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2016 (7) TMI 1185 - AT - Income TaxDisallowance on account of remuneration to partners - Held that - We find that the assessee computed the remuneration as per Section 40(b) of the Act and credited 50% each to both the partners. The AO did not dispute the fact that remuneration was paid to the partners. Secondly, this amount was taxable in the hands of partners and if the same is disallowed in the hands of assessee firm then it would be result in double taxation. In view of the above facts and circumstances of the case and the case laws cited by the ld. AR of the assessee, we feel that the ld. CIT(A) has rightly directed the AO to delete the addition. - Decided in favour of assessee. Addition on account of profit element in sales returns - Held that - It emerges from the records that the assessee furnished the details of the amounts deducted by its clients in earlier years and the same was communicated to the assessee during this year which cannot be treated as bad debt. Hence, we find no reason to interfere with the order of the ld. CIT(A) which is sustained - Decided in favour of assessee. Disallowance of transportation expenses - Held that - We feel that the ld. CIT(A) has rightly restricted the addition towards transportation expenditure to the extent of ₹ 26,537/- considering the facts and circumstances of the case of the assessee. Hence, we find no reason to interfere with the order of the ld. CIT(A) which is sustained.- Decided in favour of assessee. Addition on account of unexplained investment in construction of hotel building - construction expenditure was determined by the DVO - Held that - We restore the issue to the file of the AO to recompute the self supervision charges at 7.5%( as done by DVO) instead of 12.5% as determined by the by the ld. CIT(A). As regards the cost of construction, the rate of PWD, Rajasthan shall be applied instead of CPWD rates. - Decided partly in favour of revenue for statistical purposes.
Issues Involved:
1. Deletion of disallowance of ?25,94,176/- made by the AO on account of remuneration to partners. 2. Deletion of addition of ?70,433/- made by the AO on account of profit element in sales returns of ?4,01,101/-. 3. Restriction of disallowance made by the AO out of transportation expenses from ?53,074/- to ?26,537/-. 4. Deletion of addition of ?28,77,280/- made by the AO on account of unexplained investment in the construction of a hotel building. Detailed Analysis: Issue 1: Deletion of Disallowance of ?25,94,176/- on Account of Remuneration to Partners The AO disallowed the remuneration paid to partners, totaling ?25,94,176/-, citing that the partnership deed did not specify the amount or the manner of quantifying such remuneration, as required under Section 40(b)(v) of the IT Act and CBDT Circular No. 739. The CIT(A) deleted the addition, noting that the remuneration was computed as per Section 40(b) and credited equally to both partners, and disallowing it would result in double taxation. The Tribunal upheld the CIT(A)'s decision, agreeing that the remuneration was taxable in the hands of the partners and that the CIT(A) had rightly directed the AO to delete the addition. Issue 2: Deletion of Addition of ?70,433/- on Account of Profit Element in Sales Returns The AO added ?70,433/- to the total income of the assessee, applying a gross profit rate to the sales returns of ?4,01,101/-, as the assessee could not provide details of the returned items. The CIT(A) deleted the addition, noting that the deductions were communicated late by the clients and could not be treated as bad debt. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the order, as the assessee had furnished the necessary details. Issue 3: Restriction of Disallowance Out of Transportation Expenses from ?53,074/- to ?26,537/- The AO disallowed 10% of the transportation expenses, totaling ?53,074/-, due to non-verifiable self-made vouchers. The CIT(A) reduced the disallowance to 5%, amounting to ?26,537/-, considering the non-verifiable nature of the expenses. The Tribunal upheld the CIT(A)'s decision, agreeing that a 5% disallowance was reasonable given the facts and circumstances of the case. Issue 4: Deletion of Addition of ?28,77,280/- on Account of Unexplained Investment in Construction The AO referred the matter to the DVO, who valued the construction of the hostel building at ?98,01,608/-, against the declared ?60,48,554/-. The AO added the difference of ?37,53,054/- under Section 69 of the IT Act, based on the DVO's report. The CIT(A) partly deleted the addition, allowing a deduction for self-supervision and applying PWD rates instead of CPWD rates, reducing the addition to ?8,75,774/-. The Tribunal remanded the issue back to the AO to recompute the self-supervision charges at 7.5% instead of 12.5% and to apply PWD rates, partly allowing the Revenue's appeal for statistical purposes. Conclusion: The Tribunal dismissed the Revenue's appeals on the first three issues, upholding the CIT(A)'s decisions. On the fourth issue, the Tribunal remanded the matter back to the AO for recomputation, partly allowing the Revenue's appeal for statistical purposes. The overall appeal of the Revenue was partly allowed for statistical purposes.
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