IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER ITA NO.5353/DEL/2017 ASSESSMENT YEAR : 2014-15 SHIV DURGA ENTERPRISES, 2618/19, MARUTI BHAWAN, NAYA BAZAR, DELHI. VS. ACIT, CIRCLE- 47(1), NEW DELHI. PAN : AAOFS9084Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.T. PANDA, ADV. DEPARTMENT BY : SHRI S. L. ANURAGI, DR DATE OF HEARING : 18-07-2018 DATE OF PRONOUNCEMENT : 28-09-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 15.06.2017 OF THE CIT(A)- 16, NEW DELHI RELATING TO ASSESSMENT YEAR 2014-15. 2. THE LD. COUNSEL FOR THE ASSESSEE, AT THE TIME OF HEARING, DID NOT PRESS GROUND OF APPEAL NO.3 FOR WHICH LD. DR HAS NO OBJEC TION. ACCORDINGLY, THE SAME IS DISMISSED. GROUNDS NO.1 AND 4 BEING GENERA L IN NATURE ARE DISMISSED. 3. GROUND NO.2 BY THE ASSESSEE READS AS UNDER :- 2. THAT THE LD. CIT(A)- 16, NEW DELHI HAS BEEN ERR ED IN LAW FOR NOT CONSIDERING THE VARIOUS JUDICIAL JUDGMENTS OF VARIOUS APEX COUR T, HIGH COURTS AND OF HONBLE HIGH COURT OF DELHI AND OF ITAT, DELHI BENCH FOR RE MUNERATION PAID TO PARTNERS IN TERMS OF PARTNERSHIP DEED AND AS PER PROVISION OF S ECTION 40(B)(V) OF THE INCOME TAX ACT AMOUNTING TO RS.17,62,862/-. 2 ITA NO.5353/DEL/2017 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN FOOD GRAINS A ND COMMISSION AGENT. IT FILED ITS RETURN OF INCOME ON 10.11.2014 DECLARING TOTAL INCOME OF RS.10,24,113/-. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, OBSERVED FROM THE PROFIT & LOSS APPROPRIATION ACCOUNT THAT T HE ASSESSEE HAS CLAIMED SALARY TO THE TWO PARTNERS OF THE FIRM AT RS.8,81,4 30.76 FOR EACH PARTNER TOTALING TO RS.17,62,861.52 (ROUNDED OFF TO RS.17,62,862/-). FROM THE COPY OF THE PARTNERSHIP DEED FILED BY THE ASSESSEE, THE ASSESSI NG OFFICER OBSERVED THAT CLAUSE 7 OF THE PARTNERSHIP DEED READS AS UNDER :- 7. THAT BOTH THE PARTNERS SHALL BE WORKING PARTNER AND SHALL LOOK AFTER THE DAY TO DAY BUSINESS OF THE FIRM AND ACTIVELY DEVOTE THEIR TIME AND ATTENTION FOR DISCHARGING SUCH DUTIES. AND FOR SUCH SERVICES, THE WORKING PA RTNER SHALL BE PAID AND / OR CREDITED SALARY AND / OR REMUNERATIONS FOLLOWS : SHRI CHATUR BHUJ SHARMA PARTY OF THE FIRST PART R S.7500 P.M. SHRI SACHINDRA NATH PAUL PARTY OF THE SECOND PART RS.7500 P.M. HOWEVER, THE PARTNERS BY MUTUAL, VERBAL CONSENT MAY DECIDE TO REDUCE / WAIVE THE SALARY PAYABLE ON THE BASIS OF FINANCIAL CONDITION OF THE FIRM. ANY WORKING PARTNER, ENTITLED TO SALARY AND / OR RE MUNERATION AS AFORESAID MAY WITHDRAW SUCH AMOUNT OR AMOUNTS DURING THE YEAR IN ANTICIPATION OF HIS SALARY AND / REMUNERATION AS MIGHT BE MUTUALLY AGREED UPON AND T HE AMOUNT(S) SO DRAWN BY THE PARTNERS CONCERNED SHALL BE ADJUSTED AGAINST HIS SA LARY AND / OR REMUNERATION BECOMING DUE AND PAYABLE TO HIM. HOWEVER, THE SALA RY / REMUNERATION PAYABLE SHALL BE RESTRICTED TO THE LIMITS LAID DOWN UNDER THE INC OME TAX ACT, 1961. 5. HE, THEREFORE, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SALARY PAID TO THE PARTNERS BE NOT DISALLOWED IN VIEW OF CIRCUL AR NO.739 DATED 25.03.1996. IN RESPONSE TO THE SAME, THE ASSESSEE SUBMITTED A C OPY OF SECOND SUPPLEMENTARY DEED OF PARTNERSHIP DEED DATED 01.04.2005 WHICH WAS RECEIVED BY THE ASSESSING 3 ITA NO.5353/DEL/2017 OFFICER ON 30.11.2016 WHEREIN THE CLAUSE NO.7 HAS B EEN AMENDED IN THIS DEED WHICH READS AS UNDER :- AND PARTIES HAVE DECIDED TO ADD THE FOLLOWING CLAU SE : I) THAT CLAUSE NO.7 OF THE PARTNERSHIP DEED DATED 01.0 4.2000 SHALL STAND DELETED AND TO BE READ AS : THAT REMUNERATION SHALL BE PAID AS PER INCOME TAX ACT, 1961 AS AMENDED : FIRST PARTY : 50% SECOND PARTY : 50% 6. AGAIN VIDE LETTER DATED 05.12.2016, THE ASSESSEE SUBMITTED ANOTHER COPY OF THE AMENDED DEED DATED 02.04.2005 WHEREIN THE CL AUSE NO.7 HAS BEEN AMENDED WHICH READS AS UNDER :- AND PARTIES HAVE DECIDED TO ADD THE FOLLOWING CLAU SE : NOW THE PARTIES HAVE MUTUALLY DECIDED TO MODIFY THE CLAUSE NO.7 OF THE PARTNERSHIP DEED DATED 01.04.2000 AND SUPPLEMENTARY DEED DATED 1.4.2005 WHICH READ AS : THAT TOTAL REMUNERATION PAYABLE TO PARTNERS SHALL B E CALCULATED AS PER PROVISION OF SECTION 40(B)(V) AS AMENDED FROM TIME TO TIME AND S HALL NOT EXCEED TO THE LIMIT PRESCRIBED UNDER I.T. ACT AND SHALL BE DISTRIBUTED AS : FIRST PARTY : 50% SECOND PARTY : 50% 7. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS MADE BY THE ASSESSEE FROM TIME TO TIME ON THE GROUND THAT THE R EPLY FILED BY THE ASSESSEE IS FAKE. HE HAS FILED TWO SUPPLEMENTARY DEEDS AND NON E OF THE DEEDS ARE UPTO THE MARK AS PER CIRCLAUR NO.739 DATED 25.03.1996. THE ASSESSING OFFICER REPRODUCED THE CIRCULAR NO.739 DATED 25.03.1996 AND CAME TO THE CONCLUSION THAT THE CIRCULAR ISSUED BY THE CBDT IS BINDING ON THE ASSESSING OFFICER. SINCE IN THE INSTANT CASE SALARY HAS NOT BEEN QUANTIFIED IN THE PARTNERSHIP DEED NOR IT HAS LAID DOWN THE MANNER OF QUANTIFYING OF SUCH REM UNERATION, THE ASSESSING 4 ITA NO.5353/DEL/2017 OFFICER DISALLOWED THE CLAIM OF SALARY PAID TO THE PARTNERS. HE ACCORDINGLY MADE ADDITION OF RS.17,62,862/- TO THE TOTAL INCOME OF THE ASSESSEE. 8. BEFORE THE LD. CIT(A), THE ASSESSEE RELYING ON V ARIOUS DECISIONS SUBMITTED THAT SINCE THE PARTNERSHIP DEED PROVIDES THAT THE REMUNERATION WILL BE AS PER THE PROVISIONS OF THE I.T. ACT, THEREFORE, I T CLEARLY MEANS THAT THE REMUNERATION PAID TO THE PARTNERS SHALL BE QUANTIFI ED/CALCULATED AS PER THE PROVISIONS OF THE I.T. ACT AND HAS NOT EXCEEDED THE REMUNERATION PROVIDED. SINCE THE SALARY TO THE PARTNERS IN THE INSTANT CAS E DOES NOT EXCEED THE MAXIMUM SALARY ALLOWABLE TO THE PARTNERS, THEREFORE, NO DIS ALLOWANCE IS CALLED FOR. RELYING ON THE VARIOUS DECISIONS, THE ASSESSEE ARGU ED THAT THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 9. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH T HE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO, HE HELD THAT THE ASSESSEE HAS NEITHER QUANTIFIED NOR L AID DOWN THE PROCEDURE TO QUANTIFY THE SALARY TO BE PAID TO THE WORKING PARTN ERS. 10. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 11. THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE VARIOUS DECISIONS SUBMITTED THAT AFTER CONSIDERING THE CIRCULAR NO.73 9 DATED 25.03.1996 IT HAS BEEN HELD IN THESE DECISIONS THAT WHEN THE PARTNERS HIP DEED PROVIDES THAT THE REMUNERATION WILL BE AS PER THE PROVISIONS OF THE I .T. ACT, IT CLEARLY MEANS THAT 5 ITA NO.5353/DEL/2017 THE REMUNERATION PAYABLE TO THE PARTNERS SHALL BY Q UANTIFIED AS PER THE PROVISIONS OF THE I.T. ACT AND SHALL NOT EXCEED THE MAXIMUM REMUNERATION PROVIDED. HE SUBMITTED THAT SINCE THE ASSESSEE HAS FILED THE SUPPLEMENTARY DEED WHICH QUANTIFIED THE AMOUNT OF REMUNERATION PAYABLE TO THE PARTNERS, THEREFORE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN REJECTIN G THE CLAIM OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT (A) BE SET-ASIDE AND THE GROUND RAISED BY THE ASSESSEE SHOULD BE ALLOWED. H E RELIED ON THE FOLLOWING DECISIONS :- (I) DURGA DASS DEVKI NANDAN VS. ITO, (2012) 342 ITR 17 (HP). (II) ACIT VS. SUMAN CONSTRUCTION, [2009] 34 SOT 49 5. (III) M/S. OSHO ASSOCIATES VS. ACIT (ITA-265/AGR/2 011 DT. 23.11.2012). (IV) CIT VS. ASIAN MARKETING, [2013] 213 TAXMAN 21 4 (RAJ). 12. THE LD. DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDERS OF THE LD. CIT(A) AND THE ASSESSING OFFICER. HE SUBMITTED THA T THE PARTNERSHIP DEED IN THE INSTANT CASE DOES NOT QUANTIFY NOR LAID DOWN TH E PROCEDURE TO QUANTIFY THE SALARY TO BE PAID TO THE WORKING PARTNERS. FURTHER , THE CONDUCT OF THE ASSESSEE IN FILING TWO SUPPLEMENTARY DEEDS DATED 01.04.2005 AND 02.04.2005 SHOWS THAT IT IS ONLY MANIPULATION FOR CLAIMING THE SALARY PAID T O THE WORKING PARTNERS TO REDUCE THE TAXABLE INCOME AND IS AGAINST THE SPIRIT OF THE CIRCULAR NO.739 DATED 25.03.1996. HE SUBMITTED THAT THE ABOVE CIRCULAR W AS ISSUED TO REMOVE HARDSHIP DUE TO AMENDMENT IN THE ACT. FURTHER, EVE N AFTER A GAP OF MORE THAN 10 YEARS, THE ASSESSEE IN ITS PARTNERSHIP DEED HAS NOT QUANTIFIED NOR PROVIDED THE 6 ITA NO.5353/DEL/2017 MANNER OF QUANTIFICATION OF THE REMUNERATION PAYABL E TO THE WORKING PARTNERS. HE ACCORDINGLY SUBMITTED THAT THE GROUND RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 13. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. I FIND THE AS SESSING OFFICER MADE DISALLOWANCE OF RS.17,62,862/- BEING THE REMUNERATI ON PAID TO THE WORKING PARTNERS ON THE GROUND THAT NEITHER THE SALARY HAS BEEN QUANTIFIED IN THE PARTNERSHIP DEED NOR THE DEED LAY DOWN THE MANNER O F PAYMENT OF SUCH REMUNERATION TO THE WORKING PARTNERS. I FIND THE L D. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE SUPPLEMENTARY PARTNERSHIP DEEDS LAY DOWN THE MANNER OF QUANTIFICATION OF REMUNERATION PAYABLE TO THE WORKI NG PARTNERS, THEREFORE, NO DISALLOWANCE IS CALLED FOR. I FIND THE IMPUGNED AS SESSMENT YEAR IS 2014-15 AND THE SUPPLEMENTARY DEEDS FILED BEFORE THE ASSESSING OFFICER ARE DATED 01.04.2005 AND 02.04.2005 RESPECTIVELY. IT IS NOT UNDERSTOOD AND ALSO NOT BORNE OUT FROM THE RECORDS AS TO WHAT HAS HAPPENED IN THE INTERVENING PERIOD I.E. FROM ASSESSMENT YEAR 2006-07 TO ASSESSMENT YEAR 2013-14. WHETHER SUCH HIGHER REMUNERATION HAS BEEN ALLOWED TO THE WORKING PARTNE RS ON THE BASIS OF THESE SUPPLEMENTARY DEEDS ARE NOT BORNE OUT FROM THE RECO RD. UNDER THESE CIRCUMSTANCES, I DEEM IT PROPER TO RESTORE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICATE THE ISSUE AF RESH AFTER VERIFYING THE RECORDS 7 ITA NO.5353/DEL/2017 OF THE DEPARTMENT REGARDING THE REMUNERATION PAID T O THE WORKING PARTNERS IN THE PRECEDING YEARS AS PER THESE SUPPLEMENTARY DEED S. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GI VING DUE OPPORTUNITY TO THE ASSESSEE. I HOLD AND DIRECT ACCORDINGLY. THE GROU ND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH SEPTEMBER, 2018. SD/- (R. K. PANDA) ACCOUNTANT MEMBER DATED: 28-09-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI