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Income Tax Appellate Tribunal, DELHI “SMC” BENCH: NEW DELHI
Before: SHRI KUL BHARAT
ORDER PER KUL BHARAT, JM : This appeal filed by the assessee for the assessment year 2014-15 is directed against the order of Ld. CIT(A)-16, New Delhi dated 21.08.2017. The assessee has raised following grounds of appeal:-
1) “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in sustaining addition made by the AO by determining assessed income as Rs.6,08,983/- against the returned income of Rs.3,08,983/-. 3(i). On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming addition of an amount of Rs. 3,00,000/- made by AO on account of disallowing the partners remuneration u/s 40 (b) of the Income Tax Act, 1961.
(ii) That the said additions and disallowances sustained by learned CIT(A) are against facts on record as well as against the statutory provisions of the Act.
4. That the said addition has been confirmed rejecting the explanation and evidences brought on record by the assessee to prove the genuineness of the partner remuneration.
That the abovesaid addition has been confirmed without giving assessee an opportunity to rebut the same.
6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming addition u/s 40 (b) of the Act while not following the judgment laid down by Apex High Court in the case of Durga Das Devki Nandan: (Income Tax Appeal NO.4 of 2005 Date of Decision 11.03.2011.
7. The appellant craves leave to add, amend or alter any of the grounds of appeal.”
None appeared on behalf of the assessee at the time hearing before us despite various opportunities were given to the assessee. The notice sent through speed post was returned by the Postal authority with remark “left without address”. The assessee has not furnished any new address to the Registry. Therefore, the appeal was taken up for hearing in the absence of the assessee and being disposed off on the basis of material available on record.
The only effective ground in this appeal is against the confirming of addition of Rs.3,00,000/- made by the Assessing Officer (“AO”) on account of disallowing the partners remuneration u/s 40(b) of the Income Tax Act, 1961 (“the Act”).
FACTS OF THE CASE
Facts in brief of this case are that the assessee filed its return of income through electronic mode declaring total income of Rs.3,08,983/-. The same was processed u/s 143(1) of the Act at the returned income on 21.1.2014. The case was selected for limited scrutiny through CASS. In response to the notice issued, the Ld. Counsel for the assessee attended the proceedings. During the course of assessment proceedings, the AO pointed out that as per perusal of the P&L A/c, it revealed that the assessee had received salary from two partners amounting to Rs.3,00,000/- [@ Rs.1,50,000/- each to both partners].
The assessee was asked to furnish the Partnership Deed. In response thereto, the Partnership Deed was provided. However, the AO was of the view that the salary has neither been quantified nor the manner of quantifying of such remuneration was described. Therefore, the AO disallowed the partner remuneration of Rs.3,00,000/- and added the same into the income of the assessee.
5. Aggrieved against this, the assessee preferred appeal before Ld. CIT(A), who after considering the submissions of the assessee and material available on record, sustained the addition.
Aggrieved against this, the assessee is in appeal before the Tribunal.
Ld. Sr. DR supported the orders of the authorities below and submitted that there is no reason to interfere in the finding of authorities below as the assessee has not pointed out any clause which authorized the assessee to pay remuneration to its partners amounting to Rs.3,00,000/-. The clause of Partnership Deed merely states that either of the partners will be entitled to draw monthly remuneration if decided by both the partners. The amount shall be decided from time to time in writing. He submitted that even this clause does not qualify the requirement u/s 40(b) of the Act.
I have heard the Ld. Sr. DR and perused the material available on record and gone through the orders of the authorities below. I find that the AO has followed the Circular issued by CBDT i.e. Circular No.739 dated 25.03.1996.
The assessee in its grounds of appeal has relied upon the decision of the Hon’ble Himachal Pradesh High Court rendered in the case of Durga Das Devki Nandan in of 2005 dated wherein Hon’ble High Court held as under:-
9. “In ITA 9 of 2005 decided on 2.9.2009 titled as Commissioner of Income-tax, Shimla vs. M/s Anil Hardware Store, Manali this Court was dealing with a partnership deed where the provisions of the Income-tax Act itself had been incorporated in the partnership deed. This Court held that this itself provides a method of computation. In that case we had not gone into the validity of the CBDT circular. The CBDT circular can only be held to be valid if it is in terms of the main section. As held above, the Section 40(b)(v) only lays down that either the working partner should be paid an amount specified in the partnership deed or it should not exceed the amount laid down in the Section. In the present case the partners have been paid their remuneration/salary strictly in accordance with the terms of the partnership deed and this amount paid to the partners does not exceed the maximum permissible amount and therefore, the assessee is entitled to the deduction.” 9. In the present case, admittedly the AO has reproduced the clause into the Partnership Deed as per that clause it was envisaged that either of the partners will be entitled to draw monthly remuneration, if decided by both the partners or the amounts shall be decided from time to time in writing. The assessee has not placed any material suggesting that the partners had decided in writing about the remuneration paid to the partners. In the absence of such writing, I do not see any reason to interfere in the decision of the authorities below. Therefore, ground raised by the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 18th January, 2022.