M/S. S.C.PADHEE,SAMBALPUR vs. DCIT, CIRCLE-1(1), SAMBALPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No. 495/CTK/2014 Assessment Year : 2010-2011

DCIT, Circle -1(1), Vs. M/s.S.C.Padhee, Sambalpur Balibandha, Sambalpur PAN/GIR No.AAQFS 7009 F (Appellant) .. ( Respondent)

ITA No. 28/CTK/2016: Asst. Year: 2011-12

C.O.No.09/CTK/2015 (arising out of ITA No.495/CTK/2014) Assessment Year : 2010-2011

M/s.S.C.Padhee, Vs. JCIT/DCIT, Circle -1(1), Balibandha, Sambalpur Sambalpur PAN/GIR No.AAQFS 7009 F (Appellant) .. ( Respondent)

Assessee by : Shri N.L.Dash, AR Revenue by : Shri Kunal Singh, CIT DR

Date of Hearing : 01/08/ 2017 Date of Pronouncement : 04/08/ 2017

O R D E R Per N.S.Saini, AM The appeal filed by the revenue and cross objection filed by the

assessee are directed against the order of the CIT(A)- II, Bhubaneswar

dated 16.10.2014 for the assessment year 2010-2011. The assessee

has also filed appeal for the assessment year 2011-12 against the order

of the CIT(A), Cuttack dated 23.11.2015.

2 M/s.S.C.Padhee, Balibandha, Sambalpur First, we take up the appeal of the Revenue in ITA No.495/CTK/2014 for A.Y. 2010-2011. 2. In Ground No.1 of the appeal, the grievance of the revenue is that

the CIT(A) erred in deleting the disallowance of Rs.3,46,04,000/- being

remuneration paid to partner.

that the assessee is a partnership firm having two partners namely, Shri

Prashant Kumar Padhee and Shri Sushil Kumar Padhee with 50% share

each in the firm. He observed that as per clause 10(II), it has been

stated that the amount of remuneration payable to the working partners

shall be determined in the manner laid down in Explanation 3 to Section

40(b) of the Income tax Act or any other provisions as may be in force in

the Income Tax assessment of partnership firm in the relevant accounting

year. It further provided that in case book profit does not exceed

Rs.50,000/-, the remuneration will be claimed to the extent of such book

profit only. The Assessing Officer observed that during the year under

consideration, the assessee firm has paid Rs.3,46,04,080/- as

remuneration to the partners. He observed that as per Explanation 3 to

Section 40(b) of the Act, for the purpose of this clause, book profit means

net profit as shown in the profit and loss account for the relevant previous

year computed in the manner laid down in Chapter IV D as increased by

the aggregate amount of the remuneration paid or payable to all the

partners of the firm if such amount has been deducted while computing

the net profit. According to the Assessing Officer, Explanation 3 to

3 M/s.S.C.Padhee, Balibandha, Sambalpur Section 40(b) does not lay down any manner for determining the

remuneration payable to the partners of the firm. Therefore, he held that

the partnership deed does not provide for quantification of the

remuneration payable to the partners and, therefore, he disallowed the

remuneration paid to partners of Rs,3,46,04,080/- .

Hon’ble H.P. High Court in the case of CIT vs. Anil Hardware Store, 323

ITR 368 (HP), wherein, it has been held that the manner of fixing the

remuneration of the partners has been specified in the deed but there

was nothing which debars them from claiming the maximum amount of

remuneration payable in terms of the partnership deed. The method of

remuneration having been laid down, the assessee firm is entitled to

deduct the remuneration paid to the partners under s. 40(b)(v) of the

Act. Reliance was placed on the decision of Pune Benches of the Tribunal

in the case of CIT vs. Suman Constructions (2009) 34 SOT 495 (Pune),

wherein, it has been held that salary to partners cannot be disallowed

only on the reason that the salary is not quantified in the partnership

deed.

held that the provisions of section 40(b) of the Act only employ the term

‘authorise’ and not ‘quantify’ in respect of the remunerations payable to

partners. He held that the remunerations payable to the partners was

authorized by the partnership deed and, therefore, the Assessing Officer

4 M/s.S.C.Padhee, Balibandha, Sambalpur was not justified in disallowing the partner’s remuneration paid by the

partner and allowed the appeal of the assessee.

supported the order of the CIT(A).

We have heard the rival submissions, perused the orders of lower 7.

authorities and materials available on record. The undisputed facts of the

case are that the Assessing Officer disallowed deduction for partner’s

remuneration of Rs.3,46,04,080/- claimed by the assessee on the ground

that the partnership deed did not provide how the remuneration to the

partners is to be quantified.

Court in the case of Anil Hardware Store and the decision of the Pune

Benches of the Tribunal in the case of Suman Constructions (supra) held

that the remunerable payable to partners is to be authorized by the

partnership deed and not quantified.

by bringing any positive materials on record. Hence, we find no good

reason to interfere with the order of the CIT(A), which is hereby

confirmed and ground of appeal of the revenue is dismissed.

the CIT(A) erred in deleting the disallowance of ground loss made by the

Assessing Officer.

5 M/s.S.C.Padhee, Balibandha, Sambalpur 11. The brief facts of the case are that the Assessing Officer observed

that the assessee has claimed deduction of Rs.9210.98 MTs of fines as

ground loss. Out of this, 1050 MTs of fines purchased and placed at the

LPG Railway Siding was also claimed to have been totally lost. The other,

at the Port amounting to 8160.980 MTs out of the total 77230 MTs taken

to the Port out of which 60870 MTs have been exported. The percentage

of loss was claimed at 10.57%. The assessee was required to produce

evidence in support of the same. He observed that whatever

explanations and evidences have been presented do not satisfactorily

explain the ground loss to the extent claimed. Accordingly, he

disallowed 50% of this loss claimed and added to the income of the

assessee. The value of 4605.49 MTs of fines at the Port and the LPG

Railway sidings was taken to be Rs.1,10,53,176/- @ 2400/- per MT.

under:

“The AO's decision to disallow the ground losses during the impugned F.Y. 2009-10 on estimate basis @50% followed the ostensible logic/rationale as under:

i) Total ground loss claimed as deduction by the 9210.98 MTs Appellant ii) Less: Fines purchased and placed at LPG 1050.00 MTs Railway Siding claimed to be completely lost iii Fines lost in transit at the Port 8160.98 MTs

i) It may be therefore noted that there are two kinds of losses, those at the Railway Siding and those at the Port. The total percentage of ground loss claimed of 9210.98 MTs was computed by the AO as J 0.57%. [NB: This computation of the AO is totally unclear and appears to be wrong. 10.57% appears to be the percentage of loss of the iron ore fines lost in transit at the Port of the total stock of

6 M/s.S.C.Padhee, Balibandha, Sambalpur 77230 MTs available and taken to the port to be sold (out of which 60870 MTs were sold as exports). The actual percentage of total ground losses is 9210.98 MTs/ 77230 MTs = 11.93%. The impugned portion of the assessment order also suffers from bad drafting, being devoid of syntax and dismissive and disregardful of the importance of punctuations].

ii) According to the AO, the Appellant could not substantiate the ground losses to the extent claimed above. Once again, the computations and the reasonings of the AO appear to be incomplete and therefore incomprehensible while arriving at the conclusions. What he means by the Appellant "not being able to satisfactorily explain" is unclear in the absence of any computational findings on the evidences submitted by the Appellant. The only thing that appears reasonably clear is that the AO held that the Appellant had reported 9210.98 MTs of ground losses. There is nothing new or outside the books of accounts and records of the Appellant in this information. “

A.R. supported the order of the CIT(A).

available on record, we find that in the instant case, the assessee has

claimed ground loss of 9210.98 MTs which comprises of fines purchased

and placed at LPG Railway Siding claimed to be completely lost 1050

MTs and fines lost in transit at the Port 8160.98 MTs . The Assessing

Officer disallowed 50% of the loss for the reason that the assessee has

not satisfactorily explained the loss. The CIT(A) deleted the disallowance

made by the Assessing Officer on the ground that the Assessing Officer

has not been able to point out why the explanation submitted by the

assessee with regard to loss was not acceptable to him. He vacated the

disallowance as the Assessing Officer had made adhoc disallowance of

50% of the loss claimed by the assessee without assigning any justifiable

reason. Before us, ld D.R. could not point out any specific defect in the

7 M/s.S.C.Padhee, Balibandha, Sambalpur order of the CIT(A). Hence, we find no good reason to interfere with the

order of the CIT(A), which is hereby confirmed and the ground of appeal

of the revenue is dismissed.

the CIT(A) erred in deleting the disallowance made by the Assessing

Officer on suppressed sales of Rs.3,56,20,280/-.

14,841.825 MTs of Iron Ore fines was not included in the sale receipts of

the assessee. No explanation for the same was offered by the assessee

and, therefore, he added Rs.3,56,20,380/- by valuing the same by

applying the rate of 2400 per MT.

of fines was explained by the shortage determined at 14,521.515 MTs by

the principal surveyor of the Department of Mines. He held that the

difference of 320.310 MTs was stated to be on account of transit losses

during the trip to the Paradip Port. He further stated that this is further

substantiated by the fact that the difference between the quantity

despatched from the mines sites to the Port was 44777.08 MTs while the

quantity received was 43,756.770 MTs, resulting in the equivalent

difference being transit loss as above of 320.310 MTs and, therefore, he

deleted the addition of Rs.3,56,20,280/-.

8 M/s.S.C.Padhee, Balibandha, Sambalpur

report of the Principal Surveyor of Department of Mines which was filed

before the CIT(A) was not produced before the Assessing Officer and,

therefore, he has accepted the same in violation of Rule 46A of IT Rules

without calling for a remand report from the Assessing Officer and,

therefore, the matter should be restored back to the file of the Assessing

officer for adjudication afresh.

authorities and materials available on record. In the instant case, the

undisputed facts are that the Assessing Officer observed that during the

year under appeal, the assessee has made sales as under:

(A) Fines : 58598.595 MTs

(B) 5-18/10/-30 : 35285.710 MTs

© Fines at Port : 60870.000 MTs

The Assessing Officer also observed that production of 43576.770 MTs

was stated to be shown at Port was included in the sales of 58598.595

MTs but in respect of rest of the fines of 14841.825 MTs, no satisfactory

explanation was offered. Therefore, he opined that sales receipts of

14841.825 MTs was not reflected in the trading results and by valuing the

9 M/s.S.C.Padhee, Balibandha, Sambalpur same @ Rs. 2400/-per MT arrived at the figure of Rs.3,56,20,380/- and

added the same to the income of the assessee.

suppressed sale made by the Assessing Officer on the ground that this

amount was included in the loss determined by the Principal Surveyor of

Department of Mines. The contention of ld D.R. is that the report of the

Principal Surveyor of Department of Mines was not given to the Assessing

Officer and hence, there was violation of Rule 46A of I.T.Rules as the

CIT(A) has relied on the same without calling for a remand report from

the Assessing Officer. Ld A.R. could not controvert this argument of ld

D.R. of the assessee. In the above facts and circumstances of the case,

in our considered view, in the interest of justice, the issue should be

remanded back to the file of the Assessing Officer for adjudication of the

same afresh after considering the report of the Principal Surveyor of

Department of Mines and after allowing reasonable opportunity to the

assessee. Hence, this ground of the revenue is allowed for statistical

purposes.

statistical purposes.

of the CIT(A). Hence, the same is infructuous, and hence dismissed.

10 M/s.S.C.Padhee, Balibandha, Sambalpur Now we take up the appeal of the Assessee in ITA No.28/CTK/2016. AY: 2011-12

CIT(A) erred in confirming the action of the Assessing Officer in

disallowing depreciation of Rs.57,03,909/- on plant and machinery on the

ground that they were not used during the year for the business of the

assessee.

plant and machinery for Rs.57,03,909/- on the ground that they were not

used during the year for the business of the assessee.

for the reason that the assessee could not produce any evidence

regarding the payment of electricity and diesel specifically and separately

for operation of the crusher plant. He also observed that the assessee did

not disclose where from the iron ore fines been brought. Whether the

same was brought to its plant for processing or the fines have been

brought at some other place and exported directly. The assessee failed to

produce the evidence of processing if any of the iron ore fines purchased

by it.

11 M/s.S.C.Padhee, Balibandha, Sambalpur 27. Before us, the arguments of ld A.R. is that the plant and machinery

were kept ready for use for the business of the assessee and hence was

entitled for depreciation.

authorities and materials available on record. In the instant case, the

undisputed facts are that the Assessing Officer disallowed depreciation of

Rs.57,03,909/- to the assessee on plant and machinery on the ground

that they were not used for the business of the assessee during the year

under consideration.

as the assessee failed to produce any evidence for use of plant and

machinery for the business of the assessee. The arguments of ld A.R. is

that plant and machinery were kept ready for use for the business of the

assessee and hence, the assessee was eligible for depreciation for the

same. On a query by the Bench to ld A.R. as to when the plant and

machinery in question were put to use by the assessee in the subsequent

year, ld A.R. could not reply to the same. Hence, we find no good reason

to interfere with the order of the CIT(A), which is hereby confirmed and

ground of appeal of the assessee is dismissed.

Order pronounced in the open court on 04/08/2017. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 04 /08/2017

12 M/s.S.C.Padhee, Balibandha, Sambalpur

B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : /Revenue: DCIT, Circle -1(1), Sambalpur 2. The Respondent. /Assessee: M/s.S.C.Padhee, Balibandha, Sambalpur 3. The CIT(A)-II, Bhubaneswar 4. Pr.CIT-11, Bhubaneswar 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack