO PARTNERS HAS NOT BEEN QUANTIFIED. THEREFORE, THE CA SE OF THE ASSESSEE IS CLEARLY HIT BY THE PROVISIONS OF CIRCULAR NO.739 DATED 25.03.19 96 WHICH STATES THAT WHERE NEITHER THE AMOUNT HAS BEEN QUANTIFIED NOR THE LIMI T OF TOTAL REMUNERATION HAS BEEN SPECIFIED, BUT THE SAME HAS BEEN LEFT TO BE DETERMI NED BY THE PARTNERS AT THE END OF THE ACCOUNTING YEAR, IN SUCH CASES PAYMENT OF REMUN ERATION CAN NOT BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF FIRMS INCOME. THE DISALLOWANCE MADE BY THE A.O. HAS BEEN CONFIRMED BY THE CIT(A). 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. WE NOTICE THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF I.T.A.T., AGRA BENCH IN THE CASE OF M/S. OSHO ASSOCIATES VS. ACIT IN IT A NO.265/AGR/2011 VIDE ORDER DATED 23.11.2012 . THE RELEVANT FACTS AND FINDING OF I.T.A.T. ARE REPRODUCED AS UNDER :- 4. BRIEF FACTS OF THE FIRST GROUND ARE THAT THE AS SESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONTRACTOR-SHIP. D URING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT IN THE PARTNERSH IP DEED DATED 01.04.2001 THE ASSESSEE FIRM HAD NEITHER SPECIFIED THE AMOUNT OF REMUNERATION PAYABLE TO EACH WORKING PARTNER NOR LAYS DOWN THE MANNER OF QUALIFICATION OF SUCH REMUNERATION. THE A.O. DISALLOWED THE REMUNERATION TO PARTNER INVOKING PROVISION OF SECTION 40(B)(V) OF THE INCOME TAX ACT , 1961 (THE ACT HEREINAFTER). THE A.O. RELIED UPON THE C.B.D.T. CI RCULAR NO.739 DATED 25.03.1996. THE DISALLOWANCE MADE BY THE A.O. HAS BEEN CONFIRMED BY THE CIT(A). 5. THE LD. AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. HE RELIED UPON THE JUDGMENTS OF HONBLE HIGH COURT OF HIMACHAL PRADESH IN THE CASE OF CIT V S. ANIL HARDWARE STORE, 323 ITR 368 (HP), DURGA DASS DEVKI NANDAN VS . ITO, 341 ITR 17 4 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 (HP). WE FIND THAT IN THE CASE OF DURGA DASS DEVKI NANDAN VS. ITO, AFTER CONSIDERING THE C.B.D.T. CIRCULAR, THE COURT HAS H ELD AS UNDER :- IT IS SETTLED LAW THAT THE CBDT CANNOT ISSUE A CIR CULAR WHICH GOES AGAINST THE PROVISIONS OF THE ACT. THE CBDT CAN ONLY CLARIFY ISSUES BUT CANNOT INSERT TERMS AND CON DITIONS WHICH ARE NOT PART OF THE MAIN STATUTE. A DELEGATE OF PE RSON AUTHORIZED TO ISSUE DELEGATED LEGISLATION CANNOT VI RTUALLY SET AT NAUGHT THE PROVISIONS OF THE MAIN STATUTE. A READI NG OF S.40(B)(V) CLEARLY SHOWS THAT AMOUNT OF REMUNERATIO N WHICH DOES NOT EXCEED THE AMOUNT GIVEN IN THE IT ACT IS D EDUCTABLE. THE CBDT IN CIRCULAR NO.739, DT. 25 TH MARCH, 1996 HAS PROVIDED THAT EITHER THE AMOUNT OF REMUNERATION PAY ABLE TO EACH INDIVIDUAL SHOULD BE FIXED IN THE AGREEMENT OR THE PARTNERSHIP DEED SHOULD LAY DOWN THE MANNER OF QUAN TIFYING SUCH REMUNERATION. IN THE PRESENT CASE WHEN THE PA RTNERSHIP DEED PROVIDES THAT THE REMUNERATION WILL BE AS PER THE PROVISIONS OF THE IT ACT, IT CLEARLY MEANS THAT THE REMUNERATION PAYABLE TO THE PARTNERS SHALL BE QUANTIFIED AS PER THE PROVISIONS OF THE ACT AND SHALL NOT EXCEED THE MAXIMUM REMUNER ATION PROVIDED. IN THE PRESENT CASE, IT IS NOT DISPUTED THAT THE PARTNERS WERE PAID REMUNERATION WHICH WAS LESS THAN THE MAXIMUM PROVIDED BY THE IT ACT. NONE OF THE AUTHOR ITIES HAVE DOUBTED THE PAYMENT OF REMUNERATION AND IN FACT ACC OUNT BOOKS OF THE ASSESSEE FIRM HAVE BEEN ACCEPTED TO BE CORRE CT. THEREFORE, NOBODY HAS DOUBTED THE PAYMENT OF REMUNE RATION TO THE PARTNERS. THE CIRCULAR HAS TO BE READ ALONG WITH S.40(B)(V) A ND HAS TO BE MADE SUBJECT TO S.40(B)(V). THIS SECTION DOE S NOT LAY DOWN ANY CONDITION OF FIXING THE REMUNERATION OR TH E METHOD OF REMUNERATION IN THE PARTNERSHIP DEED. ALL THAT THE SECTION PROVIDES IS THAT IN CASE THE PAYMENT OF REMUNERATIO N MADE TO ANY WORKING PARTNER IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED AND DOES NOT EXCEED THE AGGREGATE AMOUNT AS LAID DOWN IN THE SUBSEQUENT PORTION OF THE SECTION THE DEDUCTION IS PERMISSIBLE. THEREFORE, IF IN THE PARTNERSHIP D EED IT WAS CLEARLY MENTIONED THAT THE PARTNERS WOULD GET REMUN ERATION CALCULATED AS PER THE PROVISIONS OF THE IT ACT WHIC H MEANS THAT THIS WOULD NOT EXCEED THE MAXIMUM AMOUNT PROVIDED U NDER THE ACT. 5 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 6. WE FOLLOW THE ABOVE JUDGMENT. THE CIT(A) WHILE CONFIRMING THE ADDITION SOLELY RELIED UPON THE C.B.D.T. CIRCULAR NO.739 HOLDING THAT THE ASSESSEE DID NOT COMPLY WITH THE DIRECTIONS OF SECT ION 40(B)(V) READ WITH C.B.D.T. CIRCULAR. THE CIT(A) WITHOUT POINTING OUT HOW THE JUDGEMENT OF HONBLE HIGH COURT OF HIMACHAL PRADESH IS DISTINGUI SHABLE, IT HAS BEEN DISTINGUISHED BY SIMPLY STATING THAT THE SAID JUDGM ENT IS DISTINGUISHABLE. WHEREAS, WE FIND THAT THE HONBLE HIMACHAL PRADESH HIGH COURT HAS, AFTER CONSIDERING THE C.B.D.T. CIRCULAR, HELD THAT IN SUC H CIRCUMSTANCES, REMUNERATION IS ALLOWABLE TO THE ASSESSEE UNDER SEC TION 40(B)(V) OF THE ACT. WE FOLLOW THE ABOVE JUDGEMENT OF HONBLE HIMACHAL P RADESH HIGH COURT AND IN THE LIGHT OF THAT, THE CLAIM OF THE ASSESSEE IS ALLOWED. 9. SINCE ON IDENTICAL SET OF FACTS THE I.T.A.T, AGR A BENCH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEREFORE, TO MAINTAIN C ONSISTENCY, WE FOLLOW THE ABOVE ORDER OF I.T.A.T., AGRA BENCH AND IN THE LIGHT OF T HE FACT, THE ABOVE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF SALARY/REMUNERATION TO PA RTNERS RS.1,49,604/- FOR A.Y. 2000-01, RS.1,47,223/- FOR A.Y. 2001-02 AND RS.49,8 31/- FOR THE A.Y. 2002-03 ARE DELETED. 10. THE SECOND PART OF THE ADDITION IS ON ACCOUNT O F 1/6 TH DISALLOWANCE OUT OF CAR EXPENSES ON ACCOUNT OF PERSONAL USE. THE DISALLOWA NCE MADE HAS BEEN CONFIRMED BY THE CIT(A). 11. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE A.O. DISALLOWED CAR EXPENSES ON ACCOUNT OF PERS ONAL USE. THE PERSONAL USE OF CAR BY PARTNERS CANNOT BE RULED OUT. IN THE LIGHT OF THE FACT, TO THAT EXTENT THE CAR 6 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 EXPENSES INCURRED CANNOT BE SAID TO BE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ONCE IT IS FOUND THAT THE EXP ENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE SAME CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. THE ASSESSEE HAS FAIL ED TO POINT OUT ANY CONTRARY MATERIAL TO THE FINDING OF CIT(A). IN THE LIGHT OF THE FACTS, ORDER OF THE CIT(A) IS CONFIRMED ON THE ISSUE AND ADDITION OF RS.2,423/- F OR THE A.Y. 2000-01, RS.10,156/- FOR THE A.Y. 2001-02 AND RS.3,008/- FOR THE A.Y. 2002-03 ARE CONFIRMED. 12. THE OTHER COMMON GROUND RAISED IN A.Y. 2000-01 AND 2001-02 PERTAIN TO DISALLOWANCE OF INTEREST RS.33,272/- FOR THE A.Y. 2 000-01, RS.25,804/- FOR A.Y. 2001-02. THE LD. AUTHORISED REPRESENTATIVE HAS WIT HDRAWN THE GROUND OF DISALLOWANCE OF RS.25,804/- IN A.Y. 2001-02. THUS, THIS GROUND IN A.Y. 2001-02 IS DISMISSED AS WITHDRAWN. HOWEVER, THE ASSESSEE H AS CHALLENGED THE ADDITION OF RAS.33,272/- IN A.Y. 2000-01 ON THE GROUND THAT THE DEBIT ENTRIES IS NOTIONAL ON ACCOUNT OF DEPRECIATION ADJUSTMENT MADE ON ACCOUNT OF EARLIER YEARS DEPRECIATION. AFTER CONSIDERING TOTALITY OF THE FACTS DISCUSSED A ND ON A PERUSAL OF BALANCE SHEET, WE NOTICE THAT THE PARTNERS CAPITAL ACCOUNT AS ON 3 1.03.2000 WAS RS.19,17,540/- AND AGAINST THAT THE DEBIT BALANCE ON ACCOUNT OF DE PRECIATION IN PARTNERS ACCOUNT WAS RS.2,77,268/-. THE INTEREST @ 12% WAS GIVEN TO PARTNERS ON THE CAPITAL ACCOUNT. INTEREST WAS ALSO PAID TO FAMILY MEMBERS. IN OTHER WORDS, THE ASSESSEE 7 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 WAS HAVING NO OWN INTEREST-FREE CAPITAL OR OTHER AM OUNT. THE AMOUNT OF RS.2,77,268/- DEBITED TO PARTNERS ACCOUNT WAS CERT AINLY OUT OF BUSINESS FUND AND FOR THAT PURPOSE INTEREST DISALLOWANCE IS WARRANTED . IF WE CONSIDER THE ISSUE FROM ANOTHER ANGLE THAT THE PARTNER WAS HAVING POSITIVE CAPITAL OF RS.19,17,540/- AS ON 31.03.2000 ON WHICH INTEREST @ 12% WAS PAID AND CON SIDER BOTH THE AMOUNT OF CREDIT AND DEBIT RS.19,17, 540./- AND RS.2,77,268/- , PARTNERS ARE ELIGIBLE FOR INTEREST LESS. IN THE LIGHT OF THE FACT, THE DISALLOWANCE A ND INTEREST IS WARRANTED. SINCE THE ASSESSEE DIVERTED BUSINESS FUND TO THE PARTNERS TO THE EXTENT OF RS.2,77,268/-, IN THE LIGHT OF THE FACT, THE A.O. HAS RIGHTLY DISALLO WED 12% INTEREST. THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE THAT THIS DEBI T BALANCE IN PARTNERS ACCOUNT ARE ON ACCOUNT OF DEPRECIATION IS NOT ACCEPTABLE BECAUS E DEBIT IS ALWAYS DEBIT WHETHER IT IS ON ACCOUNT OF DEPRECIATION ADJUSTMENT OR OTHE RWISE. THE ASSESSEE CAN NOT BE PERMEATED TO TAKE INTEREST ON CAPITAL ONLY ON CREDI T ENTRIES IGNORING DEBIT ENTRIES. EVEN OTHERWISE ALSO, TO THE EXTENT OF DEBIT BALANCE IN PARTNERS ACCOUNT THE BORROWED FUND HAS BEEN DIVERTED, THEREFORE, TO THAT EXTENT INTEREST IS NO ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THEREFORE, TH E DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE CIT(A) OF RS.33,272/- IS SUSTA INED. ORDER OF CIT(A) ON THE ISSUE IS CONFIRMED. 8 ITA NOS.434, 435 & 436/AGRA/2012 A.YS. 2000-01, 2001-02 & 2002-03 13. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE ASSESSEE ARE PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: APPELLANT/RESPONDENT/CIT (APPEALS) CONCERNED/CIT CO NCERNED/ D.R., I.T.A.T., AGRA BENCH, AGRA/GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY
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