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TMI Blog2023 (1) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. 3. That the Ld. Commissioner of Income Tax (Appeals) erred in deducting the fact that the remuneration/commission was correctly distributed/divided amongst the working partners as per partnership deed while ignoring the fact that excessive payment of commission of Rs.51.08% above the profit sharing ratio of 38% is not in consonance with the Partnership Deed Non-deduction of TDS 1. That the Ld. Commissioner of Income Tax(Appeals) erred in holding that the commission paid to partners shall not be regarded as Salary under Explanation to section 15 of the Act and that provision of Section 192 related to Salary would not be applicable in this case. 2. That the Ld. Commissioner of Income Tax(Appeals) ignored the fact that payment of commission is covered u/s 194H of the Act and as such the assessee was liable to deduct TDS under that Section and as per provisions of section 197(2). Other Expenses-Material consumed, labour Charge etc. 1. That the Ld. Commissioner of Income Tax(Appeals) erred in deleting Construction expenses, labour charges/Salary, store and spare expenses, other direct expenses, other expenses such as office expenses, travel & conveyance etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed before us. The Revenue has challenged before us the findings of the ld. CIT(A) deleting the various disallowances made by the ld. AO. 9. Ground no. 1 relates to disallowance of excess commission paid u/s. 40(b)(v) of the Act. The ld. AO noted that the profit sharing ratio of the three partners is 38:1:1 but commission to the first partner was allowed @ 89.09%, which was excess by 51.08%. 10. The ld. CIT(A) dealt with the issue observing as follows:- ......... as per the partnership deed, all the three continuing partners were the working partners, eligible for remuneration and commission. It was also contended that as per the partnership deed 50% of the Net Profit, after allowing interest and remuneration to working partners' would be the commission payable to the said 'working partners'. Further the assessee appellant submitted a detailed calculation for the amount of commission payable to the 'working partners' as computed hereunder: Particulars Amount (Rs.) Net Profit during the year 8,24,78,261.67 Less: Remuneration & Interest Attributed to Partners 5,80,87,828.00 Net Profit after Partner's Remuneration 2,43,90,433.67 Commission to be Distributed betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of authorisation for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or (iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :- on the first Rs. 3,00,000 of the book-profit or in case of a loss Rs. 1,50,000 or at the rate of 90 percent of the book-profit, whichever is more; on the balance of the book-profit at the rate of 60 per cent Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was as under: Name of the Working Partner Remuneration/Commission Sri Dasakhiat Lamare 1,18,55,456/Sri Evarist Poshna 5,74,880/Sri Banehkupar Soihkhlet 5,74,880/Total Remuneration/Commission 1,30,05,216/- In view of the above discussion, it is noted that an aggregate of Rs. 1,30,05,216/- was paid to 'working partner' of the Appellant Firm in the form of remuneration and commission which was undisputedly within the permissible limit under section 40(b)(v) of the Act and duly authorized by the partnership deed. It is further noted that out of the aggregate amount of Rs. 1,30,05,216/- (Rs. 8,10,000/- for salary and Rs. 1,21,95,216/- for commission) paid as remuneration/commission, an aggregate amount of Rs. 1,18,55,4561- was paid to Sh. Dasakhiat Lamare out of which Rs.1,15,85,456/- was on account of commission and Rs. 2,70,000/- was for salary. It is further noted that the commission of Rs. 1,15,85,456/- was paid to Sh. Dasakhiat Lamare out of total commission of Rs. 1,21,95,216/- to be paid to all the three partners, which was computed on the basis of profit sharing ratio of 38:1:1 amongst the three partners collectively known as 'working partners'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) of the Act is liable to be deleted. I further gets strength from ratio of judgement delivered by Hon'ble ITAT, Chandigarh in the case of Assam Tea House, Chandigarh Vs. Department of Income Tax [in ITA No. 759/Chd/2011] where it was held as under: "In view of the proposition laid down by various courts including Hon 'ble Supreme Court that firm is only a unit of assessment and not a legal person, there cannot be a contract of service between a firm and any of its partners. In the facts of the present case, the commission was paid to the partners of the assessee firm as per the convenants in the partnership deed i.e. an agreement between the partnership firm and its partners, which are not two distinct persons. The invoking of provisions of section 194H of the Act in a case where the partnership firm had paid commission to its partners, by way of remuneration, is not valid, as the said provisions are attracted wherein, any person pays commission to the payee, who is a distinct identity. However, in the case of a firm and its partners, the said distinction in the identities does not exist. In the absence of a contract between two entities, the provisions of section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in the course of the hearing. The ld. AO also observed that it cannot be denied that major expenses were incurred in cash. In this regard at the same time full reliance cannot be placed without any documents i.e bills/vouchers etc. The ld. AO made the disallowance @ 3.5% of the material consumed for construction work, 3% of the expenses incurred labour charges, 3% of stores and spares expenses and 10% of other direct expenses and travel and conveyance. However, the ld. CIT(A) deleted the said disallowance observing that a high-pitched assessment has been concluded by the ld. AO in the present 'non-adversial tax regime'. Neither any deficiency has been pointed out nor any specific defect has been brought on record by the ld. AO in the audited books of the assessee. Therefore, such disallowances is made on account of conjectures and surmises, which are definitely not permissible. 17. We, however, on facts of the case observe that no proper documents to support such claim were filed by the assessee before the ld. AO and looking to quantum of expenses and lack of sufficient evidence filed before the lower authorities, we sustain disallowance of expenses at Rs. 15,00,000/- as again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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