GAGRAT & CO.,NEW DELHI vs. ACIT, NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER :

“That the order of Ld. Commissioner of Income Tax 1. (Appeal) XX New Delhi is bad in facts and in law.

That the Ld. CIT (A) has not been pleased to 2. appreciate the evidence and other material on record properly. That the Ld. CIT (A) has erred in confirming the 3. addition of statutory liability of Rs.5,33,700/- on account of TDS deducted U/s 194 J, payable for the month of March 2013, which was duly deposited on 11th April 2013, wrongly considering it as non applicability of section 43B of the Income Tax Act,1961 in case of appellant, as the appellant is following cash of accounting under sec 145 of the Income Tax Act, 1961. The same was duly deposited by the appellant within the time stipulated under sec. 43B the Income Tax Act, 1961. Therefore, no part thereof ought to have been disallowed. Hence the addition made is illegal, arbitrary, unjustified and against the facts and bad in law, may kindly be deleted. That the Ld. CIT (A) has erred in confirming the 4. addition of Partner’s Salary of Rs.4,29,274/- out of the total of partner’s salary of Rs.57,00,000/- paid to resident partner Mr. U. A. Rana, duly authorized as per the supplement deed of Partnership dated 27th March 2013 of the Appellant. Therefore, the said disallowance of Partner’s Salary under section 40(b) of the Income Tax Act, 1961, is arbitrary, unjust and unwarranted, keeping in view that under section 40(b) only condition for disallowance of partners remuneration is that if it is not duly authorized by the deed of partnership. Hence the addition made is illegal, arbitrary, unjustified and against the facts and bad in law, may kindly be deleted. That the Ld. CIT (A) has erred in confirming the 5. addition of the expense in the sum of Rs.26,137/-, out of Rs. 1,93,712/- which were incurred in respect of the telephone expenses, These expense were incurred only in regard to and in furtherance of the professional work of the Appellant firm and no part thereof ought to have been disallowed. Hence, the addition made is illegal, arbitrary, unjustified and against the facts and bad in law, may kindly be deleted.

That the Appellant craves leave to add/ amend/ withdraw 6. or modify the Grounds of Appeal at the time of hearing.”

R.J.Garrat and Sh. U.A.Rana having share of profit in the Firm at 40% and 60% respectively. AO made addition of Rs. 5,33,700/- by way of disallowance of TDS on the ground that the same should have been paid during the financial years by the Assessee as it has been following cash system of accounting. AO also made addition of Rs. 4,29,274/- out of the total of partner’s salary of Rs. 57,00,000/- on the ground that the assessee has revised the partnership deed just few dates before end of the financial years for enhancing the salary of the partners. AO made disallowance of Rs. 29,057/- on account of telephone expenses on estimated basis on the ground that assessee has not maintained any personal telephone and there is an element of personal use in the same.

GROUND NO. 1 AND 2

GROUND NO. 3 6. Ld. AR for the assessee challenging the impugned order passed by Ld. CIT(A) contended that the tax deducted at source by the assessee u/s 194J for the Month of March, 2013 have been duly paid on 11th April, 2013 i.e. much before the due date or before the due date specified in Sub. section 1 of Section 139 of the Income Tax Act, and as such there is no delay in deposit of the TDS deduction. It is further contended by Ld. AR for the assessee that u/s 43B the assessee in order to claim the deduction of TDS payable is required to deposit the TDS deducted in the last month of previous year, on or before the due date specified in Section139(1) of the Act. However, on the other hand the Ld. DR for the revenue relied upon order passed by AO as well as CIT(A).

6.1 Undisputedly the TDS deducted by the assessee u/s 194J for the month of March, 2013 has been duly paid on 11th March, 2013 which is well before the due date specified in Section139(1) of the Act. When the assessee has duly deposited the TDS before filing the return of income for the year under assessment, the same is allowable u/s 43B of the Act. No doubt, the assessee is following the cash method of accounting and has made cash payment to various parties after deducting TDS, the portion of which has been allowed by the AO as deductible expenditures, U/s 198 of the Act tax deducted at source by the assessee as per Income Tax Act is deemed to be income received by the recipient of the said income and as such TDS deducted by the assessee is deemed to have been received by the recipient of the income and as such it cannot be held that the assessee has not paid the amount of tax deductible at source on or before the due date. So it cannot be held that the aforesaid amount of TDS has not been paid by the assessee while following the cash system of accounting. 6.2 Hon’ble Delhi High Court in case of Commissioner of Income Tax XIII Vs. Naresh Kumar in Income Tax Appeal No. 24/2013 decided on 6th September, 2013 and Judgment of Delhi High Court in the matter of Commissioner of Income Tax Vs. Rajinder Kumar in Income Tax Appeal No. 65/2013 decided on 1st July, 2013 held that if the statutory liability of depositing the TDS has been fulfilled before the due date of filing of the return u/s 139(1) of the Act, the same are allowable expenses in the year to which it relates. This is also mandate of Section 43B of the Act. Even otherwise identical issue has been decided by the revenue itself in favour of the assessee in its own case in A.Y. 2008-09, 2010-11 and 2011-12, so rule of consistency has to be followed by the Revenue. 6.3 Co-ordinate Bench of Tribunal in case of Associated Law Advisers, Antriksh Bhawan Vs. ACIT, A.Y. 2013-14 on 11.09.2019 decided the identical issue in favour of the assessee. So we are of the considered view that AO as well as Ld. CIT(A) have erred in making disallowance of Rs. 5,33,700/- on account of TDS, hence, ordered to be allowed / deleted. So ground no. 3 is determined in favour of the assessee.

GROUND NO. 4 7. AO/ Ld. CIT(A) have made / confirmed addition of Rs. 4,29,274/- out of partner’s salary of Rs. 57,00,000/- paid to Mr. U.A. Rana on the ground that partner’s salary has been revised just before the few dates of the end of financial years. Ld. DR for the Revenue relied by the order passed by AO as well as Ld. CIT(A).

7.1 Undisputedly as per clause 8.1 of the partnership deed dated 1st April, 2011 partners salary is fixed at Rs. 48,00,000/- per annum however, as per the amended partnership deed dated 28.03.2013 salary of partner namely Sh. U.A.Rana has been increased to 57,00,000/-. Perusal of para 8.2 of original partnership deed available at page 15 to 53 of paper book shows that it is decided in the partnership deed that : “8.2 THE ANNUAL remuneration as per quantum specified in Clause 8.1 may be drawn in such instalments as may be decided by the Partners from time to time.”

7.2 Then perusal of the supplementary partnership deed dated 27.03.2013 available at page 12 to 14 of the paper book shows that partner’s salary has been enhanced with effect from 1st April, 2012 to Rs. 57,00,000/-. Accordingly assessee has claimed partner’s salary with effect from 1st April and placed on file the copy of ledger available at page 61 of the paper book. When it is undisputed fact that out of two partner namely Mr. R.J.Gagrat and Mr. Ujjwal A. Rana only one partner is active partner and is deriving salary and no salary is being drawn by Mr. R.J. Gagrat, they have mutually agreed to decide the salary of the active partners. When the salary of the partner has been enhanced in accordance with law and has been claimed as such, enhanced amount of Rs. 4,29,274/- disallowed by the AO/ Ld. CIT(A) is not sustainable in the eyes of law hence, ordered to be allowed. So the addition made by AO and confirmed by the ld. CIT(A) is ordered to be deleted. Consequently ground no. 4 raised by the assessee is allowed.

GROUND NO. 5 8. Assessee has claimed telephone expenses of Rs. 1,93,712/- in the profit and loss account out of which AO has disallowed 15% i.e. Rs. 29,057/- on account of personal use. However, Ld. CIT(A) has restricted the disallowance of telephone expenses at 10%. The Ld. AR for the assessee contended that in the earlier years A.Y. 2011-12, Ld. CIT(A) had restricted the disallowance to 8% of the total claim on account of personal nature of the expenses.

9. We are of the considered view that keeping in view the fact that as against the gross receipt of Rs. 5.93 crore, Assessee has claimed telephone expenses of Rs. 1,93,712/- which is merely 0.32% of the gross receipts, we are of the considered view that Ld. CIT(A) in A.Y. 2011-12 has rightly restricted the personal nature of telephone expenses of the assessee to 8% of the total claim. So the Revenue is required to follow the rule of consistency and as such personal nature of telephone expenses of the assessee is restricted to 8% of the total claim. So Ground No. 5 is partly determined in favour of the assessee.