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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Aforesaid appeal at the instance of the Department is directed against the order dated 7th December 2011, passed by the learned Commissioner (Appeals)–35, Mumbai, for assessment year 2006–07.
Ground no.1, is in relation to deletion of disallowance made of ` 23,77,300 made under section 40(b).
Brief facts are, the assessee a partnership firm is engaged in the business of financier and estate agent. During the assessment
2 M/s. Rukhana Enterprises proceedings, the Assessing Officer noticing that the assessee has claimed deduction of an amount of ` 32,27,300 on account of remuneration to partners called upon the assessee to furnish the partnership deed. On examining the partnership deed, the Assessing Officer found, though, there are five working partners, the manner of distribution of allowable remuneration amongst the partners is not provided in the partnership deed. He observed, as per board circular no.739 dated 20th March 1996, remuneration to working partners is allowable only if the manner of distribution amongst the partners is specified in the partnership deed. Alleging that the manner of distribution is not specified in the partnership deed, he held that the deduction claimed is not allowable. He further observed, the assessee has credited income earned from dividend, profit on sale of office and profit on sale of land to the Profit & Loss account and has computed remuneration to the working partners on such income. He observed, as per the provisions of section 40(b) r/w Explanation–3, the maximum allowable deduction would be ` 21,96,586, as against the amount of ` 32,77,300 claimed by the assessee. Being aggrieved of the addition made by the assessee challenged it before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after perusing the partnership deed was convinced that the clauses of the partnership
3 M/s. Rukhana Enterprises specified the manner of distribution of allowable remuneration. He, therefore, allowed the deduction claimed by the assessee.
Learned Departmental Representative submitted, the partnership deed did not specify the remuneration payable to working partner. Therefore, the deduction claimed is not allowable. Without prejudice to the aforesaid submission, the learned Departmental Representative submitted, the learned Commissioner (Appeals) has not decided the issue relating to quantum of deduction allowable to the assessee even assuming that the partnership deed specified the manner for distribution of remuneration to partner.
Learned Authorised Representative strongly relying upon the observations of the learned Commissioner (Appeals) submitted, clause 8, 10, 11 and 12 of the partnership deed clearly specified the manner of distribution of remuneration to the partners. Therefore, the allegation of the Assessing Officer is without any basis. As far as quantum of deduction allowable under section 40(b) is concerned, the learned Authorised Representative submitted, the matter can be verified by the Assessing Officer.
We have considered the submissions of the parties and perused the material available on record. The only reason on which the Assessing Officer disallowed assessee’s claim of deduction is,
4 M/s. Rukhana Enterprises partnership deed did not specify the manner of distribution of remuneration to the working partners. However, on a perusal of the partnership deed, a copy of which is at Page–9 of the paper book, it appears the partnership deed clearly demonstrate the manner of distribution of remuneration to working partners. Therefore, in principle, we agree with the learned Commissioner (Appeals) that deduction claimed towards remuneration paid to partners is allowable. However, it is to be noted that the Assessing Officer has also observed that the maximum deduction allowable to the assessee in terms of section 40(b) is ` 21,96,586. This aspect of the issue has not at all been considered by the learned Commissioner (Appeals) while allowing assessee’s claim of deduction. We, therefore, direct the Assessing Officer to quantify the deduction claimed on account of remuneration to working partners in terms of section 40(b) after providing due opportunity of being heard to the assessee. Ground no.1 is partly allowed for statistical purpose.
In ground no.2, the Department has challenged the deletion of ` 13.50 lakh on account of capital introduced by the partners.
Brief facts are, while examining the capital account furnished by the assessee, the Assessing Officer noticed that during the relevant previous year four of the partners have introduced amounts of ` 14
5 M/s. Rukhana Enterprises lakh, ` 14 lakh, ` 6.50 lakh and ` 22 lakh respectively as capital in the firm during the relevant previous year. When the Assessing Officer called upon the assessee to explain the source of introduction of capital, assessee submitted, the copies of bank statements of the partners, wherein, the amounts received by the firm is appearing. However, the Assessing Officer after verifying the bank statement could locate the following transactions:–
` 10 lakh Smt. Sharda J. Rukhana ` 13 lakh Smt. Jagruti J. Rukhana ` Nil Smt. Harsha K. Rukhana ` 20 lakh Shri Jayesh J. Rukhana
Thus, according to him, the entire capital introduction was not reflected in the bank statement. Alleging that the assessee has not proved the source for an amount of ` 13.05 lakh, he added back to the income of the assessee. Assessee challenged the addition before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after examining the bank statement of the partners along with their balance sheet found that all the amounts introduced as capital were reflected in the bank statement. Accordingly, he deleted the bank statement.
We have considered the submissions of the parties and perused the material available on record. In the course of hearing, the learned
6 M/s. Rukhana Enterprises Authorised Representative has drew our attention to the introduction of capital by each of the partners as appearing in the ledger account in the books of assessee firm and the source of such fund in the individual bank statement. On a perusal of the ledger account copies of each of the partners and their individual bank statements, we have noticed that the entire capital introduced by each of the partners is reflected in their individual bank statements. Therefore, in our considered view, the source of capital introduced is properly explained through the individual bank accounts. Prima–facie, we are of the opinion that the Assessing Officer has not properly reconciled the ledger account copies with the bank statement which has confused him. That being the case, we do not find any infirmity in the order passed by the learned CIT(A) on the issue. Ground no.2 is dismissed.
In ground no.3, the Revenue has challenged the decision of the learned Commissioner (Appeals) in treating the gain derived from sale of land at Pune as long term capital gain as against short term capital gain assessed by the Assessing Officer.
Brief facts are, while verifying the computation of income of the assessee, the Assessing Officer noticed that the assessee had shown long term capital gain on sale of plot at Pune. On examination of purchase and sale documents, the Assessing Officer observed that the assessee had purchased the plot on 12th June 2003, by virtue of lease
7 M/s. Rukhana Enterprises executed by Sneh Park Co–operative Hosing Society as mentioned in the agreement to transfer lease hold right executed on 6th May 2005. He observed, as the assessee has sold the lease hold right on 6th May 2005, the holding period is less than 36 months, hence, the gain derived is to be assessed as short term capital gain.
The learned Commissioner (Appeals) noticing that the plot was allotted to the assessee vide allotment letter dated 15th May 1997 and the assessee had made initial payment of ` 63,000 on 15th May 1997, and ` 2 lakh on 18th December 2001, held that the assessee had acquired the beneficial right, title and interest over the plot under the said allotment letter on 15th May 1997. He observed, as the assessee has surrendered such right on 6th May 2005, therefore, the period of holding of land being more than 36 months, the gain derived has to be assessed as long term capital gain.
Learned Departmental Representative relying upon the observations of the Assessing Officer submitted, the learned Commissioner (Appeals) has not made any observation on lease deed dated 12th June 2003, which should be reckoned as the date of allotment of the plot to the assessee.
Learned Authorised Representative on the other hand referring to Para–5 of the statement of facts filed before the learned Commissioner
8 M/s. Rukhana Enterprises (Appeals), submitted that the initial allotment letter of the plot was issued by the Developer to the assessee and the assessee had made initial payment made of ` 63,000 in the year 1997 itself. She submitted, on the issuance of allotment letter in the year 1997, the assessee acquired beneficial right, title and interest over the plot. She submitted, what the assessee surrendered in the lease transfer deed executed in the year 2005, is such beneficial right, title and interest over the plot. He submitted, as full amount was not paid, no share certificate was issued by the society. As far as the observations of the Assessing Officer that assessee had entered into a lease deed on 12th June 2003, with the society, the learned Authorised Representative emphatically submitted that there is no such lease deed executed by the assessee and the observations made by the Assessing Officer is on the basis of a reference made to such lease deed in the agreement to transfer of lease hold rights executed on 6th May 2005. Learned Authorised Representative drawing our attention to agreement dated 6th May 2005 submitted, such agreement is in a standard format, therefore, it contains the reference to the so called lease executed on 12th June 2003. She, therefore, submitted as the assessee had acquired the right over the plot in the year 1997, it should be treated as long term capital gain.
9 M/s. Rukhana Enterprises
We have considered the submissions of the parties and perused the material available on record. The assessment order demonstrates that the only basis on which the Assessing Officer has treated gain derived from transfer of lease hold right as short term capital gain is, the reference of lease executed by Sneh Park Co–operative Housing Society on 21st June 2003 as appearing in agreement to transfer of lease hold rights dated 6th May 2005. However, the lease deed dated 16th June 2003, has not been brought on record. Therefore, it has not been established conclusively by the Assessing Officer whether the y6nassessee actually has executed the lease on 12th June 2003. On the contrary, the agreement to transfer lease hold rights dated 6th May 2005, a copy of which is at Page–42 of the paper book, to some extent supports the contention of the assessee that the reference to the letters dated 12th June 2003, is because of the standard format in which the deed has been drafted and not because the assessee actually has executed such lease with the society. This is evident from the blank spaces left in relation to share number and registration number. On the contrary, the allotment letter dated 15th May 1997 indicates that the plot was allotted to the assessee on initial payment of ` 63,000 in the year 1997. Thus, it has to be assumed that the assessee has acquired beneficial right, title and interest over the property in the year 1997. That being the case, the period of holding
10 M/s. Rukhana Enterprises being more than 36 months, the gain derived from transfer of such beneficial right, title or interest over the plot of land is assessable as long term capital gain. We, therefore, uphold the order of the learned Commissioner (Appeals) while dismissing the ground no.3, raised by the Department.
In the result, appeal stands partly allowed for statistical purpose. Order pronounced in the open Court on 20.12.2016