GEET MEDICALS,JAIPUR vs. ITO, JAIPUR

PER SHRI KUL BHARAT, JM.

This appeal filed by the Assessee is directed against the order of the Ld.

CIT(A)-I, Jaipur dated 09-05-2016 pertaining to the Assessment Year 2011-12.

The Assessee has raised the following grounds of appeal:-

“1. That on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) grossly erred in sustaining a disallowance of Rs. 3,18,253/- u/s/ 40(a)(ia) of the Income-tax Act, 1961, for non deduction of tax at source on interest paid to financial institutions.

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scrutiny assessment and the assessment u/s 143(3) read with section 144 of the

Income Tax Act, 1961(hereinafter referred to as the Act) was framed vide order

dated 28.01.2014. While framing the assessment, the Assessing Officer rejected the

books of accounts and estimated the profit. After rejecting books of accounts the

assessing Officer made lump-sum addition of Rs. 50,000/-. Further, the Assessing

Officer observed that the assessee has made interest payment to financial

institutions namely M/s Cholamandlam DBS Finance Ltd. of Rs. 2,14,225/- and M/s

Future Money of Rs. 1,04,028/- no tax was deducted on these amounts. Therefore,

the Assessing Officer disallowed the expenditure of Rs. 3,18,253/- and added same

to the total income of the assessee. Further, the Assessing Officer made addition on

account of disallowance of excessive salary to partners amounting to Rs. 236916/-.

The AO also made addition of Rs. 20,000/- on account of non-disclosure of income

receipt from Yash Pharma. Further the AO made adhoc disallowance of expenditure

at 10% on telephone expenses, car running maintenance exp., Running &

3 ITA No.701/JP/2016. M/s Geet Medicals, Jaipur.

Maintenance of vehicles, depreciation on Cars. Against this, the assessee preferred

an appeal before Ld. CIT(A), who after considering the submissions partly allowed

the appeal. Thereby, the Ld. CIT(A) deleted the addition of Rs. 50,000/- made on

account of lump-sum disallowance. Further, the Ld. CIT(A) confirmed the addition

on account of non-deduction of tax excessive payment of salary. Further confirming

the addition made on account of non-disclosure of receipt from Yash Pharma.

Against this, the assessee preferred the present appeal before this Tribunal.

to financial institutions.

3.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written brief.

3.2 On the contrary, Ld. D/R opposed the submissions.

3.3 We have heard the rival contentions, perused the material available on

record. During the course of hearing, Ld. Counsel for the assesee submitted that the

financial institutions have disclosed this receipt in their return of income. This fact

requires to be verified at the end of the AO. We therefore, set aside this issue to the

file of the AO to verify whether recipient has paid tax on such receipt. In case, the

recipient has paid taxes and disclosed receipts in their respective income tax return

the AO would delete the disallowance. This ground of appeal is allowed for

statistical purpose.

respect of remuneration paid to partner Shri Rajiv Jain.

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4.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written brief and he submitted that authorities below were not justified in making

the addition. He submitted that as per clause 13 of the partnership deed, the profits

ratio of the partners was 50%. In support of this, he drew our attention to the

partnership deed and enclosed at the Paper Book.

4.2 Per contra Ld. D/R opposed the submission and stated that there is no

ambiguity in law, the remuneration to partners are allowable as per deed of

partnership.

4.2 We have heard the rival contentions, perused the material available on record

and gone through the order of the authorities below. Ld. CIT(A) in para 3.4.2 has

decided this issue by observing as under:-

“3.4.2. Determination:- (i) The appellant firm is constituted by two partmers i.e. Sh. Rajeev Jain and Sh. Sanjeev Jain and it paid remuneration of Rs. 6 lac to only one partner Sh. Rajeev Jain. The total remuneration as per the partnership deed dated 07.12.2004 payable to the partners worked out to Rs. 7,26,168/- by the AO in the assessment order. The AO, in view of the terms and conditions of partnership deed determined the remuneration payable to each partner at Rs. 3,63,084/- i.e. 50% of Rs. 7,26,168/- and thus disallowed the excess claim of Rs. 2,36,916/-(6,00,000- 3,63,084) u/s 40(b) (ii) of the Act. (ii) During the appellate proceedings, it was the contention of the appellant that as per partnership deed, it has been agreed amongst the partners that the salary shall be given to the partners looking after the affairs of the firm and who are known as working partners in the manner as agreed between them. Shri Rajiv Jain has been paid Rs.6,00,000/- as remuneration as working partner as he was actively engaged in the affairs of the above mentioned firm as in the past years which has been accepted by the department in

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assessment proceedings of the earlier years and there is change of opinion by the AO. (iii) I have duly considered the submission of the appellant, assessment order and the material placed on record. It would be relevant to reproduce here the provision of section 40(b) of the Act as under:

(iv) Thus, any payment of remuneration to any partner who is a working partner, which is not authorized by, or is not in accordance with, the terms of the partnership deed cannot be deducted in computing the income chargeable under the head 'profit and gains of business or profession'. (v) As per clause 13 of the partnership deed, the profit sharing ratio between the two partners was 50% each. It is evident from clause No. 6 of the partnership deed that the total allowable remuneration shall be shared amongst the working partners in their profit sharing ratio or as being mutually agreed amongst them. Thus both Shri Rajeev Jain and Shri Sanjiv Jain were having 50% share each in the allowable remuneration i.e. Rs. 3,63,084/- each. As per provisions of section 40(b) of the Act, the remuneration which is paid to a working partner and, is not authorized by, or is not in accordance with, the terms of the partnership deed cannot be allowed as a deduction. (vi) The appellant firm has paid remuneration of Rs. 6 Lac to Shri Rajeev Sain which is not in accordance with the terms of the partnership deed. During the

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appellate proceedings, the AR placed reliance on the decision of Hon'ble ITAT, Amritsar in the case of ITO vs. J.M.P Enterprises [2006] 101 ITD 324 (Asr.). The said judgment is of no help to the appellant as in that case, the remuneration was paid to 4 partners out of the 5 working partners but within the permissible limit of Rs. 1.20 Lac of each partner and the remuneration payable to the fifth partner was not distributed amongst the four other partners. In the instant case, under consideration, part of the share of remuneration was also given to the other partner. (vii) Therefore, in view of the above discussion, it is held that the AO was justified in restricting remuneration paid to Shri Rajeev Jain at Rs. 3,63,024/- and making addition of Rs. 2,39,916/- to the income of the appellant firm. Hence, this ground of appeal is hereby rejected.”

The above finding on fact is not controverted by the assessee. Since the partnership

deed allows expenditure of remuneration paid to the partners in the ratio as

recorded in the partnership deed paying less to one partner and paying in excessive

of the ratio so fixed, in our considered view would not help the assessee.

The only explanation of the assessee is that the other partner has no objection to

this effect. In our view, there is no ambiguity into the provisions, if any

remuneration is paid in excess of the amount mentioned or the percentage

mentioned in the partnership deed that is not allowable expenditure. Therefore, we

do not see any infirmity into the order of the Ld. CIT(A), same is hereby affirmed.

This ground of appeal is dismissed.

interest income from M/s Yash Pharma.

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5.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written brief. He submitted that the amount is offered for taxation on receipt basis

this being revenue neutral would not make any difference. Therefore, he urged that

the addition may be deleted.

5.2 On the contrary Ld. D/R supported the order of the authorities below.

5.3 We have heard the rival contentions. The Ld. CIT(A) has given a finding on

fact in para 3.5.2 as under:-

“3.5.2 Determination:

(i) The AO noted that the appellant has shown interest income of Rs. 60,000/- from M/s Yash Pharma whereas as per 26AS statement, the appellant has received Rs. 80,000/- and the appellant has claimed credit of TDS on interest income of RS. 80,000/- in its return of income and consequently the AO made addition of Rs. 20,000/- to the income of the appellant. (ii) During the appellate proceedings, it was the contention of the appellant that during the year under consideration, it has not received any such income in its bank account and same has been received in next assessment year which has been declared in his return of income and paid income tax due on income declared. (iii) I have duly considered the assessment order, submissions of the appellant and the material placed on record. As per tax audit report, the appellant is following mercantile system of accounting. Therefore, the commission of Rs. 20,000/- was accrued to the appellant during the year under consideration. Further, the appellant has claimed credit for TDS on the entire amount of Rs. 80,000/- and not on Rs. 60,000/-. It is, therefore, held that the AO was justified in making addition of Rs. 20,000/- to the income of the appellant and thus the addition of Rs. 20,000/- is hereby sustained.”

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This finding on fact is not controverted by the Ld. Counsel for the assessee. Since

the assessee has been following mercantile system of accounting. Hence, the receipt

is requires to be tax on accrual basis. Therefore, we do not see any infirmity finding

into the order of the Ld. CIT(A), same is hereby affirmed. This Ground of assessee’s

appeal is dismissed.

Therefore, both these grounds are dismissed.

Order pronounced in the open court on Wednesday, the 25th day of October 2017.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 25/10/2017. Pooja आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

9 ITA No.701/JP/2016. M/s Geet Medicals, Jaipur.