KAMBOJ TRADING COMPANY,GURUHARSAHAI vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3, LUDHIANA

A survey under section 133A (1) of the Income Tax Act, 1961 was conducted on 15/11/2017 at the business premises of the assessee and various documents were impounded during the course of survey. Subsequently, the case was selected under compulsory scrutiny as per the guidelines of CBDT, New Delhi and notice under section 143(2) of the Income Tax Act, 1961 was issued on 25/09/2019 and was duly served on the assessee. Thereafter the case was centralized with DCIT, Central Circle-3, Ludhiana vide order u/s 127 of the Income-tax Act, 1961 bearing No. F.No. Pr.CIT- 1/Amritsar/2020- 21/979 dated 24.11.2020 passed by the Pr. CIT-1, Amritsar. Vide notification No.S.O.2033E dated 24.06.2020 the time barring limitation has been extended from 30.09.2020 to 31.03.2021 due to Covid-19 Pandemic. Further vide notification No. 20/2021/F. No. 370142/35/2020-TPL dated 31.03.2021 now the time limitation has been extended from 31.03.2021 to 30.04.2021. Again vide Notification No. 38/2021/ F. No. 370142/35/2020-TPL dated 27.04.2021 the time limitation has been extended from 30.04.2021 to 30.06.2021.

During the assessment proceedings statutory notice u/s 142(1) dated 27.01.2021 with detailed questionnaire to submit the point wise reply on 05.02.2021 was issued but no reply has been filed by the assessee. Again Notice u/s 142(1) of the Income Tax Act, 1961 dated 03.02.2021 was issue to the assessee to submit the complete information of the notice u/s 142(1) dated 27.01.2021. The assessee has submitted part reply on 06.02.2021. The copy of the impounding material was provided to the assessee on 18.02.2021. Thus, notice u/s 142(1) dated 11.02.2021 was issued to furnish the complete reply by 17.02.2021 of the notice u/s 142(1) dated 27.01.2021 of the Income Tax Act, 1961. But the assessee has not submitted reply as on given date. Through ITBA System online noting sheet dated 09.03.2021 last opportunity to submit the reply of the notice u/s 142(1) dated 27.01.2021 and show cause was issued that why penalty u/s 272A(1)(d) should not be initiated for failure to comply with the notice u/s 142(1) dated 15.01.2021. The assessee had submitted reply on 15.03.2021. After perusal of the reply submitted by the assessee, showcause notice u/s 142(1) dated 08.04.2021 was issued to submit the reply on 12.04.2021. On 23.04.2021 the assessee has submitted the reply of the showcause dated 08.04.2021. Again showcause notice u/s 142(1) dated 25.05.2021 was issued to submit the reply on 28.05.2021. The assessee has submitted the reply on

The assessee is a partnership firm and thus by notice u/s 142(1) dated 27.01.2021, the assessee was asked to provide the copies of all the partnership deeds applicable during the year under consideration. The assessee filed a copy of partnership deed dated 01.04.2018 of M/s Kamboj Trading Co. between the two partners Sh. Kashmir Lal S/o Sh. Jawahar Lal and Sh. Ramesh Kumar S/o Sh. Jawahar Lal. From the perusal of the partnership deed submitted in the reply dated 06.02.2021, it was found that as per the clause 9 of the partnership deed the remuneration paid to the partners was to be divided in the ratio of 60% to Sh. Kashmir Lal and 40% to Sh. Ramesh Kumar. But from the perusal of the profit and loss account and the computation of income, it was found that total remuneration paid was Rs. 7,80,000/- out of which Rs. 5,40,000/- (69.23%) was paid to Sh. Kashmir Lal and Rs. 2,40,000/- (30.77%) was paid to Sh. Ramesh Kumar. Since, the remuneration has not been distributed as authorized by the partnership deed, thus, a show cause notice was dated 08.04.2021 was issued and the assessee was asked to showcause that why the amount of Rs.7,80,000/- paid as remuneration to the partners should not be disallowed u/s 40(b)(ii) and added to the income.

During the original proceedings the assessee has submitted rely on 25/04/2021 which is reproduced below:

The AO in his order has held as under: “And as per Sr. No.9 of the Partnership Deed, it was clearly mentioned that Sh. Kashmir Lal and Ramesh Kumar are working partners who shall look after the work of the partnership business and are entitled to draw remuneration/salary which shall be maximum amount allowable as deduction under the provisions of Income Tax Act, 1961 which shall be divided between them in proportion of 60% and 40% respectively which shall be paid/credited to their respective account(s) on close of year on 31 March every year when final P/L is made. Thus, firstly the assessee has not distributed the salary to the partners of the maximum amount allowable and secondly, it has not been distributed in the percentage as mentioned in the partnership deed. Further, the claim of the assessee that it is a clerical mistake as any excess/less amount paid to Kashmir Lal and Ramesh Kumar is adjusted with each other being partners is not acceptable as this was not mentioned in the partnership deed applicable for the year under consideration. Moreover, the assessee has not submitted any revised partnership remuneration to the partners.” 10. In final analysis AO has disallowed under section 40b(ii) an amount totaling to Rs. 7,80,000/- being the total of amount of Rs. 5,40,000/- paid to Kashmir Lal and Rs. 2,40,000/- paid to Ramesh Kumar which was added to the income of the assessee. Thus total income was assessed to Rs. 24,22,810/- [returned income Rs. 16,42,810/- + Rs. 7,80,000/- addition under section 40b(ii)].

The AO order is dated 18/06/2021. Being aggrieved the assessee preferred first appeal before CIT(A) under section 250 who by impugned order dt. 29/09/2023 has dismissed the same.

In the impugned order dt. 18/06/2021 the Ld. CIT(A) has observed that various notices were issued to the assessee from 29/03/2022 to 29/09/2023 and on majority occasions aggregating to 13, none appeared. After analyzing several judicial precedent on subject” the laws aid those who are vigilant, not those who sleeps upon their rights held that assessee is not interested in pursuing the appeal despite number of opportunities. In the result he held that since, the observations of the AO have not been rebutted by the assesseee therefore the additions made by AO are found to be sustainable. Appeal was dismissed. 13. In appeal before us, it is contended during hearing held on 29/04/2024 that they had engaged services of a counsel at Firozepur in Punjab and that assessee was under a reasonable belief that the said counsel is representing the case before CIT(A). It was only when the ex-parte order was received that it came to the notice of the assessee that no written submissions have ever been filed by the counsel and nobody ever appeared. It is even clear from the order of CIT(A) that even few adjournments were taken by counsel. Thus it was totally beyond the control of assessee. The assessee now contends that they had duly participated in the entire proceedings and thus it is not the case that the assessee does not want to cooperate with the income tax authorities. It is therefore requested that order be set aside to file of Ld. CIT(A) to be decided denovo. 14. We observe that return of both the partners are filed for A.Y. 2018-19 i.e of Kashmi Lal and of Ramesh Kumar and few submissions on merits like clerical mistake, partners have even paid their respective taxes by including above salary received from firm in their respective ITR’s, so in any cases, the entire transaction is tax neutral. Hence without going into the merits of the case and after hearing Ld. DR, we deem it fit under these circumstances to set aside the impugned order dt. 29/09/2023 and remand the matter back to the file of CIT(A) to pass a fresh order on merit after giving opportunity of hearing to the assessee. We expect at least now the assessee will engage a good counsel who would sincerely with devotion to duty represent them before the Ld. CIT(A). The assessee to cooperate and expedite disposal of appeal before the Ld. CIT(A) as expeditiously as possible. Appeal is allowed as and by way of remand on denovo basis to Ld. CIT(A).

In the result, appeal of the Assessee is allowed for statistical purposes. Order pronounced in the open Court on 03/05/2024. Sd/- Sd/-