JRA & Associates, New Delhi V. ACIT, New Delhi

ITA 5571/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7182 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

1 ITA NO. 5571/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5571/DEL/201 5 ( A.Y 2011-12) JRA & ASSOCIATES B-15, LOWER GROUND FLOOR, GREATER KAILASH ENCLAVE-II NEW DELHI AAAFJ4662K (APPELLANT) VS ACIT CIRCLE-37(1), CIVIC CENTRE NEW DELHI (RESPONDENT) APPELLANT BY SH. GAURAV JAIN, ADV, MS. DEEPIKA AGARWAL, ADV RESPONDENT BY SH. ARUN KUMAR YADAV, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 22/07/2015 PASSED BY CIT (A)-20, NEW DELHI FOR ASSESSMENT YEAR 2011-12. 2. THE CONCISE GROUNDS OF APPEAL ARE AS UNDER:- 1. DURING THE RELEVANT ASSESSMENT YEAR PARTNERSHIP FIRM HAD PAID THE REMUNERATION OF RS.57,63,506/- TO ITS PARTNERS. TH E LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY A.O OF RS.57,63,506/- STA TING THAT REMUNERATION IS NOT ALLOWABLE. DATE OF HEARING 11.07.2018 DATE OF PRONOUNCEMENT 11.07.2018 2 ITA NO. 5571/DEL/2015 3. THE ASSESSEE IS A CHARTERED ACCOUNTANT FIRM BY P ROFESSION AND DERIVED INCOME FROM BUSINESS OR PROFESSION. RETURN OF INCO ME DECLARING AT RS.36,92,340/- WAS FILED ON 30/09/2011 AND THE SAME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THE CASE WAS S ELECTED FOR SCRUTINY. NOTICE U/S 143(2) OF THE ACT WAS ISSUED AND SERVED UPON TH E ASSESSEE. IN RESPONSE TO THE NOTICE, THE CHARTERED ACCOUNTANT OF THE ASSESSE E ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FIELD THE NECESSARY DETAILS I NFORMATION/DOCUMENTS IS REQUIRED. BOOKS OF ACCOUNTS AND VOUCHERS WERE PROD UCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD EXAMINED BY THE ASSESS ING OFFICER. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE FIRM HAS PAID REMUNERATION OF RS.57,63,506/- TO THE PART NERS. FROM THE PERUSAL OF THE PARTNERSHIP DEAL DATED 11/12/2009 IT WAS OBSERV ED THAT THE PARTNERSHIP DEED NEITHER SPECIFIED THE QUANTUM OF SALARY/REMUNE RATION PAYABLE TO THE PARTNERS NOR PROVIDED METHOD OF THEIR COMPUTATION. THEREFORE, THE ASSESSEE WAS ASKED TO SUBMIT PARTNERSHIP DEED ALONG WITH THE NOTE ON WHY THE REMUNERATION PAID TO THE PARTNERS MAY NOT BE DISALL OWED AS PER PROVISIONS ON SECTION 40(B) OF THE ACT AND JUDGMENT OF HONBLE DE LHI HIGH COURT IN CASE OF SOOD BRIJ & ASSOCIATES (2011) 203 TAXMAN 188 (DEL). THE ASSESSEE SUBMITTED THE REPLY AFTER CONSIDERING THE REPLY OF THE ASSESS EE. THE ASSESSING OFFICER OBSERVED THAT SECTION 40(B) (IV) IS NOT RELEVANT HE RE AS IT DEALS WITH PAYMENT OF INTEREST AND SECTION 40(B) (V) DEALS WITH MAXIMUM P ERMISSIBLE REMUNERATION I.E. ALLOWABLE AS A DEDUCTION UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SECTION KNOW WHERE PROVIDES FOR ANY CALCULATION/QUANTIFICATION O F PARTNERS REMUNERATIONS. IT IS OPEN TO THE PARTNERSHIP FIRM TO DECIDE THE RE MUNERATION WHICH IS NOT IN EXCESS OF THE MAXIMUM PERMISSIBLE AS PER SECTION 40 (B) (V). THE ASSESSING OFFICER OBSERVED THAT CIRCULAR NO. 739 DATED 25/3/1 996 MADE IT CLEAR THAT EITHER THE AMOUNT OF REMUNERATION HAS TO BE SPECIFI ED OR THE MANNER OF QUANTIFYING SUCH REMUNERATION HAS TO BE SPECIFIED I F IT IS NOT SO REMUNERATION CANNOT BE ALLOWED AS DEDUCTION U/S 40(B) (V). RELY ING ON THE DECISION AND THE 3 ITA NO. 5571/DEL/2015 HONBLE DELHI HIGH COURT THE ASSESSING OFFICER HEL D THAT PARTNERSHIP DEED IN THE PRESENT CASE DOES NOT DEFINED THE QUANTUM OF RE MUNERATION NOR THE METHOD OF COMPUTATION OF REMUNERATION PAID TO THE P ARTNERS FOR THE PREVIOUS YEAR 2010-11 RELEVANT TO THE ASSESSMENT YEAR 2011-1 2. THEREFORE, THE ASSESSING OFFICER DISALLOWED RS.57,63,506/- AS REGA RDS REMUNERATION PAID TO THE PARTNERS. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY CONFIRMING THE ORDER OF THE ASSESSING OFFICER . 5. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAS NOT TAKEN THE COGNIZANCE OF THE CORRECT INTERPRETATION OF THE CLAUSES MENTIONED IN THE PARTNERSHIP DATED 1 ST DECEMBER 2009 WHEREIN CLAUSE 6 IT HAS MENTIONED THE METHOD OF QUANTIFICATION ABOUT REMUNERATION WHI CH IS GIVEN U/S 40(B) (IV & V) OF THE INCOME TAX ACT. THE CLAUSES OF PARTNE RSHIP DEED WHICH ARE RELEVANT ARE AS UNDER:- 6. THAT ALL THE FIVE PARTNERS SHALL BE ELIGIBLE TO A SHARE IN PARTNERS REMUNERATION, INCLUDING INTEREST. ON CAPITAL, IF AN Y, WHICH WILL BE CALCULATED AS PER THE PROVISIONS UNDER SECTION 40(B) (IV & V) OF THE INCOME TAX ACT. 1961. FOR THIS PURPOSE THE MEANING OF BOOK PROFIT SHALL BE. AS DEFINED SO IN THE SAID SECTION OF THE INCOME TAX ACT, 1961 AND ACCORDINGLY IT SHALL BE CALCULATED. 7. THAT THE SHARE AND DISTRIBUTION OF PART NERS, REMUNERATION, AS IN CLAUSE 6 ABOVE, AMONGST THE PARTNERS SHALL BE, AS PER THE PA RTNERSHIP DEED. 8. THAT THE YEARLY REMUNERATION PAYABLE TO THE ELIGIBLE PARTNERS, AS ABOVE, SHALL BE DUE TO AND CREDITED TO THEIR RESPECTIVE CA PITAL ACCOUNTS AT THE CLOSE OF AN ACCOUNTING YEAR WHEN THE FINAL ACCOUNTS OF THE PART NERSHIP ARE DRAWN UP. HOWEVER, THE REMUNERATION SO DETERMINED SHALL BE DE EMED TO HAVE ACCRUED EVENLY DURING THE YEAR ON A MONTH-TO-MONTH BASIS. 4 ITA NO. 5571/DEL/2015 9. THAT THE PARTNERS HERETO SHALL WITHDRAW FR OM TIME TO TIME AMOUNT FROM THE PARTNERSHIP, AS PER AMOUNT AVAILABLE AND DETERMINED FOR DISTRIBUTION; SUCH WITHDRAWALS, SHALL BE DEBITED TO THEIR RESPECTIVE C URRENT / CAPITAL ACCOUNTS ARID THE SAME SHALL BE ADJUSTED AGAINST THEIR SALARY AND OTHER AMOUNTS DUE TO THEM FROM THE FIRM AND CREDITED TO THEIR RESPECTIVE CURR ENT / CAPITAL ACCOUNTS AT THE END OF THE YEAR. 10. THAT THE NET PROFIT / LOSS OF THE PARTNER SHIP BUSINESS, AS PER THE ACCOUNTS MAINTAINED BY THE FIRM, AFTER DEDUCTING ALL EXPENSE S RELATING TO THE BUSINESS OF THE PARTNERSHIP INCLUDING RENT, SALARIES AND OTHER ESTABLISHMENT EXPENSES, AS WELL AS INTEREST ARID REMUNERATION PAYABLE TO THE P ARTNER/S IN. ACCORDANCE WITH THIS DEED OF PARTNERSHIP OR ANY SUPPLEMENTARY DEED , AS MAY BE EXECUTED BY THE PARTNERS, SHALL BE DIVIDED AND DISTRIBUTED AMONGST THE PARTNERS IN THE MANNER AS EXPLAINED AND DETAILED OUT HEREUNDER:- S. NO. NAME SHARE IN PROFIT/(LOSS) 1 J. S. JASSAL 45.00% 2 SATBIR SINGH 10.00% 3 BHARTI PRABHAKAR NEGI 5.00% 4 TARUN KHER 19.00% 5 SANDEEP NAGI 21.00% 6. THE LD. AR SUBMITTED THAT THE DECISION OF THE HO NBLE DELHI HIGH COURT IN CASE OF SOOD BRIJ & ASSOCIATES IS NOT APPLICABLE IN THE ASSESSEES CASE AS IN THE SAID CASE, THERE WAS NO METHOD PRESCRIBED FOR Q UANTIFICATION AS PER THE INCOME TAX ACT PROVISIONS PERTAINING TO SECTION 40( B) (V) OF THE ACT. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS:- VAISH ASSOCIATES AND ANR VS ACIT (WP(C) NO. 2209/20 13 ORDER DATED 08.04.2013 PASSED BY HONBLE DELHI HIGH COURT ). 5 ITA NO. 5571/DEL/2015 CIT VS VAISH ASSOCIATES (ITA 50/2014 ORDER DATED 11 .08.2015 PASSED BY HONBLE DELHI HIGH COURT) VAISH ASSOCIATES VS ACIT (ITA 1382/DEL/2012 ORDER D ATED 05.07.2013 PASSED BY DELHI TRIBUNAL) DURGA DASS DEVKI NANDAN VS ITO (342 ITR 17) CIT VS ASIAN MARKETING (254 CTR 453) ACIT VS DCS INTERNATIONAL TRADING (ITA 98 AND 694/D EL/2012 ORDER DATED 22.11.2013 PASSED BY DELHI TRIBUNAL) ITO VS PULIMOOTTIL SILK HOUSE (19 SOT 4) COCHIN TRI . EQBAL AHMED & CO. VS ITO (1 SOT 202) KOLKATA TRI. ACIT VS RAVI BROS (3 SOT 533) GAUHATI TRI. ACIT VS ASSOCIATED ENGINEERS & ALLIED PRODUCTS (ITA 680/JP/2014 ORDER DATED 31.05.2015 PASSED BY JAIPUR TRIBUNAL) 7. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND ORDER OF CIT(A). THE LD. DR FURTHER SUBMITTED THAT THE QUAN TIFICATION OF THE REMUNERATION HAS NOT BEEN CLEARLY SET OUT IN CLAUSE 6 AS WELL AS IN CLAUSE 10 OF THE PARTNERSHIP DEED. THEREFORE, THE CIT(A) AS WELL AS THE ASSESSING OFFICER BY FOLLOWING THE RATIO OF THE HONBLE DELHI HIGH CO URT IN CASE OF SOOD BRIJ & ASSOCIATES HAS RIGHTLY DISALLOWED THE CLAIM OF REMU NERATION. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AFTER PERUSAL OF THE PARTNERSHIP DEED IN T HE ASSESSEES CASE IT CAN BE SEEN THAT THE CBDT CIRCULAR IN CLAUSE 4 HAS CATEGOR ICALLY MENTIONED THAT EVEN THE METHOD OF QUANTIFICATION CAN BE ACCEPTED AS PER THE PROVISIONS OF SECTION 40(B) (V) OF THE ACT. BESIDES THAT THE HONBLE DEL HI HIGH COURT IN CASE OF CIT VS. VAISH ASSOCIATES HAS ALSO GIVEN THE FINDING THA T WHEN THE REMUNERATION IS QUANTIFIED THROUGH METHOD OF PRESCRIBED UNDER THE PROVISIONS OF SECTION 40(B) (V) THEN THE REMUNERATION HAS TO BE ALLOWED BY THE ASSESSING OFFICER. THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE DELHI TRIBUNAL IN CASE OF ACIT VS. M/S DCS INTERNATIONAL TRADING WHEREIN THE SIMILAR C LAUSE WHICH IS 6 ITA NO. 5571/DEL/2015 INCORPORATED IN A PRESENT PARTNERSHIP DEED HAS BEEN DISCUSSED AND TAKEN INTO CONSIDERATION. THE TRIBUNAL HAS ALSO CONSIDERED THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF SOOD BRIJ & ASSOCIATES. IN-FACT, IN THE PRESENT CASE ALSO, THIS DECISION WILL NOT BE APPLICABLE AS IN TH AT CASE. IN SOOD BRIJ & ASSOCIATES THOUGH THE PARTNERS WERE EQUALLY DISTRIB UTING THE REMUNERATION YET IT WAS ON THE TERMS OF MUTUAL AGREEMENT OF THE PART NERS WHICH MIGHT HAVE ELEMENT OF UNCERTAINTY OF THE REMUNERATION. THERE WAS NO METHOD GIVEN IN THE PARTNERSHIP DEED IN THAT PARTICULAR CASE. THEREFOR E, THE HONBLE DELHI HIGH COURT DECISION IN CASE OF SOOD BRIJ & ASSOCIATED WI LL NOT BE APPLICABLE IN THE PRESENT CASE. IN THE PRESENT CASE, THE HONBLE DEL HI HIGH COURTS DECISION DATED 11.08.2015 IN CASE OF VAISH ASSOCIATES WILL B E APPLICABLE. THE CLAUSE MENTIONED IN VAISH ASSOCIATES CASE IS IN TOTO SIMIL AR IN THE PRESENT CASE FOR PARTNERSHIP DEED RELATING TO REMUNERATION OF THE PA RTNERS. THEREFORE, IN LIGHT OF THIS THE CIT(A) AS WELL AS THE ASSESSING OFFICER HAS NOT TAKEN A PROPER COGNIZANCE OF THE CLAUSES GIVEN UNDER THE PARTNERSH IP DEED IN CONSONANCE WITH THE PROVISIONS OF SECTION 40(B) (V) OF THE ACT . THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A). THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2018 . SD/- SD/- (P. M. JAGTAP) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 11 /07/2018 R. NAHEED 7 ITA NO. 5571/DEL/2015 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 11.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 1 1 .07.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 1 1 .07.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 1 .07.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 8 ITA NO. 5571/DEL/2015