2019 (4) TMI 874 - AT - Income Tax

Disallowance u/s 40(a)(ia) for non deduction of TDS - advertisement charges - HELD THAT - Ld AR argued that let this issue be restored back to the file of the AO to verify the fact of inclusion of the subject mentioned receipts in the income of the payees and once it is done, the assessee should not be fastened with disallowance u/s 40(a)(ia) in the light of second proviso to section 40(a)(ia) r.w.s 201(1) which although was introduced by the Finance Act 2012 has been held to be retrospective in operation by the decision of Hon ble Jurisdictional High Court in the case of Pr. CIT Vs Tirupati Construction 2016 (8) TMI 1310 - CALCUTTA HIGH COURT . Hence in the interest of justice and fair play, I deem it fit and appropriate to remand this issue to the file of AO for de novo adjudication in the light of second proviso to section 40(a)(ia) r.w.s 201(1). The assessee is also at liberty to furnish additional evidences, if any, in support of his contentions. - grounds allowed for statistical purposes. Disallowance of remuneration/ commission - lady partners also working in another partnership firm and getting remuneration - neither disputed nor disbelieved that the said two lady partners are working partners and have working knowledge of the business in which the assessee firm was engaged - business of selling sarees & salwar suits - HELD THAT - The only ground on which the Ld. CIT(A) has upheld the disallowance is that he did not believe that the two lady partners could simultaneously work for two partnerships and draw remuneration/ commission. However there is no law which prohibits a person to work in more than one partnership firms and draw remuneration therefrom. All that Section 40(b) requires is that the remuneration should be paid to a working partner and there is no prohibition either in the Income-tax Act, 1961 or the Indian Partnership Act, 1932 debarring a partner to draw remuneration from more than one partnership firms. In the circumstances, I do not find any reason to uphold the disallowance merely because two working partners of the assessee firm were also working partners of another firm namely M/s Lal Fashion and in that capacity derived remuneration from two firms. - grounds of appellant allowed.

Summary

Issues:
1. Disallowance of advertisement charges under section 40(a)(ia) of the Income Tax Act.
2. Disallowance of remuneration/commission paid to partners under section 40(b) of the Income Tax Act.

Issue 1: Disallowance of Advertisement Charges under Section 40(a)(ia) of the Income Tax Act:
The appellant, a partnership firm dealing in sarees and salwar suits, appealed against the disallowance of advertisement charges and remuneration/commission by the Ld. CIT(A) for the Assessment Year 2012-13. The AO disallowed advertisement charges of ?10,20,144 for non-deduction of tax under section 40(a)(ia) of the Act. The appellant argued that since the amount was paid during the year, the provisions of section 40(a)(ia) were not applicable as it applied only when the amount remained payable at year-end. However, the Ld. CIT(A) upheld the disallowance citing the judgment of the Supreme Court in the case of Palm Gas Services Vs CIT. The ITAT Kolkata remanded the issue back to the AO for fresh adjudication considering the retrospective operation of the second proviso to section 40(a)(ia) read with section 201(1) of the Act, allowing the appellant to provide additional evidence.

Issue 2: Disallowance of Remuneration/Commission Paid to Partners under Section 40(b) of the Income Tax Act:
The second issue revolved around the disallowance of remuneration/commission paid to two women partners who were also partners in another firm. The Ld. CIT(A) partially confirmed the AO's disallowance of commission paid to two partners, citing their involvement in another partnership firm. The ITAT Kolkata noted that the disallowance was made based on conjectures and allowed the appeal, emphasizing that there is no legal prohibition for a partner to draw remuneration from more than one partnership firm. The ITAT held that the disallowance of commission/remuneration paid to the partners was unjustified, as both partners were actively involved in the business and had the capacity to render services. Consequently, the disallowance was deleted, and the additional grounds taken by the appellant were allowed.

In conclusion, the ITAT Kolkata partly allowed the appeal of the assessee for statistical purposes, emphasizing the need for a fresh adjudication on the disallowance of advertisement charges and overturning the disallowance of remuneration/commission paid to partners.