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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)
Per Shamim Yahya (AM) :-
These appeals by the assessee are against common order of learned CIT(A) dated 8.8.2018 for assessment year 2010-11 & 2011-12.
Common grounds of appeal raised relates to the disallowance of partners remuneration and interests.
Brief facts of the case are :-
During the course of assessment proceedings, the assessee was required to produce the copy of partnership deed. The assessee submitted copy of partnership deed. It was seen that in the partners deed so submitted there was no clause in respect of interest and/or remuneration to partners. This partnership deed was made on the stamp paper of Rs. 100/- bearing date stamp of 27.04.2004 and 30.04.2004 having SI. No. 2908 of Kiran Shinde (Stamp Vendor).
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In these bacground the Assessing Officer inferred that the interest and remuneration is paid by the assessee firm without authority of partnership deed. Hence, the interest and remuneration so paid by the assessee firm is not allowable as per section 40(b) if the Act. Accordingly, remuneration of (total amount of Rs. 11,41,835/-) Rs. 6,12,395/- and interest of Rs. 5,29,440/- was disallowed u/s. 40b of the Act, against which the assessee preferred an appeal before the CIT(A).
Learned CIT(A) noted the assessee submission as under :- “As the original partnership deed dated 09.04.1992 was misplaced, I had submitted a Xerox copy of partnership deed dated 30.04.2004. Wherein clauses mentioning remuneration and interest on capital to working partners was not mentioned. However, the above clauses were mentioned in original stamped deed.
I have found out the original partnership deed dated 09.04.1992. I am enclosing the original partnership deed along with the Xerox copy. The above practice of allowing remuneration to working partners and interest on capital of partners were followed throughout from beginning to current year. Hence, there was no malafied intension and partners are aware of it. Kindly allow this deduction.”
However learned CIT(A) was not convinced. He upheld the order of the assessing officer by observing as under :-
“From the findings of the above and the submission of the appellant it is observed that in the original partnership deed dated 09.04.1992, there are clauses mentioning the remuneration and interest on capital to working partners, while in the subsequent partnership deed dated 30.04.2004, clauses mentioning remuneration and interest on capital to working partners are absent. The partnership deed dated 09 04 1992 has been submitted for verification of the undersigned during the appellate proceedings in my considered opinion, a subsequent partnership deed will supersede the original later on, will be in force and not the partnership deed which was prepared earlier. Since in the instant case, the amended partnership deed dated 30th April, 2004, does not contain the provisions for payment of remuneration and interest on capital to working partners, the AO is justified in disallowing the same. Hence, the disallowance remuneration of (total amount of Rs. 11,41,835/-) Rs. 6,12,395/- and interest of Rs. 5,29,440/- are confirmed.”
Against the above order assessee is in appeal before us. We have heard both the counsel and perused the records. Upon careful consideration we find
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that the partner’s remuneration and interest in this case has been disallowed on the basis of a photo copy of partnership deed which did not contain the necessary clause for the partner remuneration and interest. However the assessee did submit the original partnership deed which contained the necessary clauses. However the learned CIT(A) considered the photo copy partnership deed as sacrosanct and considered that the same was an amendment of the original deed. In our considered opinion there is no cogent basis for the learned CIT appeals to come to such a surmise. When the assessee is submitting that the photo copy was submitted by mistake and the original copy which was in existence did contain the said clauses and the said original partnership deed was submitted before the learned CIT(A) in our considered opinion the rejection of the same by Ld CIT(A) is not sustainable. The same is based upon conjectures of learned CIT(A) unsustainable in law. Accordingly we set aside the orders of authorities below and delete the disallowance made in this regard.
In the result these appeals by the assessee stand allowed. Order has been pronounced in the Court on 3.2.2020.
Sd/- Sd/- (PAWAN SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 03/02/2020 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai