TMI Blog2014 (12) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the partners/s - revenue shall not be put to any loss if the remuneration as claimed, is allowed in the hands of the assessee firm – there was no justification in the disallowance made u/s 40(b) is set aside – Decided in favour of assessee. - ITA NO. 41/JP/2013 - - - Dated:- 28-2-2014 - HARI OM MARATHA AND SHRI N.K. SAINI, JJ. For the Appellant : Mahendra Gargiyea and Sita Ram Agarwal. For the Respondent : D.C. Sharma. ORDER:- PER : HARI OM MARATHA This appeal by the assessee is directed against the order of the ld CIT(A)-III, Jaipur dated 12-10-2012 for the A.Y. 2009-10. 2. The assessee has taken the following grounds of appeal: 1. The impugned additions and disallowances made in the order dated 21.12.2011 u/s 143(3) of the Act, bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2. ₹ 20,47,000/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of ₹ 20,47,000/- on account of bonus paid to the fourth partner Shri Nizamuddin. The disallowance so made and confirmed by the ld. CIT(A), is contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be payable to partners as such mentioned which after including the total amount of salary payable i.e. ₹ 2,84,000/- shall be equal to the amount specified in the provision of sub-cl (v) of cl. (b) of section 40 of the I.T. Act, which accordingly been calculated in the computation sheet its perfectly in order. In this regard the assessee would like to draw your kind attention at the bottom of computation sheet were figures of books profit ₹ 2,09,94,210/- appears on top of page 2 calculation is as under. 90% of first ₹ 75,000/- ₹ 67,500/- 60% of next ₹ 75,000/- ₹ 45,000/- 40% of remaining amount of Rs.2,08,44,210/- Rs.83,37,684/- Rs.2,09,94,210/- Rs.84,50,184/- But claimed only ₹ 84,40,000/- including salary which has been bifurcated in P L a/c as under: Salary partners ₹ 2,52,000/- Bonus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being the senior most partner and patron of the firm , is completely devoted to the business and to the overall activities of the firm. He regularly visited the factory, arranges finance, signs cheques, frames polices and takes policy decisions. He is also in close contact of the prospective buyers of the Tendu Pattas. These facts not having been denied it has to be accepted that all the four partners were working partners. This was a commercial decision taken by all the partners with mutual consent and it is also not denied that such mutual consent was duly recorded vide the clauses no. 5 6 of the partnership deed, copy of which is placed at pages 10 to 12 of the assessee's paper book. He drew our attention towards the Explanation 4 below Sec. 40(b) which defines the term working partner as under: Explanation 4. For the purposes of this clause, working partner means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;' He submitted that this term having been specifically defined to mean an individual who is actively engaged in conducting the affairs of the business, by the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distributed amongst three partners or four partners. Lastly, he submitted that the firm was constituted in A.Y.2004-05 and since then the firm has been making payment of salary and bonus in a similar manner and the revenue never made any disallowance in the past. He referred to a chart placed at page 13 of the paper book as also drew our attention towards the copies of the assessment orders placed at paper book pages 14 to 24 of the assessee's paper book. In support, he also relied upon the decisions in the cases of Eqbal Ahmed Co. v. ITO [2005] 1 SOT 202 (Kol)Asstt. CIT v. Laxmi Sailaja Traders [2005] 1 SOT 608 (Hyd), Asstt. CIT v. Suman Construction [2009] 34 SOT 495 (Pune), ITO v. J.M.P. Enterprises [2006] 101 ITD 324 (Asr), ITO v. Tulsi Ram Tej Chand [2004] 91 TTJ (Chd) 452. Lastly, he made an alternative prayer that if in any case, the disallowance so made is upheld than the benefit of the proviso below u/s 28(v) has to be given, in the hands of partners, which provides that in case of disallowance of any amount of salary or bonus in the hands of the firm, the income to such extent has to be adjusted in the hands of the partners. 4.5 Per contra, the ld. DR has stron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners, which finding is recorded without any basis. We further agree with the contention of the ld. A/R that the AO and CIT (A) have unduly stressed upon the erasing of the word working before the word partner in as much as clause 6 of the partnership deed, provides that working partners to this deed (assuming the word working is not erased) implies all the four partners; and as aforesaid implies that they are actively engaged in conduct of the business as per clause 5. Now even in absence of the word working , a combined reading conveys the same meaning. Further, it was decision taken by the partners by mutual consent that out of all the four partners, salary would be payable to only three partners as per clause 5 whereas bonus shall payable to all the four partners as per clause 6, in which the law does not permit interference by the revenue. The ld. CIT (A) further wrongly interpreted Sec. 40(b)(v) while holding that the definition of working partners was meant only for Sec.40(b)(v) whereas Explanation 4 below Sec.40(b) clearly reads that for the purposes of this clause which means clause (b) to section 40. It is noticed that although the firm was constituted in A. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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