2016 (7) TMI 160 - AT - Income Tax

Remuneration paid to the partners disallowed - higher remuneration of partnership - Held that - Assessee claimed the deduction of higher remuneration of partnership based on supplementary partnership deed dated 02-04-2003 in the assessment years 2005-06 and 2006-07. AO disallowed the remuneration paid to partners on the ground that certified partnership deed dated 2-4-2003 was not produced before the AO. Assessee submitted that the changed partnership deed was duly furnished to the Revenue in the year of change as well in the assessment proceedings as well in appellate proceedings before the learned CIT(A) as well before the Tribunal. It is the say of the assessee which is not controverted by the Revenue that all these years the remuneration so claimed per supplementary partnership deed dated 02-04-2003 stood allowed by the Revenue and no disallowance has been made by the Revenue authorities. Thus there is no reason to disallow the remuneration paid to the partners in the impugned assessment year on the grounds that the partnership deed dated 02-04-2003 was not filed by the assessee as contemplated by the Revenue on the facts as are emerging from the records and the disallowance made by the revenue authorities is not sustainable - Decided in favour of assessee Remuneration paid to Mrs. Kiran R. Puri disallowed on the grounds of that the said Mrs Kiran R Puri is not a working director and the remuneration is excessive - Held that - It is the case of the assessee that for all the years the Revenue has allowed the remuneration paid to Mrs Kiran R Puri while this is the only year when disallowance of the Remuneration paid to Mrs Kiran R Puri was made by the Revenue. It is brought on record vide return of income for the assessment year 2005-06 and 2006-07 that the remuneration was claimed by the said Mrs Kiran R Puri. The explanation submitted by the assessee is bona fide which has not been controverted by the Revenue and there is no valid reason to disallow the remuneration paid to Smt. Kiran R. Puri in this year alone based on the bald statement without bringing on record cogent incriminating material on record.No enquiry has either been conducted by the Revenue nor any incriminating material is brought on record to support the contention of the Revenue. It is also the averment which has remained uncontroverted by the Revenue that the revenue has allowed the higher amount of remuneration paid to Mrs Kiran R Puri in the preceding years and the said Mrs Kiran R Puri has duly paid taxes in her personal return of income filed with the Revenue. Hence in our considered view the addition made by the Revenue needs to be deleted - Decided in favour of assessee Non-payment of TDS u/s 40(a)(ia) read with Section 194J - Held that - The assessee itself voluntarily disallowed the amount of Rs. 44, 944/- paid for professional fee in the computation of income filed with the Revenue while the Revenue has disallowed Rs. 63, 650/- towards professional fee by invoking Section 40(a)(ia) of the Act read with Section 194J of the Act. We have observed that both the figures could not be reconciled in the absence of complete details of the break-up of Rs. 63, 650/- albeit the assessee is contending that the said disallowance is a double addition which is not permissible.In our considered view this matter needs to be set aside to the file of the A.O. and the assessee is directed to appear before the A.O. with all the supporting material to prove the basis and working of voluntary disallowance of professional fee of Rs. 44.950/- u/s 40(a)(ia) of the Act read with Section 194J of the Act so that the double additions can be eliminated. The A.O. is also directed to provide the details and working of disallowance of professional fee of Rs. 63, 650/- so that the reconciliation of both the workings is undertaken and no double additions of the same income be made which is not permissible under the provisions of the Act.- Decided in favour of assessee Motor car and telephone of 20% disallowed - Held that - It is observed that the assessee firm has duly paid the FBT on these expenses the details of which are produced on record which is part of the tax audit report. In our considered view if the said expenses are subjected to FBT no further disallowance is called for in the absence of any incriminating material on record - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of remuneration to partners under Section 40(b)(v).
2. Incorrect finding regarding the status of a working partner.
3. Disallowance under Section 40(a)(ia) read with Section 194J.
4. Disallowance of motor car expenses.
5. Disallowance of telephone expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Remuneration to Partners under Section 40(b)(v):
The assessee-firm contested the disallowance of Rs. 68,23,498/- as remuneration to working partners, which was confirmed by the CIT(A). The AO had allowed only Rs. 24,000/- per annum as per the partnership deed dated 27-03-1995, rejecting a supplementary partnership deed dated 02-04-2003 due to its uncertified and illegible nature. The Tribunal noted that the supplementary partnership deed was accepted in previous years, and the remuneration was allowed based on this deed. The Tribunal directed the AO to verify whether the remuneration was included in the partners' individual returns and due taxes were paid, and if so, to allow the remuneration.

2. Incorrect Finding Regarding the Status of a Working Partner:
The AO had disallowed the remuneration of Rs. 27,38,999/- paid to Mrs. Kiran R. Puri, questioning her role and qualifications. The Tribunal found that Mrs. Kiran R. Puri was actively involved in the business, handling administration and finance, especially when the other partner was out of Mumbai. The Tribunal observed that the remuneration was allowed in previous years and no new evidence was provided to justify the disallowance. The Tribunal directed the AO to verify the inclusion of this remuneration in her individual return and allow it accordingly.

3. Disallowance under Section 40(a)(ia) read with Section 194J:
The AO disallowed Rs. 63,650/- for non-deduction of TDS on professional fees. The assessee argued that Rs. 44,944/- was already disallowed voluntarily in the computation of income. The Tribunal found a lack of clarity and directed the AO to reconcile the figures and ensure no double addition occurs.

4. Disallowance of Motor Car Expenses:
The AO disallowed 20% of motor car expenses amounting to Rs. 1,19,201/- due to the absence of a logbook and the car being registered in the partner's name. The Tribunal noted that Fringe Benefit Tax (FBT) was paid on these expenses and found no incriminating material to justify the disallowance. The Tribunal ordered the deletion of this disallowance.

5. Disallowance of Telephone Expenses:
The AO disallowed 20% of telephone expenses amounting to Rs. 95,680/- for personal use. The Tribunal observed that FBT was paid on these expenses, and no specific defects were pointed out by the AO. The Tribunal ordered the deletion of this disallowance as well.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to verify the inclusion of remuneration in the partners' individual returns and due taxes paid, to reconcile the professional fees disallowance, and to delete the disallowances of motor car and telephone expenses due to the payment of FBT.