TMI Blog2019 (10) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... use (b) to Section 40 - claim of the assessee that in the subsequent years the increased salary had been accepted was not rebutted, therefore by considering the totality of the facts the disallowance made by the A.O. and sustained by the Ld. CIT(A) is deleted. - Decided in favour of assessee Non deduction of tds - Retainership expenses paid on account of Technical and Professional services to two persons - assessee submitted that the tax had not been deducted on retainership fee as the services were covered under section 192B and not under section 194C - contention of the assessee was that the payments were made during the festive season and it was remuneration in respect of sales boys who were not the regular sales employees of the assessee, both those persons filed their Income Tax Return and claimed it - HELD THAT:- In the present case the returns of income were furnished by Shri Daljeet Singh on 30/03/2013 wherein the income of ₹ 1,20,000/- has been shown as salary received from the assessee. Similarly Shri Pawan Kumar furnished the return of income on 07/05/2013 and had shown the salary of ₹ 1,80,000/- received from the assessee. In the present case when the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of ₹ 19,683/- u/s 36(1)(iii) on account of advance of ₹ 1,64,030/- by applying notional interest rate of 12% p.a. 7. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same. 3. Ground Nos. 1 7 are general in nature and Ground No. 4 to 6 were not pressed so these grounds do not require any comment on my part. 4. Vide Ground No. 2, the grievance of the assessee relates to the confirmation of disallowance of ₹ 2,52,000/- paid as salary to the partners. 4.1 The facts related to this issue in brief are that the assessee filed its return of income on 28/09/2012 declaring the income of ₹ 5,45,720/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as Act ), later on the case was selected for scrutiny. 5. During the course of assessment proceedings the A.O. noticed that the assessee had debited salary to the partners at ₹ 4,32,000/- i.e; ₹ 1,44,000/- each to Shri Jaimal Singh, Shri Parvinderpal Singh and Shri Amanpreet Singh. He aske ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the partnership deed. From these facts, it is evident that the so called addendum has been prepared after thought. (iv) The said addendum has been claimed to made on 01.04.2011 whereas document on which the same has been written is purchased on 01.12.2002, This shows that this is after thought exercise. (v) The assessee failed to produce the original addendum in this office for verification. (vi) During the assessment proceedings, the assessee was again 8s again requested to furnish the legible copy of partnership deed but the assessee never stated that an addendum is also made. The assessee only came out with the plea that an addendum was made after receiving the show cause notice for disallowing the excess salary claimed. 6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and furnished the written submissions which had been incorporated by the Ld.CIT(A) in para 4.1 of the impugned order and read as under: It is submitted that during the year in question the appellant firm, debited the partner's salary of ₹ 4,32,000/- to its Profit Loss A/c duly conformin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, it is submitted that both of the documents are valid documents signed and attested by all the partners of the appellant firm, by witnesses and by notary public. Further, both of these documents are present on record with the appellant and duly filed during the assessment proceedings by the appellant. It is a settled law that when the expense is supported by documents and documents are submitted during the assessment proceedings by the assessee, no disallowance of the expense can be made by the Assessing Officer. 3) It is very important to note that Partnership deed duly includes the clause at point No. 10 that the partners shall be at liberty to increase or decrease the remuneration and interest payable to them from time to time in the interest of the partnership business and provision of section 40(b) shall apply to these payments. This clause clarifies the fact that the salary to partners may change in any year(s) at the sole discretion of the partners of the appellant mutually agreed between them. Hence, amount of salary is not a specific amount but is the amount allowable as per the section 40(b) of the Act. This clause is also written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a willful failure to produce the partnership deed. But later when Ld. AO asked for the clear Xerox copy of the partnership deed, then counsel again provided the same with better photocopy which was more legible. Hence, no negative inference should be made by the Ld. AO. 6) As regards the allegation of not providing of copy of addendum till final show cause, it is submitted that the appellant duly provided the copy of partnership deed along with all documents to Ld. AO at the start of the assessment proceedings. It is only when, the Ld. AO asked the clarification about the quantum of salary paid to partner of the appellant firm, the appellant submitted the copy of addendum of partnership deed to the Ld. AO. When, the Ld. AO asked about the copy of addendum deed, the appellant immediately provided the same to Ld. AO. In this case, no negative inference by Ld. AO is warranted at all. And the copy of addendum to partnership deed duly states that the same is made on the date 01.04.2011 (on egal document purchased with partnership deed documents on 01.12.2002). When the document was made on 01.04.2011 then how can same be the afterthought of the appellant. Allegatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership documents. When the salary of ₹ 12,000/- pm is duly authorized by the addendum to partners of the appellant firm and copy of the addendum was filed with the Ld. AO, then how can the same be treated as unauthorized amount of salary paid? Partnership deed as well as addendum to partnership deed both is legal and valid documents signed and prepared by all the 3 partners of the appellant firm and that too in presence of witnesses and these documents are duly signed and attested by the Notary public. Copy of both these documents was placed before the Ld. AO during the assessment proceedings are produced herewith too. It is submitted that partnership deed as well as addendum has the clause of salary to partners showing the quantum of salary to avoid any ambiguity. Further, salary paid of ₹ 4,32,000/- (₹ 1,44,000/- to 3 partners each) is fully allowable because:- The salary paid to partners and debited to P L A/c keeping in mind the provisions and calculation u/s 40(b) of the Act. Salary of ₹ 1,44,000/- to each partner annually is authorized by addendum to partnership deed wef01.04.2011. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was purchased on 01.12.2002. In my considered opinion the difference of addendum of partnership deed ,as stated by the assessee and as found on the addendum partnership deed has not been explained by the assessee, therefore document cannot be relied upon. Accordingly the disallowance of ₹ 2,52,000/- on account of disallowance of salary paid to the partners is sustained. This ground of appeal is dismissed. 8. Now the assessee is in appeal. 9. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that as per Clause 10 of the partnership deed dt. 01/12/2002 the salary may be increased or decreased from time to time in the interest of partnership business and that vide addendum deed dt. 01/04/2011 the salary was increased to ₹ 12,000/- each of the partners per month with effect from 01/04/2011. It was also stated that in the subsequent years the increased salary had been accepted and no disallowance was made. Therefore the disallowance made by the A.O. and sustained by the Ld. CIT(A) for year under consideration was not justified. 10. In her rival submissions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the these persons. (c) Whether tax has been deducted on retainership given to them as the assessee claimed that amount has been given to these persons for technical and professional services and tax is to deducted in view of provisions of section 194C of the I.T. Act 1961. 13.1 In response the assessee submitted that the tax had not been deducted on retainership fee as the services were covered under section 192B and not under section 194C of the Act. The A.O. asked the assessee to produce the persons to whom retainership fee was paid. In response the assessee submitted that during the festive season the assessee used to appoint persons on display, outfits, in front of customer and the retainership was as good as salary. The A.O. was of the view that the assessee diverted its income in the hands of two persons for the following reasons: (a) The assessee has failed to produce the persons to whom it has claimed that retainership at ₹ 3,00,000/- has been paid in spite of repeated opportunities allowed to it. (b) In its preliminary reply, the assessee contended that amount of ₹ 3,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that first of all the allegation of Ld. AO that the retainership fee of ₹ 3,00,000/- had been paid for Technical and professional services to the persons in question namely Daljeet Singh Pawan Kumar is not correct. As submitted in the reply dt. 06.02.2015 during assessment proceedings by the appellant that these 2 persons were hired during the festive season to display the outfits in front of the customers and the retainership is as good as salary. It is clear that these 2 persons were hired for the sales boys work during the peak period of the business when there is huge rush of the customers at the appellant's showroom and the sales people already working within are not sufficient in number to handle the rush. So the appellant sometimes hires such sales people. It is very much clear that the amount paid to the sales people is neither a fee for technical services nor a professional fee. Further, it is important to note that the qualification of these 2 persons is only graduation and the services of graduates are not covered in the Technical/professional services. Hence, when no technical/professional fee has been paid by the appellant firm to these 2 persons an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by charging the provisions of incorrect section of the Act i.e. 194C of the Act. On one hand, Ld. AO is alleging that the payment of retainership expenses to these 2 persons have been made in respect of fee for technical and professional services and other side alleging that the appellant should have made a contract with these persons and should have deducted TDS u/s 194C of the Act on the payment of retainership fee paid to them. In this regard, it is already submitted that the persons in question are neither Technical nor professionals. Hence, payment to them does not attract the provisions of section 194J of the Act. g) Further, it is submitted that there is no contract between the appellant firm and the persons in question for the provisions of services. Hence, where there is no contract oral or written, there does not arise any question of deduction of tax at source u/s 194C of the Act. Keeping in mind the above facts, submissions and legal position, the ground of the appellant firm may please be allowed. 15. Ld. CIT(A) after considering the submissions of the assessee observed that the assessee had not been able to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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