M/S RAMESHCHANDRA BALACHAND,MUMBAI vs. JCIT(OSD)-CENTRAL CIRCLE 4(1), MUMBAI
Facts
A search and seizure operation was conducted on the assessee, a partnership firm, on 16.10.2019. Subsequently, proceedings under section 153A were initiated for assessment years 2014-15 to 2019-20, and regular proceedings under section 143(3) for A.Y. 2020-21. The Assessing Officer (AO) disallowed remuneration paid to a partner, Ms. Chhaya D. Vora, considering it not a business expense.
Held
The Tribunal held that additions made under section 153A assessments require incriminating material found during search and seizure. The AO's reliance on a statement recorded under section 132(4) without other incriminating material was insufficient. Furthermore, the remuneration paid to the partner was found to be a legitimate business expense and had already been offered to tax by the partner.
Key Issues
Whether additions made under section 153A assessments are valid without any incriminating material, and if remuneration paid to a partner can be disallowed as a business expense when it has been offered to tax by the partner.
Sections Cited
153A, 132, 143(3), 37, 132(4), 28(v), 40(b), 153D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & MS. PADMAVATHY S, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, VP AND MS. PADMAVATHY S, AM
ITA Nos. 4352 to 4358/Mum/2023 (Assessment Years: 2014-15 to 2020-21)
M/s. Rameshchandra Balachand JCIT(OSD)-Central Circle 4(1) Room No. 1916, 19th Floor, 30, Jambulwadi, Kalbadevi Road, Vs. Mumbai-400 002 Air India Building, Nariman Point, Mumbai-400 021 PAN/GIR No. AAAFR 2770 C (Appellant) : (Respondent) Appellant by : Shri Bhupendra Shah Respondent by : Smt. Sanyogita Nagpal Date of Hearing : 26.11.2024 Date of Pronouncement : 29.11.2024
O R D E R Per Bench :
The captioned appeals by the assessee arise out of separate orders of learned
Commissioner of Income Tax (Appeals)-52, Mumbai (‘ld.CIT(A) for short) and pertain to
assessment years (A.Y.) 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, 2019-20 and
2020-21.
Since the dispute arising in these appeals are identical, they have been clubbed
together and disposed of in a consolidated order, as a matter of convenience.
In addition to the main grounds, the assessee has raised the following additional
grounds in all these appeals: Additional Ground Number 1: In the facts and circumstances of the case and in law, the Assessing Officer erred in wrongly recording satisfaction u/s. 153A even though no incriminating documents were found from the premises of the Appellant which ought to have belonged to the Appellant. Additional Ground Number 2: In the facts and circumstances of the case and in law, the Assessing Officer erred in the said disallowance tantamount to double addition of same income in the hands of the Appellant even though the same is already taxed in the hands of the respective partners.
2 ITA Nos. 4352 to 4058/Mum/2023 (A.Ys.2014-15 to 2020-21) M/s. Rameshchandra Balachand vs. JCIT(OSD) Additional Ground Number 3: In the facts and circumstances of the case and in law, the Assessing Officer erred in passing the assessment order on the basis of approval granted u/s. 153D in a mechanical manner and without there being any incriminating material.
Since the additional grounds raised by the assessee are purely on legal and
jurisdictional issues going to the root of the matter and can be disposed of without making
any fresh investigation into facts, we are inclined to admit the additional grounds for
adjudication.
In ground no. 1 of the additional grounds, the assessee has challenged the validity
of additions made in absence of incriminating material found as a result of search and
seizure operation.
Briefly, the facts for deciding this issue are, the assessee is a resident partnership
firm. A search and seizure operation u/s. 132 of the Income Tax Act, 1961 (‘the Act’ for
short) was carried out in case of the assessee on 16.10.2019. Consequent upon such search
and seizure operation, proceedings u/s. 153A of the Act were initiated for A.Ys. 2014-15,
2015-16, 2016-17, 2017-18, 2018-19 and 2019-20. Insofar as A.Y. 2020-21 is concerned,
regular proceedings u/s. 143(3) of the Act was undertaken.
Be that as it may, in course of assessment proceeding, the A.O. while examining the
details noticed that two of the partners of the assessee firm, namely Ms. Chhaya D. Vora
and Shri Yash Vora were paid remuneration. He further noticed that, in course of search
and seizure operation, a statement was recorded from Shri Dhanraj Balachand Vora, one
of the partners, wherein a query was made regarding the nature of the work done by Ms.
Chhaya D. Vora and Shri Yash Vora to entitle them for the remuneration. He observed that
in response to such query, the concerned partner had submitted that the partners shall get
3 ITA Nos. 4352 to 4058/Mum/2023 (A.Ys.2014-15 to 2020-21) M/s. Rameshchandra Balachand vs. JCIT(OSD) remuneration as working partner. However, they did not come to office daily. It was stated
that Ms. Chhaya D. Vora helps in accounts maintenance of the firm. Whereas, Shri Yash
Vora helps in business. Relying upon such statement, the A.O. issued a show cause notice
to the assessee, requiring to explain as to why the remuneration paid to Ms. Chhaya D.
Vora should not be disallowed, as such expenditure is not for the purpose of business in
terms of section 37 of the Act. Though, the assessee objected to the proposed
disallowances, however, rejecting the explanation of the assessee, the A.O. disallowed the
expenditures incurred by the assessee towards payment of remuneration to Ms. Chhaya D.
Vora in all the assessment years under dispute.
Though, the assessee contested the afore-said disallowances before learned first
appellate authority, however, such disallowances were sustained.
Before us, the primary contention of ld. Counsel appearing for the assessee was to
the effect that the additions made in the assessment years under dispute were not with
reference to any incriminating material found and seized in course of search and seizure
operation. Thus, it was contended that in an assessment made u/s. 153A of the Act, no
addition can be made in absence of any incriminating material found, as a result of search
and seizure operation. In support of such contention, ld. Counsel relied upon the decision
of the Hon'ble Supreme Court in the case of Pr. CIT, Central v. Abhisar Buildwell (P.) Ltd.
[2023] 149 taxmann.com 399 (SC). Without prejudice, ld. Counsel submitted that even in
respect of abated assessments, the additions made are unsustainable, as, the A.O. has made
such additions simply based on a statement recorded u/s. 132(4) of the Act and no other
material. He submitted, when the facts on record prove that the assessee had paid the
remuneration to the concerned partner and such remuneration has already been taxed at the
4 ITA Nos. 4352 to 4058/Mum/2023 (A.Ys.2014-15 to 2020-21) M/s. Rameshchandra Balachand vs. JCIT(OSD) hands of the concerned partner no further disallowance can be made at the hands of the
assessee. Thus, he submitted, additions made should be deleted.
The learned Departmental Representative ('ld. DR' for short), strongly relied upon
the observations of the A.O. and learned first appellate authority.
We have considered rival submissions and perused the materials on record. As could
be seen from the facts on record, the search and seizure operation on the assessee took
place on 16.10.2019. Therefore, as on the date of search and seizure operation, no
assessment proceeding for A.Ys. 2014-15 to 2018-19 were pending. Therefore, for such
unabated assessment years, the A.O. can have jurisdiction to assess or reassess any income
purely based on incriminating material found as a result of search and seizure operation. In
the facts of the present appeals, undisputedly, the only addition/disallowance made in all
these assessments years are ‘remuneration paid to the partner - Ms. Chhaya D. Vora’. It is
the case of A.O. that the remuneration paid does not qualify as ‘business expense’ u/s. 37
of the Act. Though, the A.O. has referred to a statement recorded u/s. 132(4) of the Act,
however, that cannot be considered as an incriminating material for enabling the A.O. to
vest with himself the jurisdiction to make the disputed disallowances in assessments
completed u/s. 153A of the Act. Thus, in view of the ratio laid down by the Hon'ble
Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra), the additions made in
A.Ys. 2014-15 to 2018-19 are unsustainable. Accordingly, we delete such disallowances.
Even otherwise also, the assessee, in our view, has a strong case on merits as well.
As could be seen from the observations of the A.O., initially he was of the view that
remuneration is not allowable in terms of section 40(b) of the Act. However, ultimately, he
5 ITA Nos. 4352 to 4058/Mum/2023 (A.Ys.2014-15 to 2020-21) M/s. Rameshchandra Balachand vs. JCIT(OSD) made the disallowance u/s. 37 of the Act, which, in other words, means that the expenditure
incurred is not for the purpose of business. It is relevant to observe, in the statement
recorded u/s. 132(4) of the Act, in response to a specific query raised, one of the partners
of the assessee firm has specifically stated that Ms. Chhaya D. Vora helps in accounts
maintenance of the firm and for that purpose she comes to the office once or twice a week.
Therefore, the fact that Ms. Chhaya D. Vora comes to office and helps in maintenance of
accounts is proved on record. Merely because she does not come to office on daily basis,
cannot be a ground to hold that she is only a sleeping partner and, hence, not entitled to
remuneration. In any case of the matter, the remuneration paid to partner is taxable at the
hands of the partner u/s.28(v) of the Act. Undisputedly, the remuneration received has been
offered to tax at the hands of the concerned partner. That being the factual position
emerging on record, expenditure towards remuneration paid to the partner is certainly
allowable at the hands of the assessee firm. Therefore, even for A.Ys. 2019-20 and 2020-
21, which are abated assessments, the disallowances cannot be sustained. Accordingly, we
delete the disallowances in all the assessment years under dispute. In view of our decision
above, various other grounds raised by the assessee have been reduced to academic
importance, hence, do not require adjudication.
In the result, the appeals are allowed as indicated above.
Order pronounced in the open court on 29.11.2024
Sd/- Sd/-
(Padmavathy S) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 29.11.2024 Roshani, Sr. PS
6 ITA Nos. 4352 to 4058/Mum/2023 (A.Ys.2014-15 to 2020-21) M/s. Rameshchandra Balachand vs. JCIT(OSD) Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai
