M/s Joshi Enterprises, Shimla V. ITO, Shimla

ITA 551/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60912 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 26-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER MEENA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 551/CHD/2012 ASSESSMENT YEAR: 2007-08 M/S JOSHI ENTERPRISES, VS THE ITO, WARD-3, VPO THEOG, SHIMLA DISTT. SHIMLA PAN NO. AAEFJ7294B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VISHAL MOHAN RESPONDENT BY : SHRI SURINDER MEENA DATE OF HEARING : 26.06.2012 DATE OF PRONOUNCEMENT : 27.06.2012 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), SHIMLA DATED 19.4.2012 RELATING TO ASSESS MENT YEAR2007-08. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL READS AS UNDER:- THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING AN ADDITIO N OF RS. 48,000/- BY DISALLOWING THE SALARY PAID TO WORK ING PARTNER OF RS. 48,000/-. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FIRM IS DERIVING INCOME FROM RETAIL SALE OF HARDWARE ITEMS. THE ASSE SSING OFFICER DISALLOWED RS. 48,000/- BEING EXCESS SALARY PAID TO WORKING PA RTNER NAMELY SMT. SHAMMA JOSHI. THE RELEVANT FINDINGS AND OBSERVATION S OF THE ASSESSING OFFICER MENTIONED IN PARA 3 OF THE ASSESSMENT ORDER DATED 5.8.2009 READ AS UNDER:- 3. AS PER COPY OF PARTNERSHIP DEED FILED WITH TH E RETURN BOTH THE LADIES PARTNERS ARE DESIGNATED AS WORKING PARTN ERS WITH THE FOLLOWING AMOUNTS OF SALARY. A) SMT SARLA JOSHI = 3000/- P.M. B) SMT. SHAMMA JOSHI = 7000/- P.M. THE LD. COUNSEL FOR THE ASSESSEE WAS SPECIFICALLY A SKED TO PROVE THAT THE LADY PARTNERS ARE INDEED WORKING PARTNERS WITH THE HELP OF ANY DOCUMENTARY EVIDENCE SUCH AS SIGNING OF CHEQ UES, ISSUING OF SALE BILLS OR ANY OTHER DOCUMENTS PERTAI NING TO FIRM. THOUGH NO DOCUMENTARY EVIDENCE HAVE BEEN BROUGHT ON RECORD, THE LD. COUNSEL FILED COPY OF DECISION OF ITAT CH ANDIGARH BENCH BE IN THE CASE OF M/S K.B.S. AGENCIES, LOWER BAZAR, SHIMLA VS ITO WARD-1, SHIMLA IN WHICH THE SALARY P AID TO THE LADY PARTNERS WAS UPHELD. FURTHER, THE COUNSEL FOR THE ASSESSEE WAS ASKED TO EXPLAIN HOW ONE OF THE LADY PARTNER NA MELY SMT. SARLA JOSHI IS BEING PAID @ OF 3000/- P.M. WHEREAS ANOTHER PARTNER SMT. SHAMMA JOSHI IS BEING PAID RS, 7000/- P.M. ACCEPTING THE FACT THAT THEY ARE INDEED WORKING PAR TNERS AND HAVE THE SAME DUTIES TO PERFORM, REMUNERATION PAID TO THEM SHOULD ALSO BE THE. SAME. AS NO JUSTIFICATION ON T HE ISSUD HAS BEEN BROUGHT ON RECORD SALAR YPAID TO SMT. SHAMMA J OSHI IS ALSO BEING RESTRICTED TO RS. 3000/- P.M. HENCE AN DISALLOWANCE 3 OF RS. 48,000/- IS BEING MADE U/S 40A(2)(B) OF THE I.T.ACT ON THIS ACCOUNT AND THE SAME IS BEING ADDED TO THE INCOME R ETURNED. 4. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT (A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE FACTUM OF THE PARTNERS BEING THE WORKING PARTNERS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER, AND IT IS P REROGATIVE OF THE PARTNERS TO FIX THE SALARY IN THE FASHION THEY DESIRE. IT WA S ALSO SUBMITTED BEFORE THE CIT(A) THAT THE REVENUE CANNOT PUT ITSELF INTO THE ARM CHAIR OF THE ASSESSEE AND DICTATE TERMS. IT WAS SPECIFICALLY ARGUED ON BEHALF OF THE ASSESSEE BEFORE THE CIT(A) THAT THE SALARY HAS BEEN PROVIDED TO THE PARTNERS IN ACCORDANCE WITH THE PARTNERSHIP DEED AND AS SUCH NO ADVERSE INFERENCE IS CALLED FOR. 5. THE LD. CIT(A) REJECTED THE ABOVE CONTENTIONS OF THE ASSESSEE FOR THE REASONS GIVEN IN PARA 4 OF THE IMPUGNED ORDER AND H ENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. I HAVE HEARD SHRI VISHAL MOHAN, LD. COUNSEL FOR THE ASSESSEE AND SHRI SURINDER MEENA, LD. DR AT LENGTH. I HAVE ALSO PERU SED THE MATERIALS AVAILABLE ON RECORD. I AM OF THE CONSIDERED OPINIO N THAT THE DISALLOWANCE OF RS. 48,000/- OUT OF SALARY PAID TO SMT. SHAMMA JOSH I CANNOT BE DISALLOWED UNDER THE LAW. IT IS AN ADMITTED FACT THAT SMT. SH AMMA JOSHI IS A WORKING PARTNER AND HER SALARY WAS FIXED AT RS. 7,000/- PER MONTH AS PER THE PARTNERSHIP DEED FILED ALONGWITH THE RETURN OF INCO ME. IN MY OPINION, THE PAYMENT OF SALARY MADE TO WORKING PARTNER IS IN ACC ORDANCE WITH THE PROVISIONS OF PARTNERSHIP DEED AND DOES NOT EXCEED THE AGGREGATE AMOUNT AS 4 MENTIONED IN THE SUBSEQUENT PART OF THE SECTION 40( B)(V) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'), AND HENCE NO DISALL OWANCE IS CALLED FOR. WHILE TAKING SUCH A VIEW I AM FORTIFIED BY THE DECI SION OF HON'BLE JURISDICTIONAL HIGH COURT OF HIMACHAL PRADESH IN TH E CASE OF DURGA DASS DEVKI NANDAN VS ITO (2011) 200 TAXMAN 318 (HP), WH EREIN IT HAS BEEN HELD THAT THE PARTNERS HAVE BEEN PAID THEIR REMUNER ATION / SALARY STRICTLY IN ACCORDANCE WITH THE TERMS OF PARTNERSHIP DEED AND T HIS AMOUNT PAID TO THE PARTNERS DID NOT EXCEED THE MAXIMUM PERMISSIBLE AMO UNT AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION. 7. IN VIEW OF THE ABOVE, THERE IS NO JUSTIFICATION IN DISALLOWING RS. 48,000/- OUT OF SALARY PAID @ RS. 7,000/- PER MONTH TO SMT. SHAMMA JOSHI. ACCORDINGLY, I HOLD THAT NO DISALLOWANCE IS CALLED FOR IN THIS CASE AND HENCE THE IMPUGNED DISALLOWANCE IS DELETED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH JUNE, 2012. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 27 TH JUNE, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR 5