Case Law Details

Case Name : Aman Tandon Vs ACIT (ITAT Delhi)
Appeal Number : ITA No. 3469/Del/2015
Date of Judgement/Order : 13/012/2019
Related Assessment Year : 2011-12
Courts : All ITAT (6799) ITAT Delhi (1571)

Aman Tandon Vs ACIT (ITAT Delhi)

In the given case, the first issue raised by the assessee is relates to the disallowance of business expenses from the remuneration earned by the assessee from the partnership firm assessed as business income u/s. 28 (v) of the IT Act, 1961.

ITAT find some force in the above arguments of the Ld. Counsel for the assessee. As mentioned earlier the revenue in the preceding and subsequent years has accepted such remuneration to the employees as an allowable expenditure from the remuneration from the partnership firms which has been taxed as business It is also an admitted fact that in case of another partner such salary paid to the employees was allowed by the Ld. CIT(A) as an expenditure from the remuneration of the partnership firm. Further the payment of salary of the two employees is not in dispute. We, therefore, find merit in the argument of the Ld. Counsel for the assessee that the CIT(A) cannot alter the nature of expenditure. The Hon’ble Supreme Court in the case of Ramlik Kothari (supra) has held that expenditure incurred by the partner for earning income from the partnership firm is an allowable expenditure. The various other decisions relied on by the Ld. Counsel for the assessee in the case law compilation also supports his case. Further the rule of consistency also is in favour of the assessee, since in the preceding and subsequent years such salary paid to employees were allowed as business expenditure from the salary income received from the partnership firm. No proceedings u/s. 147 or 263 have been initiated in subsequent years after the order of the CIT(A), rejecting the claim of the assessee. In view of the above discussion ITAT are of the considered opinion that the Ld. CIT(A) was not justified in upholding the disallowance made by the AO. Accordingly the order of the CIT(A) on this issue is set aside and the ground raised by the assessee on this issue is allowed.

The other issue raised by the assessee in the grounds of appeal relates to the order of the CIT(A) in confirming the addition of 5,25,000/- under the head “income from the house property”.

the AO during the course of assessment proceedings noted that the assessee has declared income from house property at Rs.4,24,270/- from House Property no-80 1, Central Park Gurgaon after deducting house tax and standard deduction u/s 24(a) of the IT Act. However, from the perusal of rent agreement the AO noted that initially assessee had rented the premises to Sinclair Knight Merz Consulting (India) Pvt. Ltd. on a monthly rent of Rs. 1,40,000/- with effect from March 2009 which was valid till 9th March 2011. However, the assessee has contended that the premises was vacated during the year and was again rented to Robbins Tunneling & Trenchless Technology (India) Pvt. Ltd. on a monthly rent of Rs.90,000/- with effect from 1st October 2010. Since, the assessee did not submit any documentary evidence in support of his claim that the premises was vacated by Sinclair Knight Merz consulting (India) Pvt.Ltd, the AO computed the income from house property

Considering the totality of the facts of the case and in the interest of justice ITAT deem it proper to restore the issue to the file of the AO with a direction to grant an opportunity to the assessee to substantiate with evidence to his satisfaction that the tenant had in fact vacated the premises for the intervening period. Needless to say the AO shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. ITAT hold and direct accordingly. The second issue raised by the assessee is accordingly allowed for statistical purposes. In the result, the appeal filed by the assessee is allowed for statistical purposes.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order dated 10.03.20 15 of the CIT(A)-18, New Delhi relating to A.Y.201 1- 12.

2. The first issue raised by the assessee in the grounds of appeal relates to the disallowance of business expenses of Rs. 1,80,000/- from the remuneration of Rs.34,6 1,241/- earned by the assessee from the partnership firm assessed as business income u/s. 28 (v) of the IT Act, 1961.

3. Facts of the case, in brief are that the assessee is an individual and derives income from salary from partnership firm, house property and other sources. He filed his return of income on 09.2011 declaring total income of Rs.46,53,350/-. During the course of assessment proceedings the AO noted that the assessee has claimed business expense of Rs. 1,80,000/- against remuneration of Rs. 34,61,241/- received from the firm M/s. Wenger & Co. He asked the assessee to justify the allowability of such expenses against remuneration. The assessee vide his reply dated 20-12-20 13 submitted that remuneration from partnership firm is considered as business income as per section 28(v) of the Income tax Act. He has employed two persons to look after the interest of the Firm’s business, therefore, these expenses are fully allowable from the business income of the assessee.

4. However, the AO was not satisfied with the explanation given by the assessee. He noted that the remuneration received by the partners from the Firm is according to the partnership deed and the work done by them for the business of the Firm. This has nothing to do with the persons employed by each of the partner in his/her personal capacity. Further, the partners of the firm are not liable to employ workers for the purpose of earning income by the firm. The liability to incur such expenditure lies with the firm itself. In view of the above the AO disallowed the expense of Rs. 1,80,000/- claimed by the assessee against the remuneration and added back to the income of the assessee.

5. In appeal the Ld. CIT(A) upheld the action of the AO by observing as under 9~

“2.3 I have considered the contentions of the appellant however I find that the said remuneration received by the partner from the firm is according to the partnership deed and the work done by him for the business of the firm. This has nothing to do with the persons employed by the partner in his personal capacity. Further, the partner of the firm is not liable to employ workers for the purpose of earning income by the firm. The liability to incur such expenditure lies with the firm only. Hence, the expenditure incurred by the appellant on behalf of the firm in the form of employing workers to help in the business of the firm cannot be allowed in the name of the appellant. Accordingly, in my considered opinion, the claim of such expenditure amounting to Rs. 1,80,000/- claimed by the appellant against the remuneration received by him as partner of the firm has been correctly disallowed. The case laws relied upon by the appellant are distinguishable on facts of the case. The same is confirmed in appeal. Ground raised in appeal is dismissed.”

6. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

7. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining the disallowance made by the AO. He submitted that the payment of salary to the above two employees is not in dispute. However, the logic given by the revenue that the liability to incur such expenditure lies with the firm only is incorrect. Referring to the decision of the Hon’ble Supreme Court in the case of CIT Vs. Ramlik Lal Kothari reported in 74 ITR 57 he submitted that in the said decision it is held that the expenditure incurred for the purpose of earning the share income from the firm is an allowable expenditure. Referring to the copy of the assessment order for A.Y.2008-09 to 2014-15 he submitted that except for the year under consideration the expenses claimed on account of remuneration to the employees has been allowed as an expenditure in respect of income from the partnership firm for all the years although the assessments have been completed u/s. 143 (1). Referring to the decisions of Hon’ble Supreme Court in the case of CIT Vs. Excel Industries Limited reported in 358 ITR 395 and the decision in the case of Radha Soami Satsang Vs. CIT reported in 193 ITR 321 he submitted that the rule of consistency should be followed. He submitted that identical disallowance was made in the hands of the other partner namely Sh. O.P. Tandon of M/s. Wenger and Co. for A.Y. 2004-05 and the appeal filed by the revenue was dismissed by the Tribunal although on account of Low Tax Effect. Relying on various other decisions he submitted that the disallowance made by the AO and sustained by the CIT(A) is not justified.

8. The Ld. DR on the other hand strongly relied on the order of the AO and the CIT(A).

9. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case disallowed an amount of Rs. 1,80,000/- being the expenditure claimed by the assessee towards salary to two employees from the remuneration of the partnership firms. We find the Ld. CIT(A) upheld the action of the AO, the reason of which have already been reproduced in the preceding paragraphs. It is the submission of the Counsel for the assessee that when the remuneration paid to the employees has not been doubted, therefore, the Ld. CIT(A) cannot alter the nature of expenditure. Further the AO in assessee’s own case for the preceding and subsequent assessment years has accepted such remuneration to the employees as an allowable expenditure although the assessments have been completed u/s. 143 (1). It is also his submission that in another partners case such remuneration was allowed by CIT(A) as an allowable expenditure and the appeal by the revenue was dismissed by the Tribunal on account of low tax effect.

10. We find some force in the above arguments of the Ld. Counsel for the assessee. As mentioned earlier the revenue in the preceding and subsequent years has accepted such remuneration to the employees as an allowable expenditure from the remuneration from the partnership firms which has been taxed as business It is also an admitted fact that in case of another partner such salary paid to the employees was allowed by the Ld. CIT(A) as an expenditure from the remuneration of the partnership firm. Further the payment of salary of the two employees is not in dispute. We, therefore, find merit in the argument of the Ld. Counsel for the assessee that the CIT(A) cannot alter the nature of expenditure. The Hon’ble Supreme Court in the case of Ramlik Kothari (supra) has held that expenditure incurred by the partner for earning income from the partnership firm is an allowable expenditure. The various other decisions relied on by the Ld. Counsel for the assessee in the case law compilation also supports his case. Further the rule of consistency also is in favour of the assessee, since in the preceding and subsequent years such salary paid to employees were allowed as business expenditure from the salary income received from the partnership firm. No proceedings u/s. 147 or 263 have been initiated in subsequent years after the order of the CIT(A), rejecting the claim of the assessee. In view of the above discussion we are of the considered opinion that the Ld. CIT(A) was not justified in upholding the disallowance made by the AO. Accordingly the order of the CIT(A) on this issue is set aside and the ground raised by the assessee on this issue is allowed.

11. The other issue raised by the assessee in the grounds of appeal relates to the order of the CIT(A) in confirming the addition of 5,25,000/- under the head “income from the house property”.

12. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has declared income from house property at Rs.4,24,270/- from House Property no-80 1, Central Park Gurgaon after deducting house tax and standard deduction u/s 24(a) of the IT Act. However, from the perusal of rent agreement the AO noted that initially assessee had rented the premises to Sinclair Knight Merz Consulting (India) Pvt. Ltd. on a monthly rent of Rs. 1,40,000/- with effect from March 2009 which was valid till 9th March 2011. However, the assessee has contended that the premises was vacated during the year and was again rented to Robbins Tunneling & Trenchless Technology (India) Pvt. Ltd. on a monthly rent of Rs.90,000/- with effect from 1st October 2010. Since, the assessee did not submit any documentary evidence in support of his claim that the premises was vacated by Sinclair Knight Merz consulting (India) Pvt.Ltd, the AO computed the income from house property as under:-

Rent from April 2010 to September 2010 Rs.1,40,000/- p.m. x 6 Rs.8,40,000/-
Rent from October 2010 to March 2011 Rs.90,000/- p.m. x 6   Rs.5,40,000/-
Gross Rent Rs.13,80,000/-
Less House Tax Rs.13,56,100/-
Less Deduction u/s. 24 A Rs.4,06,830/-
Income from house property Rs.9,49,270/-

The AO accordingly made addition of Rs.5,25,000/- to the income of the assessee under the head income from house property.

13. In appeal the Ld. CIT(A) upheld the action of the AO by observing as under :-

“3.3 I have considered the submissions of the appellant, however, as the assessee has not submitted any documentary evidence in support of the claim that the premises was vacated by the said tenant, the contention has been rejected. During the appeal proceedings also the appellant has not justified his contentions hence, I am forced to accept the Assessing Officer’s stand. The ground raised in appeal is dismissed.”

14. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

15. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We find the AO made addition of 5,25,000/- to the total income of the assessee on the ground that the assessee did not submit any documentary evidence in support of his claim that the premises was vacated by Sinclair Knight Merz Consulting (India) P. Ltd. Even before the CIT(A) also the assessee did not give any supporting evidence that the premises was vacated by the said tenant for which he upheld the action of the AO. It is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee is in a position to substantiate the claim by producing necessary evidence. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the AO with a direction to grant an opportunity to the assessee to substantiate with evidence to his satisfaction that the tenant had in fact vacated the premises for the intervening period. Needless to say the AO shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The second issue raised by the assessee is accordingly allowed for statistical purposes.

16. In the result, the appeal filed by the assessee is allowed for statistical purposes.

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