M/s National General Stores, Hyderabad V. ITO, Hyderabad

ITA 920/HYD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3239 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-05-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 21-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: SIVA KUMAR
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.:920/HYD/2008 ASSTT. YEAR 20 01-02 M/S NATIONAL GENERAL STORES, HYDERABAD. (AADFN 1950 F) VS ITO, WARD 5 (1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SIVA KUMAR RESPONDENT BY : SHRI E.S. NAGENDRA PRASAD O R D E R PER: CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER PASSED BY THE CIT(A)-V, HYDERABAD DATED 7/3/200 8 AND PERTAINS TO THE ASSESSMENT YEAR 2001-02. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEAL I S WITH REGARD TO DISALLOWANCE OF REMUNERATION PAID TO THE PA RTNERS TO THE EXTENT OF RS.84,205/-. 3. THE AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMI TTED THAT THE PAYMENT OF REMUNERATION TO PARTNERS WAS AUTH ORISED BY THE PARTNERSHIP DEED AND THE TOTAL REMUNERATION PAID WAS WITHIN THE LIMITS ITA NO.920/HYD/2008 M/S NATIONAL GENERAL STORES, HYDERABAD 2 2 AS LAID DOWN BY SEC.40 (B) OF THE INCOME TAX ACT. HE DR EW OUR ATTENTION TO CLAUSE 8 OF THE PARTNERSHIP DEED WHICH RE ADS AS FOLLOWS: 8. THE PROFIT AND LOSS OF THE BUSINESS SHALL BE SHARED OR BORNE BY THE PARTNERS IN THE FOLLOWING RATIO: 1. SHRI Y. LAKSHMAN 50% 2. SHRI Y. DAYAKAR 50% BOTH THE PARTNERS ARE ELIGIBLE FOR REMUNERATION AND THEY WILL BE PAID REMUNERATION OF RS.2000/- EACH PER MONTH. HOWEVER, THE PARTNERS WILL BE PAID A MAXIMUM REMUNERATION OF RS.1,000/- P .M. IRRESPECTIVE OF PROFIT EARNED BY THE FIRM. THE REMUNERATION MAY BE INCREASED/DECREASED AS PER THE RESPONSIBILITY SHARE D BY THE PARTNERS. 4. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE FURTHE R SUBMITTED THAT THE PARTNERSHIP DEED PROVIDES FOR EXTRA REMUNERATION AS PER THE RESPONSIBILITY SHARED BY THE PARTNERS IN THE ASSE SSMENT YEAR UNDER CONSIDERATION. THE BUSINESS OF THE ASSESSEE HAS IMPROV ED SUBSTANTIALLY DUE TO EXTRA RESPONSIBILITY SHARED BY THE PARTNERS AND THE TURNOVER INCREASED BY 71% DURING THE YEAR UNDER CONSIDE RATION. FURTHER, HE SUBMITTED THAT IN ALL THE EARLIER ASSESSMEN T YEARS, THERE WAS NO ADDITION ON THIS COUNT AND THEREFORE, THERE WAS NO NECESSITY OF DISALLOWANCE OF THEIR EXPENDITURE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE ORIGINAL ASSESSMENT, WHICH WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, NO ADDITION WAS MADE A ND ONLY IN THE REASSESSMENT THE DISALLOWANCE WAS MADE. THIS IS ONLY ON ACCOU NT OF CHANGE OF OPINION. HE RELIED ON THE ORDER OF THE TRI BUNAL PUNE BENCH IN THE CASE OF ACIT VS. SUMAN CONSTRUCTIONS (34 SOT 495). HE ALSO RELIED ITA NO.920/HYD/2008 M/S NATIONAL GENERAL STORES, HYDERABAD 3 3 ON THE ORDER OF THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. J.M.P. ENTERPRISES (101 ITD 324) (ASR) (SMC). 5. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT IN EARLIER YEARS, THE ASSESSMENT WAS COMPLE TED U/S 143(1) OF THE ACT. IT WAS ARGUED THAT AS PER CLAUSE 8 OF THE PARTNERSHIP DEED, EACH WORKING PARTNER WAS ENTITLED MAXIMUM AMOUN T OF RS.2000/- P.M. AS REMUNERATION. FURTHER, IT WAS MENTIONED IN T HAT CLAUSE THAT REMUNERATION MAY BE INCREASED OR DECREASED AS PER THE RE SPONSIBILITY SHARED BY THE PARTNERS. THE ASSESSEE CANNOT CLAIM MORE TH AN THE STIPULATED AMOUNT OF RS.2000/- P.M. UNLESS IT MAKES AN A MENDMENT TO THE PARTNERSHIP DEED. AS NOTHING HAS BROUGHT ON RECOR D TO SHOW THAT ANY EXTRA RESPONSIBILITY WAS SHARED BY THE PARTNERS IN E ARNING MORE PROFIT, NO FURTHER REMUNERATION IS PAYABLE TO THE P ARTNERS. HE SUBMITTED THAT THERE IS NO APPROVAL FROM PARTNERSHIP DEED FOR P AYMENT OF ENHANCED REMUNERATION, AS SUCH, THE SAME CANNOT BE ALLOWE D. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AS PER PROVISIONS OF SEC.40(B) OF THE IT ACT, AS SUBSTITUTED BY THE FINANCE ACT 1992 W.E.F. 1.4.1993, T HE DEDUCTION FOR PAYMENT OF REMUNERATION PAID TO PARTNERS CANNOT BE AL LOWED WHICH IS NOT AUTHORISED BY, OR IS NOT IN ACCORDANCE WITH THE TER MS OF PARTNERSHIP ITA NO.920/HYD/2008 M/S NATIONAL GENERAL STORES, HYDERABAD 4 4 DEED. AS PER SEC.40 (B) (V), PAYMENT OF REMUNERATION TO PARTNERS IS LIMITED TO THE AMOUNT SPECIFIED THEREON. IN THE PRESE NT CASE, THE BARE READING OF CLAUSE 8 OF THE PARTNERSHIP DEED SHOWS THAT THE PARTNERS ARE ENTITLED FOR REMUNERATION AT MAXIMUM AT RS.2000/- P. M. WITH A MINIMUM OF RS.1,000/- P.M. THE PARTNERSHIP DEED FURT HER PROVIDES THAT ANY AMENDMENT TO THE DEED SHALL BE DONE BY SOME ENDOR SEMENT TO THIS DEED. HOWEVER, THE PARTNERS ARE NOT MADE ANY ENDORSEM ENT REGARDING THE AMENDMENT OF CLAUSE 8. IN OUR OPINION, THE ENHA NCED PAYMENT OF REMUNERATION TO THE PARTNERS WAS NOT IN ACCORDANCE WITH THE TERMS AS AUTHORISED BY THE PARTNERSHIP DEED. THEREFORE, THE A SSESSEE IS NOT ENTITLED FOR ALLOWANCE OF EXCESS REMUNERATION PAID, OVE R AND ABOVE THE AMOUNT AS STIPULATED IN THE PARTNERSHIP DEED. THE L EARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE RELIED ON THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SUMAN CONSTRICTIONS CITED SUP RA. IN THAT CASE, THE ASSESSING OFFICER DISALLOWED THE PAYMENT OF REMUN ERATION TO PARTNERS ON THE REASON THAT THE REMUNERATION IS NOT QU ANTIFIED IN THE PARTNERSHIP DEED. HOWEVER, IN THE PRESENT CASE, THERE I S A SPECIFIC QUANTIFICATION OF PAYMENT TO PARTNERS I.E., MAXIMUM O F RS.2000/- PM AND MINIMUM OF RS.1000/- P.M. AS SUCH, THE SAID CASE LA W RELIED BY THE AUTHORISED REPRESENTATIVE, ARE NOT APPLICABLE TO T HE PRESENT FACTS OF THE CASE. FURTHER, THE ASSESSEES COUNSEL RELIED ON THE OR DER OF AMRITSAR BENCH IN THE CASE OF JMP ENTERPRISES CITED SUPRA. IN THAT CASE ALSO THE ITA NO.920/HYD/2008 M/S NATIONAL GENERAL STORES, HYDERABAD 5 5 ASSESSING OFFICER DISALLOWED THE PAYMENT OF REMUNERATION TO THE PARTNERS ON THE REASON THAT THERE IS NO SPECIFIC NAME OF THE WORKING PARTNERS MENTIONED IN THE PARTNERSHIP DEED. THOUGH T HE PARTNERSHIP DEED ITSELF INDICATED THAT ALL WERE WORKING PARTNERS, AND IN THAT CASE, THERE IS NO DISPUTE REGARDING QUANTIFICATION OF PAYME NT OF REMUNERATION TO PARTNERS, IT WAS HELD THAT SINCE THE PAYMENT OF RE MUNERATION TO 4 PARTNERS IS WITHIN THE PRESCRIBED LIMIT AS PER SEC.40 (B) OF THE ACT, IT WAS ALLOWED BY THE TRIBUNAL. AS SUCH THE RATIO LAID DOWN BY THE ABOVE ORDER IS NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE. 7. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES. ACCORDINGLY, W E DISMISS THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 14 :5. 2010 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 14 TH MAY, 2010 ITA NO.920/HYD/2008 M/S NATIONAL GENERAL STORES, HYDERABAD 6 6 COPY FORWARDED TO: 1. M/S NATIONAL GENERAL STORES, C/O M/S MURTHY & CO., CAS, 3-6-66/A, BASHIRBAGH, HYDERA BAD- 500029. 2. ITO, WARD NO.5 (1), HYDERABAD 3. CIT(A)-V, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP