2013 (12) TMI 1097 - AT - Income Tax

Deduction u/s 40(b) liquor business - whether the assessee is to be treated as a firm and consequent benefit of salary and interest would be given to the partners - Held that - Following assessee s own case for the A.Y. 2003-04, 2005-06 and 2006-07 - From 1-4-1994 sections 184/185 have been amended and the earlier procedure of examining genuineness of firm has been dispensed with - As per the amended law, the firm shall be allowed registration if a certified copy of a deed, duly signed by all the partners showing the shares of the partners is filed, the firm is allowed to be registered - U.P. Excise policy does not prohibit constitution of partnership firm for carrying liquor business, so also licenses obtained by individuals can be converted into partnership firm on compliance of certain requirement - The assessee firm is eligible for registration u/s 184/185 and consequently eligible for deduction u/s 40(b) in respect of salary, interest as per law Decided against Revenue.

Summary

Issues:
1. Deletion of ad hoc disallowance of expenditure by the ld. CIT (A).
2. Treatment of the assessee as a firm instead of an AOP by the ld. CIT (A).

Issue 1: Deletion of ad hoc disallowance of expenditure by the ld. CIT (A):
The revenue appealed against the deletion of an ad hoc disallowance of Rs. 5,00,000/- out of the total expenditure claimed by the assessee for A.Y. 2009-10. The Assessing Officer made this disallowance based on unverifiable expenses, leading to a lump sum disallowance. However, the ld. CIT (A) deleted this disallowance, emphasizing that the Assessing Officer did not properly examine the books of account or demonstrate why the expenses were not admissible. The Tribunal analyzed Section 145 of the Income Tax Act, which governs income computation, highlighting the importance of following the accounting method regularly employed by the assessee. The Tribunal noted that the Assessing Officer failed to specify the defective expenses or provide a detailed explanation for disallowance, especially considering similar disallowances in previous years that were overturned by higher authorities. Ultimately, the Tribunal upheld the ld. CIT (A)'s decision, rejecting the revenue's appeal on this issue.

Issue 2: Treatment of the assessee as a firm instead of an AOP by the ld. CIT (A):
The revenue contested the ld. CIT (A)'s decision to treat the assessee as a firm, rather than an Association of Persons (AOP), resulting in relief on salary and interest paid to partners. The Tribunal referred to previous years' cases where the Tribunal held the assessee to be a firm, granting benefits to partners. The Assessing Officer acknowledged the Tribunal's classification but cited a pending appeal before the High Court as a reason to treat the assessee as an AOP. However, the ld. CIT (A) aligned with the Tribunal's classification as a firm, leading to the allowance of benefits to partners. The Tribunal upheld the ld. CIT (A)'s decision, finding no error and rejecting the revenue's appeal on this issue.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the ld. CIT (A)'s decisions regarding the deletion of ad hoc disallowance of expenditure and the treatment of the assessee as a firm. The judgment emphasized the importance of proper examination of expenses and adherence to accounting standards while computing income, ultimately upholding the decisions made by the ld. CIT (A) in both issues.