2018 (6) TMI 1392 - AT - Income Tax

Disallowance of remuneration to partners u/s 185 - assessee submitted only photo copy of the partnership deed and failed to provide certified copy of the same as required under section 184 - Held that - The assessee has claimed before us that it had filed the original partnership deed before the Ld. CIT(A), however, same was ignored on the ground that no application under Rule 46A of the Income Tax Rules, 1962 was filed. The assessee has produced the original partnership deed before us. Thus, there is no doubt as the original partnership deed exists, but the assessee is required to make compliance of section 184(2) of the Act by way of filing a copy of the partnership deed duly certified in writing by all the partners. When the original copy is available with the assessee, we do not find any difficulty in filing copy of the said partnership deed duly certified by all the partners, as long as the original deed is genuine - restore this issue to the file of the Assessing Officer, with a direction to the assessee to comply with the provisions of section 184(2) - decided in favour of assessee for statistical purposes. Disallowance on account of vehicle maintenance expenses - Held that - The onus is on the assessee to substantiate that the expenses debited under the head vehicle maintenance expenses have been incurred wholly and exclusively for the purpose of the business irrespective of the fact, whether the same are incurred on fuels or the repair of the vehicles - restore this issue to the file of the Assessing Officer and before him the assessee may produce logbook of the vehicles or any other evidences to substantiate its claim of expenses incurred for business purposes. In case of absence of any logbook or other evidence, the Assessing Officer may consider for disallowing reasonable expenditure towards possible personal use by the partners of the firm, in accordance with law. Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Legality and factual correctness of the order by the CIT(A) sustaining the Assessing Officer's decision.
2. Disallowance of remuneration paid to partners amounting to ?69,30,000 under Section 185 of the Income Tax Act, 1961.
3. Adoption of the appellant's status as an Association of Persons (AOP) instead of a Firm.
4. Disallowance of vehicle maintenance expenses amounting to ?1,75,492.
5. Principles of natural justice in the orders passed by the CIT(A) and Assessing Officer.

Detailed Analysis:

1. Legality and Factual Correctness of the Order by CIT(A):
The appellant contended that the CIT(A) erred in law and on facts by sustaining the Assessing Officer's decision. This general ground was deemed covered by other specific grounds raised, thus not requiring separate adjudication.

2. Disallowance of Remuneration to Partners (?69,30,000):
The core issue was the disallowance under Section 185 of the Income Tax Act, 1961, due to non-compliance with Section 184. The Assessing Officer disallowed the remuneration because the appellant failed to provide a certified copy of the partnership deed as required. The CIT(A) upheld this disallowance, noting that the appellant did not produce the original partnership deed or a certified copy during the assessment. Despite the appellant's claim of submission, the CIT(A) found no evidence in the assessment records supporting the appellant's assertion. The Tribunal noted that the original partnership deed was produced before it and decided to restore the issue to the Assessing Officer for verification of the certified copy of the partnership deed and its genuineness. The appellant was directed to comply with Section 184(2) by submitting a copy certified by all partners.

3. Adoption of Appellant's Status as AOP Instead of Firm:
This issue is intertwined with the disallowance of remuneration to partners. The appellant argued that it had been assessed as a firm in previous years and that the partnership deed was duly submitted. The Tribunal's decision to restore the issue of the partnership deed's certification to the Assessing Officer implicitly addresses this concern, as proper verification would clarify the appellant's status.

4. Disallowance of Vehicle Maintenance Expenses (?1,75,492):
The Assessing Officer disallowed these expenses, noting no vehicles were owned by the firm as per the depreciation chart and that separate tour and travel expenses were already debited. The CIT(A) confirmed this disallowance, observing that the expenses appeared personal, related to vehicles not owned by the firm but by individuals. The Tribunal found that the appellant failed to substantiate that the expenses were incurred for business purposes. It restored the issue to the Assessing Officer, directing the appellant to provide evidence such as a logbook to prove the expenses were for business purposes. In absence of such evidence, the Assessing Officer may disallow reasonable expenses for personal use by partners.

5. Principles of Natural Justice:
The appellant claimed that the orders by the CIT(A) and Assessing Officer violated principles of natural justice. This general ground was not separately adjudicated as it was covered by the specific grounds discussed.

Conclusion:
The appeal was allowed for statistical purposes, with directions to the Assessing Officer to verify the partnership deed's certification and the genuineness of vehicle maintenance expenses, ensuring compliance with relevant provisions of the Income Tax Act. The Tribunal emphasized providing adequate opportunity for the appellant to be heard.