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2016 (7) TMI 160 - ITAT MUMBAI

2016 (7) TMI 160 - ITAT MUMBAI - TMI - Remuneration paid to the partners disallowed - higher remuneration of partnership - Held that:- Assessee 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. AO disallowed the remuneration paid to partners on the ground that certified partnership deed dated 2-4-2003 was not produced before the AO. Assessee submitted that the changed partnership deed .....

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aid to the partners in the impugned assessment year on the grounds that the partnership deed dated 02-04-2003 was not filed by the assessee as contemplated by the Revenue on the facts as are emerging from the records and the disallowance made by the revenue authorities is not sustainable - Decided in favour of assessee - Remuneration paid to Mrs. Kiran R. Puri disallowed on the grounds of that the said Mrs Kiran R Puri is not a working director and the remuneration is excessive - Held that:- .....

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re 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 i .....

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llowed ₹ 63,650/- towards professional fee by invoking Section 40(a)(ia) of the Act read with Section 194J of the Act. We have observed that both the figures could not be reconciled in the absence of complete details of the break-up of ₹ 63,650/- albeit the assessee is contending that the said disallowance is a double addition which is not permissible.In our considered view, this matter needs to be set aside to the file of the A.O. and the assessee is directed to appear before the A. .....

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the provisions of the Act.- Decided in favour of assessee - Motor car and telephone of 20% disallowed - Held that:- It is observed that the assessee firm has duly paid the FBT on these expenses , the details of which are produced on record which is part of the tax audit report. In our considered view, if the said expenses are subjected to FBT, no further disallowance is called for in the absence of any incriminating material on record - Decided in favour of assessee - I.T.A. No. 7188/Mum/20 .....

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eedings before the learned CIT(A) arising from the assessment order dated 24-12-2010 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee-firm in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- Remuneration to partners s. 40(b)(v) 1. The learned CIT(A) erred on facts and circumstances of the .....

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he said finding of fact be reversed. Disallowance of ₹ 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 ₹ 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 - ₹ 1,19,201/- .....

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e amount or a part thereof be directed to be made. 3. The brief facts of the case are that the assessee is a partnership firm and the main source of income of the assessee-firm is business profit from trading of garments and intending commission. During the year under consideration, the assessee has paid ₹ 68,47,498/- towards remuneration to partners out of which ₹ 41,08,499/- was paid to partner Shri Rajnish R. Puri and ₹ 27,38,999/- was paid to partner Smt. Kavita R. Puri. Th .....

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st deed of partnership and there are no other partnership deed. The A.O. observed that the partnership deed dated 27-03-1995 authorizes payment of remuneration to the partners to the tune of ₹ 24,000/- per annum , whereas the remuneration allowed and paid to the partners during the year was ₹ 68,47,498/-. When the learned counsel for the assessee was confronted with the above fact, it was submitted by the learned counsel of the assessee that the deed of partnership dated 27-03- 1995 .....

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ip deed dated 02-04-2003 with the Revenue in the year when there was change in partnership 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 as .....

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ss 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 remuneration to the partners and only if the partners are providing that much value of services. Nothing was brought on record to prove that partner is capable and further whether the partner had provided services to .....

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de assessment orders dated 24.12.2010 passed by the AO u/s 143(3) of the Act. 5. With respect to the non-deduction of tax at source u/s 40(a)(ia) read with Section 194J of the Act, the A.O. observed that the assessee has not deducted tax at source from the professional fees payment of ₹ 63,650/- and accordingly the AO disallowed the professional fee of ₹ 63,650/- u/s 40(a)(ia) of the Act with the remarks that the same shall be allowed in the year of payment of the tax deducted at sou .....

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he assessee. The AO observed that the assessee-firm should have disallowed reasonable expenses on its own and in the absence of this suo-motu disallowance , the AO disallowed motor car expenses of ₹ 1,19,201/- being 20% expenses of ₹ 5,96,004/- i.e. ₹ 1,19,201/-were estimated as personal expenses and were disallowed , vide assessment orders dated 24.12.2010 passed by the AO u/s 143(3) of the Act. 7. Similarly, the A.O. disallowed an amount of ₹ 95,680/- being 20% of expen .....

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arrying 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 t .....

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1st October, 2001 and 2nd April, 2003. The supplementary partnership deed dated 2-4-2003 was executed for the specific purpose of payment of remuneration to the partners. It was submitted that when the A.O. asked during course of assessment proceedings to submit the partnership deed authorizing payment of remuneration, in fact, there was no deed on record at that time available with the AR of the assessee. The learned counsel submitted that the AR was not aware of the full details. Further, bot .....

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ted by the AR before the A.O. on 7th December, 2010. Since both the partners were out of India, it was not possible to furnish certified copy of the partnership deed and accordingly the A.O. was informed that the partners were returning on or around 22nd December, 2010 and the AO was promised that the partner would appear and meet the A.O. personally. Accordingly, Mr. Rajnish R. Puri appeared before the A.O. on 27th December, 2010 i.e. Monday but by that time the assessment order dated 24-12-201 .....

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uding the children were in China who have also taken up schooling in China, thus, it was possible to return to India only in Christmas vacation after 22nd December, 2010. The Revenue has completed the assessment u/s 143(3) of the Act in the meantime on 24-12- 2010 and only certified partnership deed was to be submitted 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 .....

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f ₹ 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 assess .....

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the business with her. It was submitted that the remuneration was allowed in the past years and the same has been shown as part of her taxable income. This is the first year when the remuneration was disallowed by Revenue. It was submitted that for doing business in India, nowhere any stipulated degree of education is prescribed which is required to run the business and the AO has mindset that lady cannot manage business and can only do household job and hence it was submitted that the AO erred .....

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Puri of ₹ 27,38,999/- , aggregating amounting to ₹ 68,23,498/-. 11. With respect to the disallowance for non-payment of tax deducted at source on professional fees amounting to ₹ 63,650/-, it was submitted by the assessee before learned CIT(A) that in the tax audit report in Annexure-6 it has been stated that tax deducted at source of ₹ 4,629/- on professional fees had not been paid. The assessee submitted that out of the total tax deducted at source amount for the month .....

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aid 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 ₹ 63,650/- as no details were given by t .....

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efit 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 above expenditure, disallowance of 20% by the AO is like taxing the same income twice once as FBT and also as an income under the provisions of the Act and hence it was prayed before the learned CIT(A) to delete the disallowance. 13. The learned CIT(A) considered the contentions of the assessee and the factual matrix of .....

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nsel for the assessee before the AO. It was observed that when it was confronted to the assessee, the assessee changed the track and stated that there could be another supplementary partnership deed dated 02-04-2003 of which Xerox copy was produced but the same was not certified by the partners . Show cause notice was also issued to the assessee dated 15th December, 2010 asking for the partners capital account from financial year 2002-03 to ascertain the authenticity of the partnership deed, how .....

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e Act. The assessee filed copy of supplementary partnership deed dated 2-4-2003 now signed by the partners before the learned CIT(A), which as per learned CIT(A) is a fresh evidence which was not available before the A.O. . The learned CIT(A) called for the Remand report from the A.O. , whereby the A.O. reiterated same findings as was given earlier on this issue vide assessment orders dated 24.12.2010 passed u/s 143(3) of the Act. In the rejoinder, the assessee submitted that the A.O. has not gi .....

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ementary 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 .....

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s been filed regarding the justification of the remuneration paid to Mrs. Kiran R. Puri. The ld. CIT(A) held that merely because she is a partner who handled administration could not give rise to justification for such an excessive payment and dismissed the claim of the assessee. 15. With respect to the disallowance on motor car expenses and telephone expense being 20% of the actual expenditure incurred by the assessee, it was observed that the assessee has not produced the log book. The onus is .....

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s 143(3) of the Act by the A.O. . It was submitted that the supplementary partnership deed dated 02-04-2003 was duly produced. The initial partnership deed was dated 27th March, 1995(correct dated 01-04-1995) and thereafter supplementary deed dated 2nd April, 2003 was executed which was also produced. The fax copy of supplementary partnership deed dated 02-04-2003 was produced before the AO as the partners were travelling to China and soon after their arrival in India, on 27-12-2010 the partner .....

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003 in preceding assessment years whereby the higher Remuneration paid to the partners has been allowed since the assessment year 2004-05 based upon the supplementary partnership deed dated 02-04- 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 d .....

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as 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 report is placed particularly to serial No. 7 (a) & &(b) , whereby it is reflected that there is no c .....

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he non-deduction of TDS u/s 194J of the Act on the professional amounting to ₹ 63,650/- as added by the Revenue, the ld. Counsel submitted that the amount of ₹ 44,950/- was voluntarily disallowed and added to the income of the assessee in the return of income filed with the Revenue , and hence addition of ₹ 63,650/- is a double addition which is not permissible in law. No details of disallowance of ₹ 63,650/- was provided by the AO and the assessee is not aware of the det .....

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-up of disallowance of ₹ 63,650/- u/s 40(a)(ia) of the Act read with Section 194 J of the Act. With respect to the motor car and telephone expenses of 20% disallowed by the AO, it was submitted that FBT was duly paid on these expenses and hence further disallowance is not warranted . It was submitted that the matter can be decided based on the material placed on record. 17. The ld. D.R., on the other hand, submitted that section 184(4) of the Act has not been complied with and hence disall .....

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ship 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 rel .....

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year 1992 having two partners i.e. Shri Rajnish R. Puri and Smt. Kiran R. Puri. The firm is dealing in trading in garments and indenting commission. It is observed that during the course of assessment proceedings u/s 143(2) read with Section 143(3) of the Act, the assessee submitted before the AO the partnership deed dated 27th March, 1995 ( correct date 01-04-1995) and has contended that this is the last partnership deed. During the period when assessment proceedings were going on, both partner .....

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tary partnership deed dated 2.4.2003 was duly submitted by the counsel of the assessee before the AO during the assessment proceedings u/s 143(3) read with Section 143(2) of the Act, as scanned copy of the said supplementary partnership deed dated 02-04-2003 was sent by the partners via email , while original copy was stated to be in locker in Mumbai while partners were in China when assessment proceedings u/s 143(3) read with Section 143(2) of the Act, were going on before the AO but the same c .....

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see also produced the certified copy of the supplementary partnership deed dated 02-04-2003 before the learned CIT(A) and also in the remand proceedings. From the averments made by the assessee which has remained uncontroverted by the Revenue as well income tax returns placed on record for the assessment year 2005-06 and 2006-07 which are placed in file, we have observed from the appreciation of the facts as emerging from the records that the assessee had claimed the deduction of higher remunera .....

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nge 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 al .....

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based on the facts and circumstances of the case and is ordered to be deleted subject to verification that the said remuneration paid to both the partners aggregating to ₹ 68,47,498/- have been offered to tax by the respective partners in their individual return of income filed with the Revenue and due taxes were paid by them to the Revenue in the impugned assessment year. The assessee is directed to appear before the AO and produce proof of filing of return of income by the both the partn .....

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ourt in the case of CIT v.Asian Marketing (2013) 31 taxmann.com 136(Raj.).We order accordingly. The other contention of the assessee is with respect to the remuneration paid to Mrs. Kiran R. Puri which was disallowed on the grounds of that the said Mrs Kiran R Puri is not a working director and the remuneration is excessive. We have observed that it is stated that Mrs. Kiran R. Puri was looking after the day-to-day affairs of the firm. It is stated that She was partner since inception of the fir .....

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es are looked after by Mrs. 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 h .....

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ount 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 the Revenue needs to be deleted on this ground, however for limited purposes we had already remitted the matter back to the file of AO for verification that the said remuneration paid to both the partner have been offered to tax by them in their individual return of incom .....

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377; 63,650/- towards professional fee by invoking Section 40(a)(ia) of the Act read with Section 194J of the Act. We have observed that both the figures could not be reconciled in the absence of complete details of the break-up of ₹ 63,650/- albeit the assessee is contending that the said disallowance is a double addition which is not permissible.In our considered view, this matter needs to be set aside to the file of the A.O. and the assessee is directed to appear before the A.O. with al .....

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