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The ACIT, Circle- 1, Kota Versus M/s. Associated Engineers and Allied Products

2016 (7) TMI 1185 - ITAT JAIPUR

Disallowance on account of remuneration to partners - Held that:- We find that the assessee computed the remuneration as per Section 40(b) of the Act and credited 50% each to both the partners. The AO did not dispute the fact that remuneration was paid to the partners. Secondly, this amount was taxable in the hands of partners and if the same is disallowed in the hands of assessee firm then it would be result in double taxation. In view of the above facts and circumstances of the case and the ca .....

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the order of the ld. CIT(A) which is sustained - Decided in favour of assessee. - Disallowance of transportation expenses - Held that:- We feel that the ld. CIT(A) has rightly restricted the addition towards transportation expenditure to the extent of ₹ 26,537/- considering the facts and circumstances of the case of the assessee. Hence, we find no reason to interfere with the order of the ld. CIT(A) which is sustained.- Decided in favour of assessee. - Addition on account of unexpl .....

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I BHAGCHAND, AM & SHRI LALIET KUMAR, JM For The Revenue : Shri G.R. Parikh, JCIT -DR For The Assessee : B.L. Bhojwani, CA ORDER PER LALIET KUMAR, JM This is an appeal filed by the Revenue against the order of the ld. CIT(A), Kota dated 08-07-2014 for the assessment year 2010-11 raising therein following grounds of appeal. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in:- (i) deleting the disallowance of ₹ 25,94,176/- made by the AO on account of remunerat .....

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as deduction on account of remuneration / salary u/s 40(b)(v) of the Act at ₹ 25,94,176/- in the profit and loss account. The AO on perusal of the record and partnership deed dated 15- 04-2008 of the firm found that the sum of ₹ 12,97,088/- each was paid to two partners i.e. Shri Ram Niwas Sharma (50% share) and Shri Rajeev Sharma (50% share). The AO observed from clause 6 of the partnership deed as to remuneration paid to two partners, as under:- That all the partners referred to a .....

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served that in such cases where neither the amount had been quantified nor even the limit of total remuneration had been specified but the same had been left to be determined by the parties at the end of the accounting period and in such cases payment of remuneration/ salary as per Section 40(b) to partners cannot be allowed as deduction in the computation of firm s income. The AO observed that as per CBDT Circular No. 739 dated 25- 03-1996, for the assessment year, subsequent to assessment year .....

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ld. AR of the assessee vide letter dated 9-01-2013 replied as under:- Central Board of Direct taxes cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. It is not necessary that the deed shall provide for manner of quantification of the remuneration paid to each individual partner. The Himachal Pradesh High Court in the case of Durga Das Devki Nandan held that the CBDT .....

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Ahmed &Co. vs. ITO (2005) 3(II), ITCL (Kol. A -Tribunal ) held that the remuneration to working partners could not be disallowed simply on the ground that its quantification was not mentioned in deed of partnership and it simply stated therein that the same will not be beyond the permissible limit as specified under the Act. The AO by considering the facts and reply of the ld. AR observed that it is proved that the assessee firm admitted that they did not satisfy the amount of remuneration .....

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ny amount or figure but not more than the maximum amount stated in Section 40(b)(v) of the Act. The AO thus observed that the requirements of Section 40(b)(v) are not satisfied. The AO relied on the case of Sood Brij & Associates vs. CIT -XIII, New Delhi 15 Taxman.co.76(2011) (Del) in this facts of the case. Ultimately, the AO disallowed a sum of ₹ 25,94,176/- and added to the total income of the assessee. 2.2 Being aggrieved, the assessee carried the matter before the ld. CIT(A) who d .....

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n it would result in double taxation. Considering the above, the AO is directed to delete the addition of ₹ 25,94,176/-. 2.3 Now the Revenue is before us against the order of the ld. CIT(A) 2.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has wrongly allowed the claim of the assessee amounting to ₹ 25,94,176/- which has been disallowed by the AO on account of remuneration to partners. 2.5 During the course of hearing, the ld. A .....

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, 14 ITD 34 (Del.) 2.6 We have heard the rival contentions and perused the materials available on record. We find that the assessee computed the remuneration as per Section 40(b) of the Act and credited 50% each to both the partners. The AO did not dispute the fact that remuneration was paid to the partners. Secondly, this amount was taxable in the hands of partners and if the same is disallowed in the hands of assessee firm then it would be result in double taxation. In view of the above facts .....

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tation charges. The AO observed that the assessee firm could not produce any details of item which was treated as sales return by their customers during the year. The assessee even did not submit any document whether those items were used for resale or reuse. The AO brought this fact into the notice and show caused as to why the sum should not be treated as sales during the year and penal proceedings should not be initiated. The ld. AR submitted the reply before the AO as under:- …the pay .....

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er reply in this reference. The AO thus observed that the assessee firm admitted that the matter was related to financial year 2006-07 but information was received late. It is also clear that the firm had reduced the actual sales in this financial year debiting the old issues which is not related this year. Therefore, the AO added a sum of ₹ 70,433/- to the total income of the assessee applying gross profit rate of the case i.e. ₹ 70,433 (17.56% of 4,01,101). 3.2 Being aggrieved, the .....

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n made by the AO based on careful consideration of the facts and the applicable law.Te ld. AR of the assessee relied on decision of Hon'ble Delhi High Court in the case of CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Delhi) to this effect. 3.6 We have heard the rival contentions and perused the materials available on record. It emerges from the records that the assessee furnished the details of the amounts deducted by its clients in earlier years and the same was communicated to the assessee .....

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AO on perusal of the same observed that the assessee had incurred expenses for diesel purchase for vehicle at site for execution of its contract job during the year. Most of the vouchers were self made which were non-verifiable in nature. The AO observed that there is every possibility to inflate expenditure while making self made vouchers for showing low profits. Therefore, the AO disallowed a sum of ₹ 53,067 (i.e. 10% of ₹ 5,30,674) on estimate basis being nonbusiness expenses and .....

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ly allowed. 4.3 Now the Revenue is before us against the order of the ld. CIT(A). 4.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has wrongly reduced the claim of the assessee from ₹ 53,074/- to ₹ 26,537/- under the head of transportation expenditure. 4.5 During the course of hearing, the ld. AR of the assessee relied on the order of the AO and submitted that the ld. CIT(A) has rightly restricted the disallowance to the extent .....

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e facts of the case are that the assessee had invested a sum of ₹ 60,48,554/- for construction of hostel building during the year. The ld. AR had produced the copy of ledger with bills. The AO on perusal of the books of account with bills and vouchers found that that the assessee had maintained cash vouches only on labour charges paid of various types of civil construction job which were totally non-verifiable in nature. The deputed his Inspector to enquire about the construction and prese .....

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ished and the assessee made huge investment. The AO thus looking to the size of construction and valuation shown by the assessee observed that actual construction cost and investment in furnishing / fitting should be more than what had been declared by the assessee. The AO thus referred the matter to valuation Cell for determination of fair market value of immovable property u/s 142A of the Act. The DVO had sent his report on 25-03-2013 wherein value of the building was determined t ₹ 98,0 .....

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R ,Kota Circle. Deduction of 20% for taking CPWD DSR rats in comparison to PWD BSR, Kota Circle should be allowed which comes to ₹ 21,40,000/- approx. (ii) The assessee has done self supervision regarding construction. The DVO has allowed 7.5% for self supervision while the general presumption is to allow 12.5 to 15% on self supervision . Difference due to this fact is ₹ 85,398/- approx. (iii) The assessee has maintained regular books of account with all the supporting vouchers and b .....

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e period to clarify on difference in cost of construction by the DVO and the actual expenses incurred in construction This is against the principles of natural justice. (vi) It would be unfair and against the public policy to proceed on the assumption that the assessee is dishonest and he must have submitted an incorrect amount of expenses. Considering the above facts of the assessee, there was no reason to add any amount on the presumption that the cost of construction was low, and therefore, a .....

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he difference of ₹ 37,53,054/- was added u/s 69 of the Act to the total income of the assessee. 5.3 Being aggrieved, the assessee carried the matter before the ld. CIT(A) who partly deleted the addition by following observation. I have gone through assessee's submission and AO s findings. Although the AO did not reject the books of account specifically reading the findings given by AO, indicated that AO had reason to believe that there was under reporting of expenses. Therefore, it is .....

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₹ 7,45,593 Total ₹ 98,91,898 Les: 20% to arrive at PWD rates ₹ 19,78,380 Balance ₹ 79,13,518 Less: 12.5% for self supervision ₹ 9,98,190 Balance ₹ 62,29,328 Less: Value declared by assessee ₹ 60,48,554 Difference in value ₹ 8,75,774 Therefore, addition of ₹ 8,75,774/-is confirmed. The AO is directed to delete balance addition of ₹ 22,21,977/-. This ground of appeal is therefore, partly allowed. 5.4 Now the Revenue is before us against .....

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f hostel building, the Department has mentioned this figure at ₹ 28,77,280/-. There is thus a difference of ₹ 6,55,303. As per the original Valuation Report, the construction expenditure was determined by the DVO at ₹ 98,01,608. The DVO later revised the Valuation Report, as per which the total cost was determined at ₹ 91,46,305/-. The ld. AO has duly passed rectification order under section 154, copy whereof is attached herewith as Annexure E. Therefore, the correct figu .....

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ed Accountants. The ld. CIT (A) has given a very vague and unconvincing reasoning on Pg. No. 17 of the Appeal Order, in an attempt to justify the wrong action of the ld. AO. The said reasoning is reproduced below: Although the AO did not reject the Books of Account specifically, reading the findings given by the AO indicated that AO had reason to believe that there was under-reporting of expenses. Therefore, it is held that reference to DVO u/s 142A was justified. Thus, the ld. CIT (A) has erred .....

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ajasthan PWD, a deduction of 20% should be allowed on CPWD rates. Ravi Mathur & Others v. ACIT (1999) 22 Tax World 245 (ITAT, Jaipur Bench) [ ITSSA No. 2316/JP/96; Date of Order 28.01.1999] - Whether any other value of construction can be substituted for the value mentioned in the account books without rejecting the account books and in absence of any specific and cogent material on record. - Held No. Whether cost of construction should be determined on local PWD rates ? - Held Yes. Further .....

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pose, instead of CPWD Rates. The Hon ble High Court observed Considering the facts and circumstances of this case, and the fact that it is basically a question of fact based on findings of facts, we are not inclined to interfere with the view taken by the Tribunal on the issue of investment in construction. It is, therefore, prayed that the decision of the ld. CIT (A) on this issue may kindly be sustained. C. The ld. CIT (A) has rightly allowed deduction of 12.5% for self-supervision on the fact .....

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judgment is attached as Annexure G) squarely supports the three issues involved in the assessee s case and discussed above in relation to the determination of cost of construction, viz., A. Referring the case for valuation to DVO without rejecting the books of account maintained by the assessee was held to be wrong. B. 20% deduction was allowed for applying the CPWD Rates for determiningg the cost of construction of property, instead of Rajasthan PWD Rates. C. 12% deduction was allowed for self .....

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ontentions and perused the materials available on record. The AO in this ground has observed that the assessee had invested a sum of ₹ 60,48,554/- for construction of hostel building during the year. The assessee had produced copy of ledger with bills and vouchers but the AO observed that the assessee has maintained cash vouchers only on labour charges paid to various types of civil construction job which are non-verifiable in nature. The AO observed that the plot of building is divided in .....

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y about the hostel building. Accordingly the AO sent the matter to the DVO for determining the fair market value of the immovable u/s 142A of the Act. The DVO has sent his report determining the value of the property of hostel building at ₹ 98,01,608/- instead of ₹ 60,48,554/- which was communicated to the assessee. Considering all the facts and circumstances of the case the AO determined the value of property of hostel building at 98,01,608 and take out the difference of the propert .....

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ter revised the Valuation Report, as per which the total cost was determined at ₹ 91,46,305/-. Thereafter. AO has passed rectification order under section 154. The ld. CIT(A) has confirmed the addition of ₹ 8,75,774/- and directed the AO to delete the balance addition of ₹ 22,21,977/-. We find that in the matter of C.S. Daniel vs Deputy Commissioner of Income-tax, Central Circle [2013] 40 taxmann.com 524 (Kerala) hon ble Kerla High court held as under :- 6. We place reliance on .....

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ates rather than Central PWD rates in order to arrive at the valuation of the property. Ultimately the assessing officer will have the other materials supplied by the assessee to know what exactly was the material used and what was the prevailing rate of such material apart from ascertaining the rates from PWD department which rate varies from time to time. Ultimately the assessing officer would take into consideration what was the prevailing rates of PWD in the State of Kerala adopted for the p .....

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2006-07 and then proceed in accordance with the procedure contemplated. Similarly the Hon'ble Jurisdiction high court in the matter of Smt. Prem Kumari Mudria vs. ACIT, 303 ITR 128 held as under:- 9. It is required to be noted that in the instant case, there was no evidence available in any manner regarding the cost of construction and, therefore, in order to find out the real value of cost of construction, the Assessing Officer adopted such course. It is required to be noted that on the bas .....

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time, the appellant argued that the initiation of reassessment proceedings was not competent as this was not the proceedings initiated on the basis of search. The Tribunal have found that no such ground was raised at any point of time before the appellate authority nor any such issue was raised before the CIT(A). The Tribunal specially found in para 4 of the order that the CIT(A) has accepted the assessee s request with regard to the application of PWD rates and allowed deduction of 20 per cent .....

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before Jodhpur Bench of the Tribunal in connection with assessment years 1995-96, 1996-97 and 1998-99. The Jodhpur Bench of the Tribunal vide order dated 23-7-2004 came to the following conclusion : "The only dispute involved in these revenue appeals is relating to the relief allowed by the learned CIT(A) in respect of cost of construction. The learned CIT(A) has held that the revenue was not justified in applying the CPWD rates in comparison to PWD rates. A deduction of 20 per cent has th .....

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of the assessee was confirmed. It is surprising to note that at the time of hearing of the appeal, the assessee had not pointed out that there were cross-appeals which are required to be heard together. We are of the opinion that when there are two cross-appeals pending before the different authority or Tribunal or the Court, the efforts should be made to see that such appeals are heard together so that by a common judgment, the same can be decided. Be that as it may, it is not in dispute that a .....

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ime and the same were dismissed and the order of the CIT(A) was confirmed. In any case we are not dismissing this appeal on the aforesaid ground as we are convinced that reasoning given by the Tribunal in the impugned order is based on finding of fact and it is a well-reasoned order. The CIT(A) has categorically found that the only point which was argued by the assessee was taken into consideration and the relief as prayed for by the appellant before the CIT(A) was granted by the CIT(A). It is t .....

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n of law. In this connection reference is required to be made to the Division Bench judgment of this Court in the case of CIT v. Dinesh Talwar [2004] 265 ITR 344. In the aforesaid judgment, it has been held by the Division Bench as under : "The Tribunal has valued the property adopting the rate of PWD. What should be the value of the construction, is basically a question of fact and that depends upon the material used, the location and the quality of construction. Therefore, straightaway, a .....

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