Referred Sections:
section 28(v) of the Income tax Act.
Referred Cases / Judgments:
Supreme Court in the case of CIT Vs. Ramlik Lal Kothari reported in 74 ITR 57
Supreme Court in the case of CIT Vs. Excel Industries Limited reported in 358 ITR 395
Radha Soami Satsang Vs. CIT reported in 193 ITR 321
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G', NEW DELHI
BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER
AND.
SH. KULDIP SINGH, JUDICIAL MEMBER
ITA No.3469/Del/2015
Assessment Year: 2011-12
Aman Tandon Vs. ACIT
143, Sunder Nagar, Circle 52 (1)
New Delhi New Delhi
PAN No. AACPT7285N
(APPELLANT) (RESPONDENT)
Appellant by Shri Gautam Jain, Advocate
Shri Lalit Mohan, CA
Respondent by Sh. S. S. Rana, CIT(DR)
Date of hearing: 05/12/2019
Date of Pronouncement: 13/12/2019
ORDER
PER R.K PANDA, AM:
This appeal filed by the assessee is directed against the order
dated 10.03.2015 of the CIT(A)-18, New Delhi relating to A.Y.2011-
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.34,61,241/- 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
30.09.2011 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 20-12-2013 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.
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5. In appeal the Ld. CIT(A) upheld the action of the AO by
observing as under :-
"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
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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).
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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
Ld. 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
income. 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
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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
Rs.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
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no-801, 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 :-
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"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
Rs.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
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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.
Order pronounced in the open court on 13.12.2019.
Sd/- Sd/-
(KULDIP SINGH) (R.K PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*Neha*
Date:- 13.12.2019
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date of dictation 05.12.2019
Date on which the typed draft is placed before the dictating 06.12.2019
Member
Date on which the approved draft comes to the Sr.PS/PS 13.12.2019
Date on which the fair order is placed before the Dictating 13.12.2019
Member for Pronouncement
Date on which the fair order comes back to the Sr. PS/ PS 13.12.2019
Date on which the final order is uploaded 13.12.2019
on the website of ITAT
Date on which the file goes to the Bench Clerk 13.12.2019
Date on which file goes to the Head Clerk.
The date on which file goes to the Assistant Registrar for
signature on the order
Date of dispatch of the Order
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