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TMI Blog2016 (7) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... 03 was not filed by the assessee as contemplated by the Revenue on the facts as are emerging from the records and the disallowance made by the revenue authorities is not sustainable - Decided in favour of assessee Remuneration paid to Mrs. Kiran R. Puri disallowed on the grounds of that the said Mrs Kiran R Puri is not a working director and the remuneration is excessive - Held that:- It is the case of the assessee that for all the years the Revenue has allowed the remuneration paid to Mrs Kiran R Puri while this is the only year when disallowance of the Remuneration paid to Mrs Kiran R Puri was made by the Revenue. It is brought on record vide return of income for the assessment year 2005-06 and 2006-07 that the remuneration was claimed by the said Mrs Kiran R Puri. The explanation submitted by the assessee is bona fide which has not been controverted by the Revenue and there is no valid reason to disallow the remuneration paid to Smt. Kiran R. Puri in this year alone based on the bald statement without bringing on record cogent incriminating material on record.No enquiry has either been conducted by the Revenue nor any incriminating material is brought on record to support the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Per Ramit Kochar, Accountant Member This appeal, filed by the assessee-firm, being ITA No. 7188/Mum/2013, is directed against the order dated 27-09-2013 passed by learned Commissioner of Income Tax (Appeals)- 27, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 24-12-2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee-firm in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- Remuneration to partners s. 40(b)(v) 1. The learned CIT(A) erred on facts and circumstances of the case and in law in confirming the disallowance of ₹ 68,23,498/- being remuneration to working partners allowable under s.37 read with s.40(b)(v) of the Income-tax Act, 1961. Relief claimed: The said remuneration be directed to be allowed. Incorrect finding of fact 2. The learned CIT(A) erred on facts and circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of ₹ 24,000/- per annum , whereas the remuneration allowed and paid to the partners during the year was ₹ 68,47,498/-. When the learned counsel for the assessee was confronted with the above fact, it was submitted by the learned counsel of the assessee that the deed of partnership dated 27-03- 1995 filed earlier was not a final deed and there is one more supplementary partnership deed. The assessee-firm submitted the Xerox copy of fax of the supplementary partnership deed dated 2nd April, 2003 which was not certified by the partners and was also not legible. The A.O. observed that u/s 184(4) of the Act, the assessee was to file new deed of partnership whenever there were change in the partnership deed. The A.O. asked the assessee to produce evidence of filing of new supplementary partnership deed dated 02-04-2003 with the Revenue in the year when there was change in partnership deed and to file certified true copy of partnership deed. Show cause notice was also issued dated 16th December, 2010 asking the assessee to file the partner s capital account w.e.f. financial year 2002-03, to ascertain the authenticity of the partnership deed. The assessee did not submit any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the car is purchased in the name of the partner and not in the name of assessee firm. The assessee was asked to produce the log book or other record for verification, however, no log book or other record was produced by the assessee. The AO observed that the assessee-firm should have disallowed reasonable expenses on its own and in the absence of this suo-motu disallowance , the AO disallowed motor car expenses of ₹ 1,19,201/- being 20% expenses of ₹ 5,96,004/- i.e. ₹ 1,19,201/-were estimated as personal expenses and were disallowed , vide assessment orders dated 24.12.2010 passed by the AO u/s 143(3) of the Act. 7. Similarly, the A.O. disallowed an amount of ₹ 95,680/- being 20% of expenses of ₹ 4,78,401/- towards personal use of telephone by partners which is not ruled out in the absence of suo motu disallowance by the assessee on its own, vide assessment orders dated 24.12.2010 passed by the AO u/s 143(3) of the Act. 8. Aggrieved by the assessment orders dated 24.12.2010 passed by the A.O. u/s 143(3) of the Act, the assessee-firm filed its first appeal before the learned CIT(A). 9. Before the learned CIT(A), the assessee submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Rajnish R. Puri appeared before the A.O. on 27th December, 2010 i.e. Monday but by that time the assessment order dated 24-12-2010 u/s 143(3) of the Act was already passed. A letter was also submitted to the A.O. by Mr. Rajnish R. Puri during his meeting with AO on 27-12-2010 explaining the facts and copy of the said letter was also furnished before the learned CIT(A). It was also submitted before the learned CIT(A) that the younger partner Mr. Rajnish R. Puri was shifting his base from India to China to take up employment in China to further the business that was being done, and w.e.f. August, 2010 the entire family including the children were in China who have also taken up schooling in China, thus, it was possible to return to India only in Christmas vacation after 22nd December, 2010. The Revenue has completed the assessment u/s 143(3) of the Act in the meantime on 24-12- 2010 and only certified partnership deed was to be submitted and all other submissions were made. The A.O. had rejected the contentions of the assessee as the supplementary deed of partnership dated 02-4-2003 is not valid as per the AO and the AO disallowed the remuneration to partners to the tune of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid to partner Mrs. Kiran R. Puri of ₹ 27,38,999/- , aggregating amounting to ₹ 68,23,498/-. 11. With respect to the disallowance for non-payment of tax deducted at source on professional fees amounting to ₹ 63,650/-, it was submitted by the assessee before learned CIT(A) that in the tax audit report in Annexure-6 it has been stated that tax deducted at source of ₹ 4,629/- on professional fees had not been paid. The assessee submitted that out of the total tax deducted at source amount for the month of March of ₹ 5659/- , out of which an amount of ₹ 1,030/- had been paid on 15th May, 2011 and thus the remaining was only ₹ 4629/- which had been missed out to be paid. On the TDS of ₹ 4629/-, it amounts to a fee of ₹ 44,944/- as per prescribed rates of tax deducted at source u/s 194J of the Act by making reverse calculation which needs to be disallowed. It was submitted that in the computation of income filed along with the return of income with the Revenue, the said amount had been paid without deduction of tax at source, hence, the assessee disallowed the same of his own in the computation of income filed with return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired the assessee to submit proof of filing the supplementary deed of partnership deed dated 02-04-2003 before the Revenue with the return of income for assessment year 2004-05 as provided u/s 184(4) of the Act. However, no submissions were made before the AO and he did not took cognizance of the Xerox copy of the partnership filed by the assessee and made the additions as per assessment orders dated 24.12.2010 passed u/s 143(3) of the Act. The assessee filed copy of supplementary partnership deed dated 2-4-2003 now signed by the partners before the learned CIT(A), which as per learned CIT(A) is a fresh evidence which was not available before the A.O. . The learned CIT(A) called for the Remand report from the A.O. , whereby the A.O. reiterated same findings as was given earlier on this issue vide assessment orders dated 24.12.2010 passed u/s 143(3) of the Act. In the rejoinder, the assessee submitted that the A.O. has not given any opportunity to the assessee and hence again fresh remand report was called by the learned CIT(A) from the AO. Again the same finding was reiterated by the A.O. and since there was change in the address of the assessee , the assessee could not be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip deed was dated 27th March, 1995(correct dated 01-04-1995) and thereafter supplementary deed dated 2nd April, 2003 was executed which was also produced. The fax copy of supplementary partnership deed dated 02-04-2003 was produced before the AO as the partners were travelling to China and soon after their arrival in India, on 27-12-2010 the partner Mr. Rajnish R. Puri duly appeared before the AO with the original supplementary deed of partnership deed dated 02- 04-2003 and also certified copy of partnership deed but by that time the AO had passed the assessment orders u/s 143(3) of the Act on 24-12-2010. The said supplementary deed of partnership dated 02-04-2003 was produced before the learned CIT(A) during the first appellate proceedings. It was submitted that the revenue has accepted the supplementary partnership deed dated 2nd April, 2003 in preceding assessment years whereby the higher Remuneration paid to the partners has been allowed since the assessment year 2004-05 based upon the supplementary partnership deed dated 02-04- 2003 till the assessment year 2007-08 and this is the first year the disallowance has been made by the Revenue. The Revenue has also not disturbed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order dated 24-12-2010 framed by the AO u/s 143(3) of the Act. In this connection the ld. Counsel drew our attention to paper book page 38 which is placed on record and it was submitted that the assessee is not aware of the break-up of disallowance of ₹ 63,650/-- u/s 40(a)(ia) of the Act read with Section 194 J of the Act. With respect to the motor car and telephone expenses of 20% disallowed by the AO, it was submitted that FBT was duly paid on these expenses and hence further disallowance is not warranted . It was submitted that the matter can be decided based on the material placed on record. 17. The ld. D.R., on the other hand, submitted that section 184(4) of the Act has not been complied with and hence disallowance of the Remuneration paid to the partners were rightly made by the AO as contemplated u/s 185 of the Act. The assessee has not submitted the supplementary partnership deed dated 2nd April, 2003 in the year of change as well during the assessment proceedings before the AO and only un-authenticated copy was submitted before the AO during assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act. No evidence has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locker in Mumbai while partners were in China when assessment proceedings u/s 143(3) read with Section 143(2) of the Act, were going on before the AO but the same copy was not certified and was also not legible. When the partner Mr Rajnish R Puri returned to India and appeared before the Revenue authorities on 27-12-2010 and produced the duly signed and certified copy of the partnership deed along with the letter before the AO , but by that time the assessment order dated 24-12-2010 u/s 143(3) of the Act was already passed and the revenue has disallowed the remuneration paid to the partners of ₹ 68,23,498/- for the reasons as set out above. The assessee also produced the certified copy of the supplementary partnership deed dated 02-04-2003 before the learned CIT(A) and also in the remand proceedings. From the averments made by the assessee which has remained uncontroverted by the Revenue as well income tax returns placed on record for the assessment year 2005-06 and 2006-07 which are placed in file, we have observed from the appreciation of the facts as emerging from the records that the assessee had claimed the deduction of higher remuneration of partnership based on supplem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 taxmann.com 258(All.) and decision of Hon ble Rajasthan High Court in the case of CIT v.Asian Marketing (2013) 31 taxmann.com 136(Raj.).We order accordingly. The other contention of the assessee is with respect to the remuneration paid to Mrs. Kiran R. Puri which was disallowed on the grounds of that the said Mrs Kiran R Puri is not a working director and the remuneration is excessive. We have observed that it is stated that Mrs. Kiran R. Puri was looking after the day-to-day affairs of the firm. It is stated that She was partner since inception of the firm and looking after all the finance and administrative matters of the business after the death of her husband till her son was capable of running the business. No cogent incriminating material was brought on record by the revenue to substantiate their findings that the remuneration is excessive or the said Mrs Kiran Puri is not a working partner , while the assessee is further contemplating that when the other partner Mr Rajnish R. Puri is out of Mumbai for business, the entire business activities are looked after by Mrs. Kiran R. Puri. It is also the case of the assessee that for all the years the Revenue has allowed the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove the basis and working of voluntary disallowance of professional fee of ₹ 44.950/- u/s 40(a)(ia) of the Act read with Section 194J of the Act so that the double additions can be eliminated. The A.O. is also directed to provide the details and working of disallowance of professional fee of ₹ 63,650/- so that the reconciliation of both the workings is undertaken and no double additions of the same income be made which is not permissible under the provisions of the Act. We order accordingly. With respect to the other expenses pertaining to motor car and telephone of 20% disallowed by the Revenue, it is observed that the assessee firm has duly paid the FBT on these expenses , the details of which are produced vide paper book page 31 and placed on record which is part of the tax audit report. In our considered view, if the said expenses are subjected to FBT , no further disallowance is called for in the absence of any incriminating material on record. No defects have been pointed out by the A.O. in the assessment order dated 24-12-2010 u/s 143(3) of the Act while making disallowance which was made based on estimates and the same was confirmed by the ld. CIT(A) in his ..... 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