M/s Star Wines, Muzaffarnagar V. ITO, Muzaffarnagar

ITA 5505/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5463 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 10-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 07-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA

Judgement Text

ITA NO. 5505/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5505/DEL/2010 A.Y. : 2005-06 M/S STAR WINES, 13/7-D, NEW MANDI, MUZAFFARNAGAR (PAN: AAYFS6311C) VS. ITO, WARD-2(3), AAYAKAR BHAWAN, MEERUT ROAD, MUZZAFARNAGAR (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. ANKIT GUPTA, ADV. DEPARTMENT BY : SMT. RENUKA JAIN GUPTA, SR. DR ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), MUZAF FARNAGAR DATED 25.3.2009 PERTAINING TO ASSESSMENT YEAR 2005- 06. 2. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN UPH OLDING THE ASSESSEES STATUS AS OF AOP AND NOT THAT OF A FIRM AND THEREAFTER DISALLOWANCE THE SALARY AND INTEREST PAID TO PARTNE RS IN YEAR UNDER CONSIDERATION. 3. ASSESSEE IN THIS CASE IS ENGAGED IN RETAIL TRAD ING OF COUNTRY LIQUOR, BEAR AND IMFL ON CONTRACT BASIS. DURING TH E COURSE OF ASSESSMENT AO HELD THAT THIS WAS A CASE OF LEGAL PA RTNERSHIP AND HENCE ASSESSEE WAS ASSESSABLE AS AN AOP. CONSEQ UENTLY, SALARY AND INTEREST PAID TO PARTNERS AT RS. 2,59,963/- WAS DISALLOWED. 4. UPON ASSESSEES APPEAL LD. CIT(A) AFFIRMED THE A CTION OF THE AO. ITA NO. 5505/DEL/2010 2 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. AT THE OUTSET, LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN SEVERAL CASES IN ITA NO. 404/DEL/2007 & OTHERS IN THE CASE OF GANPATI & CO. VIDE ORDER DATED 30.7.2010. L D. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE FACTS IN THE PRESENT CASE ARE ANALOGICAL TO THE ONE DEALT WITH BY THE TRIBUNAL AS ABOVE. HENCE, HE SUBMITTED THAT FOLLOWING THE TRIBUNALS DECISION AS ABOVE, THE ISSUE HAS TO BE DECIDED IN FAVOR OF THE ASESSEEE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE FACTS IN THE PRESENT CASE AS WELL AS THE FACTS IN THE CASE DEALT WITH BY THE TRIBUNAL AS ABOVE ARE ANALOG ICAL. IN THESE CASES THE PARTNERSHIP DEED CONTAINED CLAUSE 11 AS U NDER:- THAT THE PARTNERS OF THE FIRM HAVE MUTUALLY AGREED THAT FOR THE BUSINESS, THE APPLICATION BEFORE THE EXCISE DEPARTMENT MAY BE FILED IN THE INDIVIDUAL NAMES FOR GETTING THE LICENSE OF LIQUOR SHOPS AND IRRESPECTIV E OF THE FACT, THAT THE SHOPS ALLOTTED TO THE PARTNERS IN TH EIR INDIVIDUAL NAME OR IN THE NAME OF THE FIRM WILL BE CONSIDERED AS THE BUSINESS LICENSE OF THE FIRM ON LY ACCORDINGLY BUSINESS UNDER THOSE LICENSE WILL BE CONSIDERED BUSINESS OF THE FIRM ONLY. 8. IN PURSUANCE TO THIS CLAUSE, THE ASSESSEE FIRM A PPLIED FOR LIQUOR LEGAL LICENSE. ON ALLOTMENT, THE SHOPS WERE HELD TO BE PARTNERSHIP ASSET THOUGH THE RESPECTIVE ACCOUNT BOOKS OF THE SH OP WERE MAINTAINED IN THE NAMES OF RESPECTIVE PARTNERS AND THE PROFITS FROM ALL THE SHOPS WAS CONSOLIDATED IN FINAL P&L ACCO UNT OF THE FIRM. ASSESSEE HAD APPLIED FOR GRANT OF STATUS OF THE F IRM AND CLAIMED SALARY AND INTEREST PAYABLE TO PARTNERS AS DEDUCTIO N AS PROVIDED BY ITA NO. 5505/DEL/2010 3 SECTION 40(B). HOWEVER, AO AND LD. CIT(A) DECIDED WITH THE ABOVE AND HELD THAT THE ASSESSEE TO BE AOP. THE TRIBUN AL IN THE ORDER CITED ABOVE AS HELD AS UNDER: :: :- -- - WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE THRO UGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL. FROM 1.4.19 94 SECTIONS 184/185 HAVE BEEN AMENDED AND THE EARLIER PROCEDURE OF EXAMINING GENUINENESS OF FIRM HAS BEEN DISPENSED WITH. AS PER THE AMENDED LAW THE FIRM SHA LL BE ALLOWED REGISTRATION IF A CERTIFIED COPY OF A DEE D, DULY SIGNED BY ALL THE PARTNERS SHOWING THE SHARES OF TH E PARTNERS IS FILED, THE FIRM IS ALLOWED TO BE REGIST ERED. U.P. EXCISE POLICY DOES NOT PROHIBIT CONSTITUTION OF PARTNERSHIP FIRM FOR CARRYING LIQUOR BUSINESS, SO A LSO LICENSES OBTAINED BY INDIVIDUALS CAN BE CONVERTED I NTO PARTNERSHIP FIRM ON COMPLIANCE OF CERTAIN REQUIREM ENTS. IN VIEW OF THESE FACTS AND LEGAL PROPOSITIONS, THE ASSESSEE FIRM HAVING CONSTITUTED SPECIFIC CLAUSE 11 AS MENTIONED ABOVE, IT CANNOT BE HELD THAT IT IS A NO N- GENUINE OR ILLEGAL FIRM. EARLIER SUPREME COURT CA SES ARE NOT APPLICABLE TO ASSESSEES CASE IN VIEW OF THE AMENDMENT IN SECTIONS 184/185 W.E.F. 1.4.1994, AS MENTIONED ABOVE. IN VIEW THEREOF WE HOLD THAT THE ASSESSEE FIRM IS ELIGIBLE FOR REGISTRATION U/S. 184 /185 AND CONSEQUENTLY ELIGIBLE FOR DEDUCTION U/S. 40(B) IN R ESPECT OF SALARY, INTEREST AS PER LAW. IN ARRIVING THIS VI EW WE ALSO FIND SUPPORT BY THE ORDER OF ITAT, BANGALORE BENCH IN THE CASE OF DCIT VS. HED BROS. CO. (SUPRA), WHICH IS TO BE FOLLOWED. ITA NO. 5505/DEL/2010 4 9. AS ALREADY NOTED HEREINABOVE, THE FACTS ARE IDEN TICAL TO THE ONE DEALT WITH BY THE TRIBUNAL AS ABOVE. RESPECTF ULLY FOLLOWING THE ABOVE PRECEDENT, WE HOLD THAT THE ASSESSEE FIRM IS ELIGIBLE FOR REGISTRATION OF PARTNERSHIP FIRM AND THE EXPENDITUR E OF PROVISIONS OF SALARY AND INTEREST HAVE TO BE ALLOWED, AS PER LAW. 10. ANOTHER ISSUE RAISED IS THAT LD. CIT(A) ERRED I N SUSTAINING THE ADDITION OF RS. 35,000/- ON ACCOUNT OF UN-VERIFIABL E EXPENSES. WE FIND THAT THIS ISSUE IS NOT EMERGING OUT OF THE LD. CITS ORDER. THERE IS NO APPEAL PREFERRED BY THE ASSESSE E BEFORE THE LD. CIT(A). LD. CIT(A) HAS NOTED THAT ADDITION WAS MA DE ON AGREED BASIS. ACCORDINGLY, WE DISMISS THIS GROUND RAISED BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/2/2014. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 21/2/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 5505/DEL/2010 5