2007 (3) TMI 437 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition u/s 43B for EPF and ESI payments beyond the due date.
2. Deletion of addition on account of depreciation on the car for personal use.
3. Deletion of addition due to low gross profit.
4. Disallowance of remuneration to partners.

Summary:

1. Deletion of Addition u/s 43B for EPF and ESI Payments Beyond the Due Date:
The first issue was whether the CIT (Appeals) was justified in deleting the addition made by the Assessing Officer u/s 43B regarding EPF and ESI payments beyond the due date. The Assessing Officer disallowed Rs. 1,42,984 as the payments were not made within the due date. The CIT (Appeals) deleted this addition. The Tribunal referenced the Special Bench decision in Kwality Milk Foods Ltd., which held that the amendment to section 43B by the Finance Act, 2003, was curative and retrospective. Thus, the Tribunal upheld the CIT (Appeals)'s decision, dismissing the revenue's grounds.

2. Deletion of Addition on Account of Depreciation on the Car for Personal Use:
The second issue was whether the CIT (Appeals) was justified in deleting the addition made by the Assessing Officer on account of depreciation on the car due to personal use. The Assessing Officer disallowed 1/4th of the car expenses and corresponding depreciation. The CIT (Appeals) deleted this addition. The Tribunal, referencing section 38(2) and the Special Bench decision in Gulati Saree Centre, held that the Assessing Officer rightly disallowed 25% of the depreciation. The Tribunal set aside the CIT (Appeals)'s order and restored the Assessing Officer's decision, allowing the revenue's ground.

3. Deletion of Addition Due to Low Gross Profit:
The third issue was whether the CIT (Appeals) was justified in deleting the addition made by the Assessing Officer due to low gross profit. The Assessing Officer added Rs. 3,44,285, noting the average gross profit in the textile business was 15%, while the assessee declared 12.75%. The CIT (Appeals) deleted this addition. The Tribunal found that the Assessing Officer's findings were based on general observations without specific evidence. The Tribunal upheld the CIT (Appeals)'s decision, dismissing the revenue's ground.

4. Disallowance of Remuneration to Partners:
The fourth issue in the cross-objection was the disallowance of remuneration to partners. The Assessing Officer disallowed Rs. 1,44,000, stating the partnership deed did not specify the quantum of salary. The CIT (Appeals) confirmed this disallowance. The Tribunal, referencing section 40(b) and CBDT Circular No. 739, held that the deed authorized payment of salary to working partners, and the quantification was not required in express terms. The Tribunal set aside the CIT (Appeals)'s order and directed the Assessing Officer to allow the remuneration claim, allowing the assessee's cross-objection.

Conclusion:
The revenue's appeal was partly allowed, and the assessee's cross-objection was allowed.