TMI Blog2014 (7) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to notice u/s 148 and disposing of the same by AO were not substantially fulfilled. Therefore, the re-assessment proceedings cannot be held to be bad in law – Decided against Assessee. Deduction for remuneration paid to partners – Held that:- Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that, the appellant has accepted that clause 2 does not quantify or provide the manner of computing remuneration payable to the partners but stipulates the maximum amount payable - the limits specified u/s 40 (b) (v) are incorporated and have become part and parcel of the partnership deed but not the amount or the quantum remuneration - payment was not in accordance with the terms of the supplementary partnership deed dated 1st April, 1992 though authorized by the deed - The remuneration was paid in terms of a subsequent understanding between the two partners regarding the quantum and the amount to be paid - the remuneration is not specified - The manner of computing the remuneration is not specified - the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum - Remun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e specific method of quantification thereof as laid down in section 40 (b) (v). He pointed out that facts for the assessment year 2003-04 were same as for assessment year 2007-08 and, therefore, he issued notice u/s 148 on 13th March, 2010 for disallowing the claim regarding partner s salary of ₹ 15,19,000/-. After considering the assessee s submissions, he made an addition on ₹ 12,01,344/- on account of disallowance of salary/ remuneration paid to partners. Before Ld. CIT (A) the assessee assailed the initiation of proceedings u/s 147 /148 of the Act on following grounds: (i) The assessee had not been provided with the reasons for initiating proceedings U/s /147/148 of the Act in spite of its repeated requests vide letters dated 19th October, 2010 and 22nd November, 2012. It was submitted that this is contrary to the decision of Hon ble Supreme Court in the case of GKN Drive Shafts (India) Ltd. Vs. ITO 259 ITR 19 (SC). (ii) The assessee was deprived on an opportunity of filing objections. The assessee relied on decision in the case of Haryana Acrylic Manufacturing Co. Vs. CIT (Delhi) (2009) 308 ITR 38 (Delhi), wherein it was, inter-alia, held that since reasons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening the assessment u/s 148. 9. Ld. Counsel further referred to page two of the assessment order to point out that on 11th November, 2010 the assessee was asked to show cause why deduction claimed for salaries/ remuneration to the partners be not disallowed u/s 40(b) (v) since, the partnership deed neither specified the amount of salaries required to be paid to each of the working partners nor had laid down the specific method of quantification thereof. 10. Ld. Counsel referred to page 11 and 12 of paper book wherein the letter dated 22nd November, 2012 is contained in which the assessee had furnished note on working partner s remuneration allowable as per provisions of section 40 (b) (v) of the Act as per the directions of Assessing Officer given during assessment proceedings. He pointed out that in this letter also the assessee required the Assessing Officer to furnish the reasons for re-opening. 11. Ld. Counsel referred to page 9 para 6 of Ld. CIT (A) s order to demonstrate that the reasons for reopening were provided to assessee on 22nd November, 2010. 12. With reference to aforementioned course of events, Ld. Counsel submitted that the reasons were recorded after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have perused the record of the case. The assessee has assailed the initiation of the reassessment proceedings on two counts firstly that the reasons were recorded after issuance of notice u/s 148 and, secondly, the assessee was not given an opportunity to file the objections and even if the assessee s letter dated 22nd November, 2010 was considered as the objection filed by assessee, the same has not been disposed of by Assessing Officer by any speaking order in terms of the decision of Hon ble Supreme Court in the case of GKN Drive Shafts Ltd. Vs. ITO. 15. As far as the first objection of assessee is concerned, from the documents filed by Ld. DR as noted above, it is evident that the reasons were recorded on 30th March, 2010 and on the same date notice u/s 148 was issued. The reasons were supplied to the assessee on 22nd November, 2010. These facts are not in dispute. Therefore, in view of the decision of Hon ble Jurisdictional High Court in the case of A. G Holdings Pvt. Ltd. (Supra ), the re-assessment proceedings cannot be held to be bad in law wherein, in para 11 it has been observed as under: That factual situation in the case before us is however different. There are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection regarding validity of issuance of notice u/s 148 then it could have filed objections again supplementing its objections dated 22nd November, 2010. However, assessee chose not to file any objection and participated in proceedings. Under such circumstances it cannot be said that the requirement of law regarding filing of objection by assessee to notice u/s 148 and disposing of the same by Assessing Officer were not substantially fulfilled. Therefore, the re-assessment proceedings cannot be held to be bad in law. 19. In the result the cross objection filed by the assessee is dismissed. Now, we take up the appeal filed by Department. 20. Both the parties agreed that the issue is covered by the decision of Hon ble Jurisdictional High Court against the assessee in assessee s own case for assessment year 2007-08 wherein, it has been held as under: 5. Clause (iii) and other clauses in Section 40 (b) specifically use the expression in accordance with the terms of the partnership deed. This clearly indicates and manifests the legislative menadate that the quantum of remuneration or the manner of computing the quantum of remuneration should be stipulated in the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplementary partnership deed dated 1st April, 1992, does not satisfy the requirements of section 40 (b) (v). From the said clause it is not possible to ascertain the quantum or the amount of remuneration which is payable in terms of the supplementary partnership deed. 10. This brings us to clause 2 of the supplementary deed dated 1at April, 1992. The first sentence is clause 2 states that the two partners will be the working partners. The second sentence in clause 2 stipulates that the total remuneration payable to the working partners under the Act, as applicable from time to time. The question is whether the two clauses read together quantify or stipulate the manner of quantifying the remuneration that is payable to the partners? Having examined the said clauses, we feel that on conjoint reading of clause 7 of the partnership deed dated 1st May, 1976 and clause 1 and 2 of the supplementary partnership deed dated 1st April, 1992, condition of Section 40 (b) (v). 11. Clause 2 of the supplementary deed has to be read along with clause 1 of the same deed. These two clauses have to be read harmoniously and reasonable to understand the two convenants and give effect to their tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not assist the stand a contention of the appellant. On examining the partnership deed, it was held that the two partners were entitled to 50% or equal amount as remuneration. The contention of the Revenue that the partnership deed did not exactly determine the remuneration payable to the partners, was rejected holding that the requirement payable to the partners, was rejected holding that the requirement of the Section was that the partnership deed should specify the amount payable or that the manner of quantifying the remuneration should be specified. In the said case, the High Court held that the manner of fixing the remuneration was specified in the partnership deed. 14. On reading the supplementary partnership deed, in the present case, it is clear that the remuneration is not specified. The manner of computing the remuneration is not specified On the other hand, the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum. Remuneration can be any amount or figure but not more than the maximum amount stated in Section 40 (b) (v) of the Act. Therefore, the requirement of Section 40 (b) (v) are not sati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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