Loading judgment…
Facts
The assessee, a partnership firm dealing in iron and steel, filed its return for AY 2022-23. The AO made additions after scrutiny, including disallowances for GST late payment, income tax, remuneration to partners, and donation. The CIT(A) confirmed these additions, leading to the present appeal.
Held
The Tribunal allowed the appeal on grounds related to GST late payment and income tax, holding that the former was an allowable business expenditure and the latter had already been accounted for by the assessee. The remuneration to partners was also allowed based on a partnership deed clause and a precedent. The ground on donation was dismissed as not pressed, and the ground on transportation charges was remitted for verification.
Key Issues
Whether disallowances for GST late payment, income tax, and remuneration to partners are justified when the assessee has claimed them as business expenditure or when the partnership deed allows for such payments, and whether transportation charges require further verification for TDS applicability.
Sections Cited
143(3), 143(2), 142(1), 44AB, 37(1), 40(a)(ia), 40(b)(v)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI MANISH BORAD
Assessment Year : 2022-23 Divya Profile Trading, Vs. ITO, Ward- 9(1), Pune. Gat No.77, Joytiba Nagar, Near Bhalekar Chowk, Talawade, Pune- 412114. PAN : AANFD0876A Appellant Respondent Assessee by : Smt. Deepa Khare Revenue by : Shri S. Sadananda Singh Date of hearing : 18.06.2025 Date of pronouncement : 24.06.2025 आदेश / ORDER
PER MANISH BORAD, AM:
This appeal filed at the instance of assessee is directed against the order of Ld. CIT(A)/NFAC dated 02.12.2024 which is arising out of the assessment order u/s 143(3) of the Act for Assessment Year 2022-23 framed on 27.02.2024 by the ITO, NFAC, Delhi.
The assessee has raised following revised grounds of appeal :- “
1. The ld CIT(A) erred in law and on facts in confirming addition of Rs 3,31,667/- on account of disallowance of fees under GST for late payment.
2. The ld CIT(A) erred in law and on facts in confirming addition of Rs 4,11,821/- in respect of income tax without appreciating that no deduction of the same has been claimed by the appellant.
3. The ld CIT(A) erred in law and on facts in confirming addition of Rs 21,52,441/- in respect of remuneration paid to partners.
4. The ld CIT(A) erred in law and on facts in confirming addition of Rs 10,001/- in respect of donation. 5. The ld CIT(A) erred in law and on facts in confirming addition of Rs 3,00,297/- on account of disallowance of transportation charges u/s 40(a)(ia). 6. The appellant craves leave to add, alter, modify or substitute any ground of appeal at the time of hearing.”
3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of sale of Bars and Rods of Iron or Non-alloy steel. Income of Rs.12,84,960/- declared in e-return for A.Y. 2022-23 furnished on 08.10.2022. After the case being selected for scrutiny through CASS followed by validly statutory notices u/s 143(2) and 142(1), Ld. Assessing Officer carried out the assessment proceedings. He observed that even the turnover of the assessee exceeds the statutory limits, as per section 44AB of the Act and the assessee has not got the books of accounts audited. Ld. Assessing Officer further examined various details appearing in the financial statements and books of accounts and made certain adjustments/disallowances computing the income at Rs.44,94,189/-. Aggrieved with the finding of the Assessing Officer, the assessee preferred appeal before Ld. CIT(A)/NFAC but failed to succeed. Now, the assessee is in appeal before this Tribunal.
4. Ld. Counsel for the assessee made submissions for the various grounds of appeal raised in the instant appeal along with reference to various details placed in the paper book and the contentions shall be addressed for each ground in the subsequent paras.
5. On the other hand, Ld. Departmental Representative supported the orders of the lower authorities.
6. I have heard rival contentions and perused the records placed before me. Ground of appeal no.1 has been raised against the disallowance of GST for alleged payment amounting to Rs.3,31,667/-. I have gone through the details filed in the paper book placed at page no.7 to 20 and notice that alleged sum has been paid towards the interest on GST reversal and there is no element of penalty in this amount. I am therefore of the considered opinion that the Explanation 1 to section 37(1) is not applicable on the alleged payment of Rs.3,31,667/- and therefore the same is allowable as business expenditure. Finding of Ld. CIT(A)/NFAC is set-aside and ground of appeal no.1 raised by the assessee is allowed.
7. Ground of appeal no.2 is raised against the disallowance of income tax of Rs.4,11,821/-. On going through the details I notice that the net profit as per profit and loss account placed at page no. 63 of the paper book is shown at Rs.10,26,029/-. But in the computation of income placed at page no.3 of the paper book, Rs.14,37,401/-. It therefore shows that the assessee has already disallowed the income tax expenses and taken the net profit after adding back the income tax expenses to the net profit as per profit and loss account. It is also observed that the income computed in the computation of income is Rs.12,84,960/- which has been arrived at after adding back the income tax expenses and Ld. Assessing Officer has also adopted the same amount of income declared in the return. I am therefore satisfied that since the assessee has already disallowed income tax expenses of Rs.4,11,821/-, impugned disallowance is uncalled for. Finding of Ld. CIT(A)/NFAC is set- aside and the ground of appeal no.2 raised by the assessee is allowed.
8. Ground of appeal no.3 is raised against the disallowance of remuneration paid to partners of Rs.21,52,441/-. Ld. Assessing Officer has alleged that the remuneration amount is not quantified in the partnership deed. Before me, Ld. Counsel for the assessee has referred to the decision of Co-ordinate Bench in the case of ACIT vs. M/s. Sagar Sai Enterprises (ITA No.7671/Mum/2014 dated 01.02.2017) and on perusal of this decision I find that even if the remuneration amount has not been quantified but relevant clause is there in the deed as per which remuneration can be provided to the partners then also remuneration expenses claimed and which are within the limit provided u/s 40(b)(v) of the Act deserves to the allowed. Para 4 and 5 of this decision in the case of M/s. Sagar Sai Enterprises (supra) is extracted below :- “4. We have considered the rival contention of the parties and gone through the orders of authorities below and the decision cited by ld. AR of the assessee. The Hon’ble Rajasthan High Court in CIT vs. Asian Marketing (supra) held as under: “The only dispute by the Revenue is that the amount of remuneration has not been quantified in the partnership deed. It is mentioned in clause 8 of the partnership deed that remuneration will be payable as per norms fixed by the relevant provisions of the Income-tax Act. Thus the quantification of the remuneration is apparent from the clause 8 of the partnership deed. The requirement in law is that remuneration should have been authorized and the amount of remuneration shall not exceed the amount as mentioned in sub-clause (v) of Section 40. (b) of the Act. The relevant provisions has used the word authorised and not the word used quantify. The ITAT Pune Bench in the case of ACIT v. Suman Construction
43. SOT 495 (sic): (2009)
34. SOT 495 (Pune- Trib), held that remuneration is to be deducted in case partnership deed authorizes the payment of salary. We have also considered the decisions which have been mentioned by the Id. CIT (A) in his order. We, therefore, feel that the Ld. CIT (A) was justified in allowing the remuneration payable to the partners. Before parting with this appeal, we would like to state that the remuneration receivable by the partners is taxable in their hands and it is not the case of the Revenue that the assessee has claimed remuneration to the working partners to avoid tax. It is true that tax payable in the hands of the individual may be 30% while interest in the hands of the firm may be 35%. Thus, tax effect is not substantial. Hence, Ground No.1 & 2 of the Revenue are dismissed.
Considering the above legal position, we find that the finding of ld. CIT(A) is based on the decision of Hon’ble Rajasthan High Court in CIT vs. Asian Marketing (supra) and the decision of Pune Tribunal in ACIT vs. Suman Construction (supra). After, considering the facts we find that the ground of appeal raised by the AO/Revenue is squarely covered against them. Thus, we do not find any illegality or infirmity in the order passed by ld. CIT(A).”
After examining the facts of the instant case and in light of the above decision in the case of M/s. Sagar Sai Enterprises (supra), I have gone through the partnership deed dated 29.04.2017 placed at page no.57 to 61 of the paper book and I find that clause 7 of the partnership deed provides that the partners are entitled to draw the rumination as working partners of the firm. Further in clause 8 it is mentioned that net profit and/or losses of the firm after making the provisions for all the expenses incidental to carrying on the partnership business including interest/remuneration paid to partners shall be distributed among the partners. Both the above clauses clearly states that the partners are entitled to remuneration. Now, as per the net profit of the assessee, the maximum amount which can be distributed as remuneration to the partners is Rs.21,52,441/-, but the assessee has claimed remuneration at only Rs.20,00,000/-. Therefore, since relevant clause is there in the partnership deed for providing remuneration to the partners though not quantified, in light of the decision in the case of M/s. Sagar Sai Enterprises (supra) I am inclined to hold that the expenditure of remuneration of Rs.20,00,000/- deserves to allowed to the assessee. Since Ld. Assessing Officer inadvertently disallowed the amount of Rs.21,52,441/- even when the assessee has claimed Rs.20,00,000/- as remuneration I hereby delete the addition of Rs.21,52,441/- and allow the ground of appeal no.3 raised by the assessee.
10. Ground of appeal no.4 is regarding the addition of Rs.10,001/- in respect of donation. Since Ld. Counsel for the assessee has requested for not pressing this ground, the same is dismissed as not pressed.
11. Ground of appeal no.5 is raised against the disallowance u/s 40(a)(ia) of Rs.3,00,297/- for non-deduction of tax at source. Ld. Counsel for the assessee fairly admitted that the declaration given by the transporters are of the subsequent dates i.e. after filing of the income tax return. She however prayed that since these transporters have given the declaration and fulfilled the necessary conditions and was not required to be deducted tax at source on the transportation charges paid to them, the issue may be restored to Ld. JAO for necessary verification. Since Ld. DR has not opposed this request, I remit back the issue raised in ground of appeal no.5 regarding the disallowance u/s 40(a)(ia) of the Act to the file of Ld. JAO for necessary adjudication for which reasonable opportunity shall be granted to the assessee to furnish relevant evidence placed before