1993 (10) TMI 125 - AT - Income Tax

Summary

Issues:
1. Dispute over apportionment of share income among partners.
2. Interpretation of proviso to section 32AB regarding deduction allocation.
3. Justification of Assessing Officer's allocation of partners' income.
4. Disallowance of motor car expenses and depreciation.

Detailed Analysis:

1. Dispute over Share Income Apportionment:
The main issue in this case revolves around the apportionment of share income among the partners of the firm. The Assessing Officer allowed a deduction of Rs. 91,250 under section 32AB for the firm's purchases and deposits. However, the AO added back this deduction to the firm's income for apportionment among the partners. The CIT(A) upheld this action, leading to the appeal by the assessee.

2. Interpretation of Proviso to Section 32AB:
The counsel for the assessee argued that the Assessing Officer misinterpreted the proviso to section 32AB, inserted in 1987. The contention was that once the firm's income is computed, the AO has no authority to adjust the share income allocation. The counsel cited relevant sections like 182 and Supreme Court precedents to support the argument against double deductions and to emphasize the clear legislative intent.

3. Justification of AO's Allocation of Partners' Income:
The Departmental Representative supported the AO's action, stating that the proviso to section 32AB clearly prohibits deduction in partners' income when allowed to the firm. The contention was that the AO's allocation of income was in line with this provision, rendering the appeal meritless. However, the Tribunal analyzed the provisions of section 182 and the legislative intent behind the proviso to section 32AB to conclude otherwise.

4. Disallowance of Motor Car Expenses and Depreciation:
Another issue raised was the disallowance of motor car expenses and depreciation by the Revenue authorities. The Revenue disallowed expenses for personal use at 1/5th, while the assessee argued for a lower disallowance based on Tribunal decisions for previous assessment years. The Tribunal, following precedent, restricted the disallowance to 1/7th, thereby partially allowing the appeal.

In conclusion, the Tribunal found merit in the assessee's appeal regarding the allocation of income among partners, directing the AO to reallocate the firm's income in accordance with section 182 without adding back the deduction under section 32AB. Additionally, the Tribunal adjusted the disallowance of motor car expenses and depreciation based on previous decisions, partially allowing the appeal.