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TMI Blog2018 (8) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... capital introduced was not genuine. 5. Before us, ld A.R. argued that Smt. Lalita Jain was an income tax assessee and had filed her return of income for the assessment years 2011-2012 and 2012-2013. He enclosed copy of the balance sheet of Smt. Lalita Jain for the year ended 31.3.2011 and pointed out therefrom that she had cash in hand of Rs. 11,34,850/-. He further pointed out that it can be seen from the balance sheet as on 31.3.2012 that Smt Lalita Jain had cash in hand of Rs. 13,39,090/-. Hence, it was his submission that from her cash in hand of earlier assessment years, Smt. Lalita Jain introduced her capital in the firm of Rs. 11 lakhs by cash. Hence, the Assessing officer and the CIT(A) were not justified in holding that the transaction was not genuine and that Smt. Lalita Jain did not have the creditworthiness for introducing capital in her name in the firm. He further submitted that no addition in the hands of the firm can be made on account of introduction of capital by the partner of the firm where the partners have owed that the monies deposited in their account are their own. The Assessing Officer is entitled or may proceed against the partners and assess the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they were the profits of the firm, it could not be assessed in the hands of the firm. No material has been brought on record by the Revenue to show that the amount of Rs. 11 lakhs shown as capital introduced by the partner Smt. Lalita Jain was the profits of the firm. Therefore, in view of the decision of Hon'ble Allahabad High Court in the case of Jaiswal Motor Finance (supra), no addition in the hands of the firm can be made as unexplained cash credit u/s.68 of the Act. We, therefore, set aside the orders of lower authorities and delete the addition of Rs. 11 lakhs and allow this ground of appeal of the assessee. 10. In Ground No.2 of the appeal, the grievance of the assessee is that the CIT(A) erred in confirming the action of the Assessing Officer in not allowing deduction for partner's remuneration u/s.40(b) of the Act. 11. The facts of the case are that the Assessing Officer observed that the assessee has claimed deduction of Rs. 6,64,923/- towards remuneration to partners. He observed that as per clause -11 of the partnership deed, remuneration will be payable to partners as per provisions of section 40(b) of the Act. He observed that this quantification of the remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot issue a circular which goes against the provisions of the Income- tax Act, 1961. The Board can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A reading of section 40(b)(v) clearly shows that amount of remuneration which does not exceed the amount specified in the Act is deductible. The Board has provided that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of qualifying such remuneration. The circular has to be read along with section 40(b)(v) and has to be made subject to section 40(b)(v) . This section does not lay down any condition of fixing the remuneration or the method of remuneration in the partnership deed. All that the section provides is that in case the payment of remuneration made to any working partner is in accordance with the terms of the partnership deed and does not exceed the aggregate amount as laid down in the subsequent portion of the section the deduction is permissible. The assessee was a firm. The partnership deed provided that the working partners were to be actively engaged in looking af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever in case of loss or inadequate profit, the partners may reduce the remuneration to NIL or up to available Profit." 20. Thus, we find that above clause of the partnership deed provides for payment of remuneration to partners which would be as per the provisions of the Act, which meant that the remuneration payable to partners would be quantified as per the provisions of the Act and shall not exceed the maximum remuneration provided. It is not in dispute that the partners were paid remuneration, which was less than the maximum provided by the Act. None of the authorities have disputed the payment of remuneration and has accepted the books of account of the assessee as correct and, therefore, the remuneration was deductible while computing the income of the assessee firm. We, therefore, set aside the orders of lower authorities and delete the disallowance of Rs. 6,64,923/- and allow this ground of appeal of the assessee. 21. In Ground No.3 of the appeal, the grievance of the assessee is that the CIT(A) erred in confirming adhoc disallowance of 20% out of salary paid to employees by the firm. 22. The Assessing Officer observed that the assessee claimed salary of Rs. 35,50,800/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is that no disallowance out of genuine business expenditure of the assessee incurred wholly and exclusively for the purposes of business can be made without bringing any material on record to show that either the expenses claimed are excessive or bogus. As no such material has been brought on record, the disallowance cannot be made and sustained. 29. We find force in the submission of ld A.R. of the assessee. We find that no material has been brought on record by the revenue to show that the expenses claimed on account of salary expenses to staff is excessive or inflated. The disallowance made by the Assessing Officer is only on the ground that in his opinion, the expenses claimed are not corroborated with justifiable facts. In our considered view, merely on the basis of surmises and conjectures of the Assessing Officer, no disallowance of expenditure made by him out of genuine business expenditure of the assessee can be sustained in law without any material being brought on record to show that either the expenses are not genuine or they are inflated. We, therefore, set aside the orders of lower authorities and vacate the disallowance of Rs. 2,55,080/- and allow this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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