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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 ..... s and circumstances of the case and in law in confirming the disallowance of Rs. 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 in confirming the finding of fact arrived at by the learned AO that Smt. Kiran Puri was not a working partner of the appellant firm. Relief claimed: The said finding of fact be reversed. Disallowance of Rs. 63,650/- under s.40(a)(ia) read with s.194J 3. The learned CIT(A) erred on facts and circumstances of the case and in law in confirming the disallowance of Rs. 63,650/- by invoking s.40(a)(ia) read with s.194J. Relief claimed: Addition be directed to be deducted holding that s.40(a)(ia) read with s.194J is not applicable to the facts or for any other reason as may be argued. Disallowance for Motor Car Expenses - Rs. 1,19,201/- 4. The learned CIT(A) erred on facts and circumstances of the case and in law in confirming the disallowance of Rs. 1,19,201/- out of Motor Car Expenses. Relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership 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 detail with the AO and the A.O. rejected the Xerox copy of the partnership deed filed by the ld. Counsel for the assessee and accordingly the partners remuneration to the tune of Rs. 24,000/- was allowed, as against 68,47,498/- claimed by the assessee, vide assessment orders dated 24.12.2010 passed by the AO u/s 143(3) of the Act. 4. With respect to the remuneration paid to partner Smt. Kavita R. Puri, the assessee was asked to justify the expenses as remuneration to the partners. Details of experience, educational qualification in the line of business was enquired by the AO to enquire about reasonableness of the expenses, however, no justification was filed by the assessee. The A.O. observed that only reasonable expense was eligible for deduction and the same is applicable to remuneration to the partners also. Section 40(b) of the Act provides the method of calculation of maximum r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 the assessee is partnership firm carrying on the business of trading in garments and indenting commission since 1992 having two partners viz. Shri Rajnish R. Puri and Smt. Kiran R. Puri. The partners are mother and son and both are actively involved in the business. The assessee submitted that during the last few years, lot of travelling to China and other far eastern countries was required for the business of the assessee to procure material or the sellers has their offices and places where the end user is located. The entire travelling aspect was looked after by the younger partner i.e. Mr. Rajnish R. Puri , whereas the other partners Mrs. Kiran R. Puri was looking after the India operations and handling the office. The assessee submitted that the first partnership deed is dated 2nd November, 1991 and the second partnership deed is dated 1st April, 1995 (in this deed stamp papers date is 27-03-1995 while date of partnership is 01-04-1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Rs. 68,23,498/- after allowing only Rs. 24,000/- as salary to Mr. Rajnish R. Puri vide partnership deed 01-04-1995. The assessee prayed that the remuneration may be allowed in full. The assessee submitted the copy of the Balance Sheet, P&L account and tax audit report along with copy of return of income and also the relevant partnership deeds before the learned CIT(A). 10. With respect to the disallowance of remuneration of Rs. 27,38,999/- to Mrs. Kiran R. Puri, the A.O. disallowed the same on the ground that the partner's experience, educational qualification etc. are inadequate for such remuneration and there is no justification for the remuneration payable to the partner. The assessee submitted before the learned CIT(A) that the A.O. only asked information regarding the job profiles of all the partner's and no questions were asked about specific details about Mrs. Kiran R Puri and her working in the assessee firm. The assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income filed with the Revenue of its own and thus there is now double disallowance of the amount which is not permissible under the Act. The amount has already been disallowed, the same cannot be disallowed again. It was also submitted that is not known how the A.O. arrived at the figure of Rs. 63,650/- as no details were given by the AO in the assessment orders dated 24-12-2010 u/s 143(3) of the Act nor it was explained to the assessee during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act. 12. With regard to the motor car expenses and telephone expenses of Rs. 1,19,201/- and Rs. 95,680/- respectively being 20% of the expenses, it was submitted before the learned CIT(A) that these expenses were incurred for the purposes of business. The assessee further submitted that fringe benefit tax had already been paid @ 20% on motor car expenses and telephone expenses and since the assessee is liable to pay Fringe Benefit Tax(FBT) and has in-fact paid FBT on the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contacted again in remand report proceedings. The assessee reiterated the same submission as were given earlier before the learned CIT(A) vide rejoinder of the remand report and submitted that cognizance should be taken of the fact that the supplementary partnership deed dated 2nd April, 2003 is in existence and if this is done then remuneration to the partners have to be divided only on the basis of the partnership deed dated 2nd April, 2003. The learned CIT(A) rejected the contentions of the assessee and observed that since the proof of filing of supplementary partnership deed with the Revenue along with the return of income for assessment year 2004-05 has not been filed in the relevant assessment year i.e. 2004-05 as required u/s 184(4) of the Act, the A.O. is quite right to hold that no remuneration could be allowed other than that appearing in the original partnership deed dated 27-03- 1995(the correct dated is 01-04-1995) i.e Rs. 24,000/- per annum and accordingly denied the expenditure towards the remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 remuneration allowed to partners in the earlier years. There is no change in the partnership deed during the impugned assessment year. The ld. Counsel drew our attention to the order of the ld. CIT(A) and submitted that there is no change in the constitution of the firm. Tax audit report and audited Balance Sheet , Profit and Loss Account were duly submitted and the details of partnership deed are incorporated in the taxaudit report. The copies of income tax returns for assessment year 2005-06 and 2006-07 along with computation of income were also filed before the Tribunal which are placed in the file to establish that the higher remuneration was claimed by the assessee as per supplementary partnership deed dated 02-04-2003 which it was contended that the same has been accepted by the Revenue and no additions have been made. It was submitted that in each year, through tax audit report the contents of partnership deed are notified to the Revenue. The ld. Counsel drew our attention to the paper book page 21 whereby the tax audit repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO during assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act. No evidence has been brought on record regarding submission of the partnership deed during the year of change i.e. assessment year 2004-05 along with the return of income filed with the Revenue. The onus is on the assessee to submit the partnership deed to the Revenue in the year of change which has not been submitted. The learned DR relied upon the orders of the learned CIT(A) With respect to the other disallowance, the ld. D.R. submitted that the voluntary disallowance is with respect to the short deduction of taxes on professional fee u/s 194J of the Act and he relied upon the orders of the learned CIT(A). The ld DR also submitted that expenses @20% of motor car expenses and telephone expenses were rightly disallowed by the AO and confirmed by the learned CIT(A) as the personal element of expenses are not ruled out. The ld. D.R. further relied on the orders of authorities below. 18. We have considered the rival contentions and also perused the material placed on record. We have observed that the assessee is a partnership firm which was established in the year 1992 having two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the records that the assessee had claimed the deduction of higher remuneration of partnership based on supplementary partnership deed dated 02-04-2003 in the assessment years 2005-06 and 2006-07, it is averred by the assessee and not controverted by the revenue that now the revenue has disallowed the remuneration paid to partners as set out above for the first time on the grounds that the certified partnership deed dated 2-4- 2003 was not produced before the AO during the assessment proceedings u/s 143(3) read with Section 143(2) of the Act and also in the year of change in partnership deed on 02-04-2003 in the assessment year 2004-05, while the assessee has submitted that the changed partnership deed was duly furnished to the Revenue in the year of change as well in the assessment proceedings as well in appellate proceedings before the learned CIT(A) as well before the Tribunal. It is the say of the assessee which is not controverted by the Revenue that all these years, the remuneration so claimed per supplementary partnership deed dated 02-04-2003 stood allowed by the Revenue and no disallowance has been made by the Revenue authorities. In our considered view keeping in view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kiran R. Puri. It is also 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 contention of the Revenue. It is also the averment which has remained uncontroverted by the Revenue that the revenue has allowed the higher amount of remuneration paid to Mrs Kiran R Puri in the preceding years and the said Mrs Kiran R Puri has duly paid taxes in her personal return of income filed with the Revenue. Hence, in our considered view, the addition made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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