MAHARAJA GARDENS RESTAURENT & BAR,KARIMNAGAR vs. ITO, WARD-2, KARIMNAGAR

At the outset, there is a delay of 79 days in filing the present appeal before the Tribunal. The assessee has filed petition for condonation of delay which is supported by the affidavit of the assessee.

We have heard the learned Authorised Representative of the Assessee as well as learned DR on the condonation of delay. The learned Authorised Representative of the Assessee has submitted the due to lack of proper awareness and professional advice; the assessee could not timely take steps to file the present appeal within the period of limitation. He has further submitted that the delay was neither willful nor deliberate, but due to the circumstances beyond the control of the assessee. He has referred to the affidavit of the Managing Partner of the assessee firm and submitted that in the absence of proper legal professional advice and guidance, the assessee could not file the appeal within the period of limitation.

On the other hand, the learned DR has submitted that the reasons explained by the assessee are very vague and general and therefore, it is a clear case of negligence on the part of the assessee and not a case of due diligence in filing the appeal.

We have considered the rival submissions as well as perused the reasons explained by the assessee in the petition for condonation of delay as well as affidavit filed by the assessee. The Assessing Officer has made various additions while passing the assessment order including the disallowance of interest paid by the assessee to the partners for want of Partnership Deed and further disallowed the rent paid by the assessee in absence of Rent Deed. Now the assessee has also filed the relevant documentary evidence in support of various claims including the partnership deed as well as lease deed. Accordingly, in the facts and circumstances of the case, if the delay of 79 days in filing the appeal is not condoned, the assessee would be remediless and some of the additions made by the Assessing Officer for want of relevant documents being partnership deed and lease deed now filed by the assessee would amount to gross in justice. Accordingly, by taking a lenient view to consider the sufficient reasons for explaining the delay of 79 days, we condone the same, subject to cost of Rs.5,000/- [Rs. Five Thousand Only] to be paid to ITAT Tax Bar Association, Hyderabad within a period of one month from the date of this order. The appeal of the assessee is admitted for hearing and adjudication on merits.

The assessee has raised the following grounds of appeal:

Thus, the assessee has challenged various additions made by the Assessing Officer on account of disallowance of partner’s interest, disallowance under section 40A(3), salaries, disallowance of rent paid by the assessee, shed repair expenses and electrical goods expenses. The assessee is a partnership firm engaged in the business of running liquor shop along with Bar and Restaurant. The assessee filed its return of income for the year under consideration declaring total income of Rs.2,86,250/- on the turnover of Rs.4,34,54,000/-. During the assessment proceedings, the Assessing Officer issued various notices to the assessee for filing the details and supporting evidence in respect of various claims regarding the interest paid, rent paid, repair and maintenance expenses as well as other expenses however, the assessee failed to produce any documentary evidence in respect of the claim and consequently, the Assessing Officer had made various additions and assessed the total income of the assessee at Rs.48,59,300/-. The assessee challenged the action of the Assessing Officer before the learned CIT(A) and the learned CIT has granted part relief to the assessee by deleting the disallowance made by the Assessing Officer u/sec.37 of direct expenses mainly comprising the purchase from the Telangana Government Depot as well as some part relief regarding disallowance of expenditure.

Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the partnership deed as well as a lease deed to substantiate the claim of payment of interest paid to the partners and rent paid in respect of the property under lease. The learned Authorised Representative of the Assessee has also referred to the various vouchers filed before the Tribunal in respect of the claim of expenses and particularly, the rent paid by the assessee. Thus, the learned Authorised Representative of the Assessee has submitted that due to improper advice, the assessee could not produce these relevant documents. He has referred to Clause-5 of the Partnership Deed and submitted that the Partnership Deed has authorized payment of interest @ 12% per annum to the partners on the amount stand in the credit of capital account of the partners. Thus, he has submitted that as per the provisions of section 40(b)(iv), the payment of interest to the partner is an allowable deduction. He has further contended that though the assessee has paid the rent as per the vouchers filed before the Tribunal, however, there is no separate lease deed in respect of the said payment of rent. Thus, the learned Authorised Representative of the Assessee has submitted that the additions made by the Assessing Officer may be deleted as the payments were made not in violation of the provisions of section 40A(3) of the act.

On the other hand, the learned DR has vehemently opposed to the additional evidence filed by the assessee first time before the Tribunal and submitted that despite sufficient opportunities given by the Assessing Officer as well as the learned CIT(A), the assessee had failed to produce any supporting evidence. Hence, he has contended that the assessee may not be given any further opportunity to substantiate the claim by producing the evidence at this stage.

We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made various disallowances and after the relief granted by the learned CIT(A), the grievance of the assessee is regarding five disallowances made by the Assessing Officer comprising of interest paid to the partners, rent paid by the assessee, repair and maintenance of the shed, electrical goods and disallowance of salary/wages under section 40A(3) of the Act. At the outset, we note that all these disallowances were made by the Assessing Officer for want of documentary evidence. Now the assessee has filed the partnership deed containing the Clause of Authorization of interest payment @ 12% per annum to the partners and therefore, once the partnership deed authorized the payment of interest to the partners then, as per the provisions of sec.40(b)(iv) of the Act, the interest paid to the partners is an allowable deduction. Since the Partnership Deed was not produced before the Assessing Officer therefore, the Assessing Officer is directed to consider the claim of the assessee in light of the Partnership Deed. The assessee has now filed lease deed in respect of the rent payment, which was also not produced before the Assessing Officer during the assessment proceedings. Assessee has also produced certain vouchers regarding the payment of land rent. All this documentary evidence filed by the assessee requires verification and examination at the record of the Assessing Officer. As regards the disallowance of salary/wages u/sec.40A(3) of the Act, the Assessing Officer has not considered the fair market value of the services rendered by the specified persons. Accordingly, in the facts and circumstances of the case and in the interest of justice, the matter is remanded to the record of the Assessing Officer for reconciliation of the same on the issues raised by the assessee before the Tribunal after verification and examination of the relevant records filed by the assessee. Needless to say, the assessee be given appropriate opportunity of hearing before passing the fresh order.

In the result appeal of the assessee is allowed for statistical purposes.