9911796707
TMI Blog2011 (10) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... tner would become allowable under the provisions of Income-tax Act. No doubt, in the case of Suman Construction (2008 (12) TMI 275 - ITAT PUNE-A) it was held that CBDT had no jurisdiction to substitute the term "authorise" occurring in section 40(b) by the term "quantify". However, this cannot be extended to mean that an authorization which is so vague that no proper quantification could be done would also be sufficient for a claim. Where the authorization is such that the correct quantification of the remuneration payable to a working partner cannot be done it cannot be construed as a type of authorization which would satisfy the requirement of section 40(b) as clause (8) of the deed dated 1st April, 2005 was vague and not susceptible to a meaningful quantification. The later deed dated 1st April, 2005 does not have any clause which would enable the assessee to fall back upon the old deed dated 10th April, 1997, in case of any deficiency therein. CIT(Appeals) fell in error directing the A.O. to delete the disallowance being remuneration paid to working partner considering it as not allowable as correct quantification of the remuneration payable to a working partner cannot be done, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(Appeals), submission of the assessee was that the firm was originally constituted by deed dated 10.4.1997 wherein remuneration to partners was clearly specified in a table and such table was in accordance with section 40(b) of the Act. Further, according to it, while reconstituting the firm on 1.4.2005, the relevant reconstitution deed specified remuneration to be paid to the sole working partner and amount payable was also clearly indicated. Argument of the assessee was that as per section 40(b) of the Act, remuneration once authorized under the deed of partnership could not be disallowed. As per the assessee, instead of repeating in a tabular format the limits for allowance specified under section 40(b) of the Act, it had stipulated such payment to be made in accordance with section 40(b) of the Act and therefore, according to it, A.O. was not justified in observing that remuneration was not specified in terms of 'money payable'. CIT(Appeals) was appreciative of these contentions. According to him, amount payable to the working partner was clearly specified in the deed and assessee in the reconstitution instead of repeating in verbatim the provisions of section 40(b) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts. Assessee-firm was constituted through a partnership deed on 10th April, 1997. In the partnership deed, clause (8) authorized remuneration to partners that was payable in the following manner:- "8. All the partners of the parties have agreed to devote their time and attention to the business of the partnership. It is hereby agreed that in consideration that FIRST part of the parties shall be entitled to draw yearly remuneration as follows: (i) The yearly remuneration payable to the FIRST part shall be calculated as under:- Particulars Remuneration (a) In case of loss Nil Or (b) In case of Income less than or Rs. 50,000/- Actual Income (c) In case of income above Rs. 50.000/- but less than Rs. 75.000/- 90% of the income or Rs. 50.000/- whichever is higher. Or (d) In case of income above Rs. 75.000/- but less than Rs. 1,50,000/- Rs. 67.500/- plus 60% of the income above Rs. 75,000/- Or (e) In case of income above Rs. 1,50,000/- Rs. 1,12,500/- plus 40% of the income above Rs. 1,50,000/- The partners are entitled to Salary for his day to day work in The firm as follows:- PARTNERS REMUNERATION 1. RASHEED KHAN : 100% (ii) For purpose of above calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not specified in terms of money. We find that Partnership Retirement Deed dated 1st April 2005 does not have a clause stating that the provisions of earlier deed dated 10th April, 1997 would apply wherever it had not been varied, altered, substituted, or deleted through the deed dated 1st April, 2005. Therefore, the question boils down to allowability of the claim of assessee on the basis of clause (8) of the deed of Partnership Retirement Deed dated 1st April, 2005. It does mention that Mr. Rasheed Khan was entitled to receive remuneration. In other words, this reconstituted deed has authorized the firm to give remuneration to Mr. Rasheed Khan. A method of computation is mentioned. It is that remuneration has to be computed as per Explanation 3 to section 40(b) of the Act. If we look at Explanation 3 to section 40(b) of the Act, it runs as under:- "Explanation 3.- For the purposes of this clause, "book-profit" means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is aggrieved that the CIT(Appeals) deleted the disallowance of Rs. 16,57,950/- made by the A.O. The said disallowance was on account of a loss on sale of flat at Saligramam claimed by the assessee in its profit and loss account which was not acceptable to the A.O. 12. Short facts apropos are that assessee in its Schedule No.5 forming part of its audited final accounts, had given a break-up of indirect expenses which included a sum of Rs. 16,57,950/- shown as loss incurred on sale of flat at Saligramam. A.O. was of the opinion that such toss was not proved to have been incurred in the course of assessee's business of civil construction but, on the other hand, incurred due to purchase and sale of land. Further, according to him, the purchase and sale were effected in close proximity of time and land value could not have depreciated to such a large extent in a prime location of the city. He, therefore, disallowed the claim of loss. 13. Before the CIT(Appeals), submission of the assessee was that the loss was on account of sale of the flat at Saligramam and circumstances giving rise to the loss was not considered by the A.O. According to it, A.O. was not justified in considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been disallowed. 16. We have perused the orders and heard the rival contentions. Assessing Officer's disallowance was based on two reasons - first, that the assessee was not engaged in the business of purchase and sale of land and second was that there could not have been depreciation in the value of land so as to claim loss on sale. Leaving aside the reasons given by the CIT(Appeals), we are of the opinion that both these assertions of the A.O. were misplaced. Assessee was engaged in the business of promoting commercial and residential flats and also by the partnership deed, authorized to carry on any line or lines of business. Even if we consider the authorization given in the partnership deed 'to carry on any other line or lines of business', to be ejusdem generis with the earlier terms of 'promoting commercial and residential flats', sale and purchase of land would still come within the ambit of the 'business' of the assessee. Clause (3) of the partnership deed as reproduced hereunder would bring out this clearly:- "The business of the firm shall be that of promoting commercial and residential flats or construct, maintain, alter, improve, reconstruct or otherwise deal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agar, finding it not viable and in order to meet financial commitments, it had effected the sale. He therefore, deleted the disallowance. 21. Now before us, learned D.R. assailing the order of the CIT(Appeals), made more or less similar submissions as he made in ground No.3. 22. Per contra, the learned A.R. strongly supported the order of the CIT(Appeals). 23. We have perused the orders and heard the rival contentions. The A.O. had made the disallowance of claim of loss on sale of T. Nagar property of the assessee, for the same reason as for the disallowance of the loss claimed by the assessee on its Saligramam property. We have vide paras 16 & 17 above, held that the disallowance of loss on sale of property at Saligramam was not called for in the circumstances. For the same reasons, we are of the opinion, that the disallowance of the loss claimed by the assessee on the sale of property at T. Nagar was also not called for. Ld. CIT(Appeals) was justified in deleting the disallowance. We do not find any reason to interfere in the order of the CIT(Appeals) and hence we dismiss this ground taken by the Revenue. 24. To summarise the result, the appeal of the Revenue is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the old flat in lieu of the amount due from him and that flat was sold at loss. As such, the loss was during the course of the business of the assessee and had to be allowed. The assessee also raised an alternative claim before the ld. CIT(A) that the amount was not collected, hence same ought to have been allowed as business loss. The assessee has duly filed explanation before the Assessing Officer and the loss could be allowed and even if it is not allowable as a loss, it has to be allowed as bad debt under section 36(1)(vii) of the Act. The ld. CIT(A) accepted the appeal of the assessee in this regard. 28. Before this Bench, in appeal, the Department has challenged the order of the ld. CIT(A) on this point and submitted that the assessee was engaged in the business of civil construction and not purchase and sale of land, so it could never be a loss in the business and otherwise, the real estate business was booming in the relevant period of time. So, the plea of the assessee about loss could not hold good and the same cannot be allowed. Moreover, there is no documentary evidence, whatsoever, such as purchase deed etc. by virtue of which the assessee was given the ownership o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee firm has been shown to be power of attorney holder and has signed such deed in that capacity only and, as per covenant at page 10, it is mentioned that "THUS the said Mr. S.S.R. Kalaivanan (the vendor herein) is truly seized and in absolute possession and in enjoyment of the property being shop bearing No.1, situated in the Ground Floor of Anubhav S.S.R. Pankajam Enclave at No.24, Arunachalam Road, Saligramam, Chennai - 93 measuring 1050 sq.ft. constructed area (which includes common area) together with 530.18 sq.ft. undivided of share out of total extent of 21600 sq.ft. in the said premises comprised in Survey Nos. 143/1, 143/2, 144/1 and 144/2 of Saligramam Village, Egmore-Nungambakkam Taluk, morefully described in the schedule hereunder." 31. Besides, nothing has been brought on record to justify the plea raised by the assessee and otherwise also as per the recital clause and under other clause of the deed, purchaser had paid Rs. 13,42,050/- as sale consideration to the vendor by way of cash at the time of execution of the document and the vendor has admitted in the acknowledgement of the receipt of the payment of Rs. 13,42,050/- and it is categorically mentioned in the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord, it could be seen that the Assessing Officer has not properly considered and appreciated the issue while deciding the said loss amount as claimed by the assessee and even did not look into the documentary evidence placed before him at assessment stage, which is apparent from the fact that in para 4 of his order, he is discussing about short term loss on sale of land, whereas this is a case of sale of shop giving his logic that land cannot depreciate to such a large extent in prime location of the city while mentioning about direct expenses of the claim of the assessee. The ld. CIT(A), in appeal has also not appropriately dealt with the issue when he is mentioning loss on sale of flat when it is a shop and that too without considering whether such property, about which appeal is being considered and decided, has ever been acquired by the assessee, and whether the assessee has become first an absolute owner of the property before alienating the same in order to claim loss and from all this, it can be inferred that the ld. CIT(A) did not consider the factual aspect or legal position to ascertain the justification of claim of the assessee before allowing the same. So, the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be treated as business loss and the AO is not justified in treating the same as 'capital loss' and disallowing the same. 68 I have considered the submissions of the appellant's representative and the reasoning of the AO. I am of allowed as business expenditure or in the alternative, the loss could even be allowed as a bad debt u/s 36(vii) of the Income tax Act, 1961, as the amount has already been written off in his books of account and the amount could not be realized, seems to be acceptable. Since the appellant explained the circumstances under which the loss having been incurred in the course of business, I direct the AO to allow the loss of Rs. 36,83,334/- on sale of land incurred by the appellant. The appellant succeeds on this ground." 34. Aggrieved by this order of the ld. CIT(A), the Department has come up in appeal and the ld. DR submitted that firstly no document has been adduced by the assessee to show that he has become owner of the plot of land measuring 2 grounds and 670 sq.ft. when two separate sale deeds have been executed, wherein Shri A. Rasheed Khan, who is partner of the assessee firm is shown to be power of attorney holder, who has executed sale deeds in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee despite having made efforts and the assessee was in need of money, therefore, he had to sell the land purchased even at loss and this way loss was incurred, which is business loss during the course of normal business activity, which had to be allowed and the ld. CIT(A) considering all these facts has deleted the addition made by the Assessing Officer, whose action is proper and justified, which should be upheld. 36. After having heard both the sides and considering the material on record, it is found that as per the documentary evidence produced and placed from pages 22 to 29 of the compilation filed dated 22.11.2010, by virtue of which Shri K. Rasheed Khan is shown to have agreed to purchase plot of land measuring 2 grounds and 670 sq.ft. (5470 sq.ft.) through an agreement of sale entered into between Shri K. Rasheed Khan, partner of the assessee firm with 4 sellers namely Mrs. Sukanya Rajagopalan, Mrs. Srimathi Sundararajan, Smt. Mythili Venugopalan and Smt. Nirmala Prabhakar for a sum of Rs. 2.06 crores. This also stipulated in the said agreement that Rs. 50 lakhs have been received at the time of execution of this agreement and rest of Rs. 1.56 crores would be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -called seller of the land to the partner of the assessee's firm has been filed nor any other document to show what was the extent of authority given to the attorney holder and whether any absolute right in property has been conferred upon the assessee at any point of time. Since all these aspects have not been looked into or considered during assessment and the Assessing Officer has disallowed the claim of loss by passing very sketchy order in this regard and the ld. CIT(A) has just given the relief by deleting the disallowance made when major issues are there, which requires proper investigation and probing, therefore, in the interest of justice and to have fair play in the matter, orders of authorities below in this regard are set aside and matter is restored back on the file of the Assessing Officer for reconsideration of the issue afresh after investigating the claim of the assessee thoroughly and properly after considering extent of area acquired and sold by giving opportunity of being heard to the assessee. it is held and ordered accordingly. REFERENCE UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 As there is difference of opinion between the Members constituting the Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the learned Judicial Member upheld the order of the assessing authority and set aside the orders of the Commissioner of Income-tax(Appeals) and thus dissented from the view of the learned Accountant Member. 5. It is with reference to the above two disallowances, namely, loss on sale of flat and loss on sale of land that the question is referred to the Third Member. 6. I considered the matter in detail. The assessee has claimed a loss of Rs. 16,57,950/- as loss incurred on sale of flat at Saligramam. The said sum of Rs. 16,57,950/- related to indirect expenses incurred in connection with the sale of flat at Saligramam. The other loss of Rs. 36,83,334/- was claimed by the assessee in respect of sale of land at T.Nagar. Both the losses have been disallowed by the assessing authority on the following grounds:- (i) The assessee has not proved that the losses were incurred in the course of assessee's business of civil construction. On the other hand, the losses were incurred while making purchase and sale of those properties. (ii) On considering the proximity of time of purchase and sale of properties, there could not have been such a fall in their prices and consequently ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Accountant Member held that there is no justification for the disallowance of the losses arising out of the sale of the two properties. He accordingly upheld the orders of the Commissioner of Income-tax(Appeals). 11. The learned Judicial Member, on the other hand, has set aside the orders of the Commissioner of Income-tax(Appeals) on the above two disallowances and remitted back the issues to the assessing authority to pass fresh orders after conducting necessary enquiries. The learned Judicial Member has come to the above conclusion on the ground that the chronology and sequence of the transactions have not been fully explained by the assessee firm especially in the light of the fact that Shri K.Rasheed Khan, one of the partners of the assessee firm was acting only as a power of attorney holder and there is no material to come to the conclusion that the firm had got rights in the respective properties before alienating them. 12. After considering the case, I am of the view that the learned Judicial Member has overlooked the salient facts of the case and has rather been led by theoretical aspects of the law relating to transactions of immovable properties. He has overlooked th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
