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Assistant Commissioner of Income-Tax Versus Modern Motors

2016 (6) TMI 794 - ITAT JAIPUR

Disallowances of the provision of entry tax liability under section 43B - Held that:- Following the double entry system of accounting, the appellant has created a liability by way of a provision towards the entry tax and a corresponding asset in its balance-sheet and there is no charge/transfer of provision to the profit/loss account. The appellant has been consistently passing these entries for the earlier years as well, i.e, the assessment years 2008-09, 2009- 10. Given that there is no claim .....

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provisions in respect of the claim of statutory liability which even though not claimed but would still be deemed to be allowed for tax purposes. CIT(A) correctly deleted the addition - Decided in favour of assessee - Disallowance of remuneration to the partners - Held that:- The remuneration has to be worked out based on certain percentage of the book profit which will be determined at the end of the year. It is also provided that the total amount of the remuneration so worked out is to be .....

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e year, the exact quantum of remuneration has not been specified. At the same time, the partnership deed clearly provides for the manner of quantification of remuneration. It is not a case simpliciter that the partners have left the doors open to claim the remuneration as per section 40(b)(v) of the Act which apparently is the backdrop for issuance of CBDT Circular No. 739, dated March 25, 1996. Given the clear fact and CDBT guidance which rather supports the case of the appellant than the Reven .....

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ical error. He, accordingly, allowed depreciation of ₹ 31,800 which is hereby confirmed - Decided in favour of assessee - I. T. A. No. 719/JP/2013 - Dated:- 29-2-2016 - R. P. Tolani (Judicial Member) And Vikram Singh Yadav (Accountant Member) For the Petitioner : Purushottam Kashyap For the Respondent : Mahendra Gargieya ORDER Vikram Singh Yadav (Accountant Member) 1. This is an appeal filed by the Revenue against the order of the learned Commissioner of Income- tax (Appeals), Kota, dated .....

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ircumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of remuneration of ₹ 43,33,245 to the partners, without appreciating the contents of CBDT, New Delhi's Circular No. 739, dated March 25, 1996 (see [1996] 218 ITR (St.) 131 ). (3) On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of depreciation of ₹ 31,800 in the absence of valid .....

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itigation before the Supreme Court, as a matter of precaution, it has created a liability being the provision for entry tax on one hand and at the same time to nullify the effect of such a provision, it has also passed another entry on the assets side as "advance against entry tax". However, the assessee never charged/collected any entry tax from the customers nor the same was claimed at any moment of time as an expenditure in the profit and loss account. If at a later point of time th .....

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loss account was contrary to the entries made in the accounts inasmuch as the assessee has shown the advance against entry tax on the assets side of the balance-sheet in all the three years and the assessee was maintaining the books of account following the mercantile system of accounting. Hence, in his view the entry tax liability was not allowable in this year and invoking section43B, he made disallowance of ₹ 40,03,853 towards entry tax liability. Being aggrieved, the assessee carried t .....

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ited to the profit and loss account but shown in the balance-sheet. The Assessing Officer can disallow any expenditure only when it is claimed by the assessee. In the current case, the same was not claimed. It is also not the case that the assessee collected the same from clients but not credited the same to the profit and loss account. Considering the above, I am of the firm view that the addition, was not necessary." 2.3 The learned authorised representative submitted that there cannot be .....

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as never debited to the profit and loss account in any of the three years (kindly refer the profit and loss account at paper book page 23). The Assessing Officer completely failed to prove to the contrary. Also it is not case of the Assessing Officer that the assessee though collected entry tax from the customers yet did not deposit the same. It only appears to misconception on the part of the Assessing Officer as regards the accounting treatment. The admitted facts available on record and appar .....

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he customers nor has the assessee charged any expenditure to the profit and loss account, therefore, the provisions of section 43B could not have been invoked even remotely. There apart (alternatively) the correct amount of provision for entry tax this year was ₹ 20,56,504 only whereas the Assessing Officer made the disallowance of ₹ 40,03,853 for the reason that he has also considered the opening balance of ₹ 19,47,349. The consideration of the opening balance for the purposes .....

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ntion, it relied upon decision of India Carbon Ltd. v. IAC [1993] 200 ITR 759 (Gauhati) and CIT v. S. B. Foundry [1990] 185 ITR 555 (All). 2.4 The learned Departmental representative was heard who has relied upon the order of the Assessing Officer. 2.5 We have heard the rival contentions and perused the material on record. Firstly, it is not the case of the Revenue that the appellant has collected entry tax from its customers and tax so collected has not been deposited with the entry tax authori .....

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the assets side as "advance against entry tax". Thus, following the double entry system of accounting, the appellant has created a liability by way of a provision towards the entry tax and a corresponding asset in its balance-sheet and there is no charge/transfer of provision to the profit/loss account. The appellant has been consistently passing these entries for the earlier years as well, i.e, the assessment years 2008-09, 2009- 10. Given that there is no claim of provision of entry .....

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of the claim of statutory liability which even though not claimed but would still be deemed to be allowed for tax purposes. We have also gone through the order of CIT v. Assam Roller Flour Mills [1997] 226 ITR 876 (Raj) and CIT v. Padmavati Raje Cotton Mills Ltd. [1993] 203 ITR 375 (Cal) which does not advance the case of the Revenue. In light of the above, there is no need to interfere with the finding of the learned Commissioner of Income-tax (Appeals) which is hereby confirmed. Hence, ground .....

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-9 of the partnership deed executed on December 9, 2012 (refer page 8 of the assessment order). The Assessing Officer, thereafter, referring to this CBDT Circular No. 739, dated March 25, 1996 ([1996] 218 ITR (St.) 131 )), held that the last paragraph of the circular is applicable in this case. He rejected the claim holding that neither the amount of remuneration payable to each individual working partner has been specified nor the manner of quantifying such remuneration has been laid down in th .....

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that at the outset, it is a clear case of purported misreading of partnership deed by the Assessing Officer and the facts available on record. A bare perusal of clause 6 of the partnership deed rightly appreciated by the learned Commissioner of Income-tax (Appeals) reveals that the manner of quantifying remuneration to the partners has been given therein where the remuneration has to be worked out based on certain percentage of the book profit. The total amount of the remuneration so worked out .....

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o the capital account of the partners at the end of the year. It is not disputed that the partners were paid remuneration which was less than the maximum amount provided under the Act. None of the authorities have doubted the payment of remuneration to partners. The provisions of section 40(b) permits the allowance only if the claimed remuneration is found authorised by and in accordance with the partnership deed which condition has duly been fulfilled in the present case. In view of these facts .....

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. Here also there appears no special reason as to why the Assessing Officer should have taken a contrary view or read the partnership deed, the way he does this year. In support, he relied upon the following case law : • CIT v. Anil Hardware Store [2010] 323 ITR 368 (HP). • Durga Dass Devki Nandan v. ITO [2012] 342 ITR 17 (HP). • Asst. CIT v. Suman Construction [2009] 20 DTR (A. T.) 450 • Ld. Mohd. Nizamuddin v. Asst. CIT [2014] 39 CCH 439 (Jaipur- Trib). • CIT v. Suprem .....

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of the year. It is also provided that the total amount of the remuneration so worked out is to be shared equally amongst all the three partners and in case of loss, no salary would be allowable to the partners. The CBDT circular similarly provides that where either the quantum or the manner of quantification of remuneration to the partners has been specified in the partnership, the same shall be allowable under section 40(b)(v) of the Act and not otherwise. In the instant case, given that the s .....

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