Ladkat Brothers Service Station, v. ITO, Cen.(I), Pune,

ITA 557/PUN/2010 | 2001-2002
Pronouncement Date: 22-12-2010 | Result: Allowed

Appeal Details

RSA Number 55724514 RSA 2010
Assessee PAN AABFL7356F
Bench Pune
Appeal Number ITA 557/PUN/2010
Duration Of Justice 8 month(s) 5 day(s)
Appellant Ladkat Brothers Service Station,
Respondent ITO, Cen.(I), Pune,
Appeal Type Income Tax Appeal
Pronouncement Date 22-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 22-12-2010
Assessment Year 2001-2002
Appeal Filed On 16-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER S.NO . ITA NO. ASSTT.YEAR 1. 557/PN/10 2001-02 2. 558/PN/10 2002-03 3. 559/PN/10 2003-04 4. 560/PN/10 2004-05 5. 561/PN/10 2005-06 6. 562/PN/10 2006-07 M/S LADKAT BROTHERS SERVICE STATION PUNE .. APPELLANT PAN AABFL7356F VS. INCOME-TAX OFFICER CENTRAL 1 PUNE .. RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI A S SINGH ORDER PER G.S. PANNU A.M: THE CAPTIONED SIX APPEALS BY THE ASSESSEE ARE DIRE CTED AGAINST A COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS) DATED 24.12.2009 PERTAINING TO THE ASSESSMENT YEARS 2001- 02 TO 2006-07 WHICH IN TURN HAS ARISEN FROM THE RESPECTIVE ASSESSMENT ORDE RS PASSED BY THE ASSESSING OFFICER DATED 30.12.2008 UNDER SECTION 14 3(3) READ WITH SECTION 153A(B) OF THE INCOME-TAX ACT 1961 (IN SHORT THE ACT) FOR THE AFORESAID ASSESSMENT YEARS. IN ALL THE APPEALS A COMMON POIN T HAS BEEN RAISED BY THE ASSESSEE AND THE FACTS AND CIRCUMSTANCES ARE I DENTICAL IN ALL THE YEARS. 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS AGAINS T THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN SUSTAINING THE DISALLOWANCE OF RS 18 000/- IN EACH OF THE YEARS ON ACCOUNT OF REMUNER ATION PAID TO A PARTNER WHICH WAS CLAIMED AS A DEDUCTION UNDER SECTION 40(B ) OF THE ACT. ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 2 3. AT THE TIME OF HEARING NONE APPEARED ON BEHALF OF THE APPELLANT- ASSESSEE WHEREAS SHRI A S SINGH APPEARED ON BEHALF OF THE REVENUE. IT IS ALSO NOTED THAT THE APPEALS HAVE BEEN ADJOURNED TWI CE IN THE ABSENCE OF THE ASSESSEE AND ON POINTING OUT BY THE LEARNED CIT-DR THAT THE DISPUTE INVOLVED IS SMALL WE HAVE PROCEEDED TO HEAR AND DI SPOSE OFF THE APPEALS EX PARTE QUA THE APPELLANT AS PER RULE 24 OF THE APPEL LATE TRIBUNAL RULES 1963 AFTER HEARING THE RESPONDENT AND TAKING INTO CONSID ERATION THE MATERIAL ON RECORD. 4. THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN T HE BUSINESS OF DEALING IN PETROL DIESEL AND OTHER PRODUCTS OF HPCL AND I S A CONSTITUENT OF LADKAT GROUP IN WHICH A SEARCH AND SEIZURE ACTION UNDER S ECTION 132(1) OF THE ACT WAS CARRIED OUT ON 6.7.2006. AS A CONSEQUENCE ASS ESSEE FIRM FILED RETURNS OF INCOME FOR THE CAPTIONED ASSESSMENT YEARS OF 200 1-02 TO 2006-07 IN RESPONSE TO NOTICES ISSUED UNDER SECTION 153A(A) OF THE ACT. THE ASSESSMENTS HAVE BEEN COMPLETED BY THE ASSESSING OF FICER FOR THE CAPTIONED ASSESSMENT YEARS AFTER MAKING AN ADDITION OF RS 18 000/- IN EACH OF THE ASSESSMENT YEAR. THE SAID AMOUNT REPRESENTS SALARY PAID TO A PARTNER MRS NANDINI LADKAT IN EACH OF THE SIX ASSESSMENT YE ARS. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM ON THE GROUND THAT THE SAID PARTNER WAS NOT ACTIVELY ENGAGED IN THE BUSINESS ACTIVITIES OF THE ASSESSEE FIRM. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CO MMISSIONER OF INCOME- TAX (APPEALS) IN EACH OF THE CAPTIONED ASSESSMENT Y EARS. 5. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ASSESSEE ASSAILED THE DISALLOWANCE BOTH ON FACTS AND IN LAW. IT WAS S UBMITTED THAT MRS NANDINI LADKAT IS ATTENDING TO THE BUSINESS AFFAIRS IN THE ABSENCE OF OTHER PARTNER. IT WAS POINTED OUT THAT THE NATURE OF BUSINESS OF THE FIRM IS OF RUNNING PETROL PUMP WHICH REQUIRES ONLY SUPERVISION AND PHYSICAL PRESENCE TO COLLECT CASH ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 3 AND MRS NANDINI LADKAT USED TO ATTEND FOR A FEW HOU RS IN THE ABSENCE OF OTHER WORKING PARTNERS. IT WAS ALSO POINTED OUT THA T THE SAID PARTNER IS A SIGNING AUTHORITY FOR THE BANK TRANSACTIONS AND TH E SAID FACT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER WAS NOT J USTIFIED IN RELYING ON A STATEMENT OF ONE OF THE EMPLOYEES OF THE FIRM WHER EAS NO DISALLOWANCE WAS WARRANTED. IT WAS ALSO POINTED OUT THAT PROVISIONS OF SECTION 40(B) OF THE ACT PERMIT A PRESCRIBED AMOUNT OF DEDUCTION FOR SALARY PAID TO A WORKING PARTNER AND IN THIS CASE THE IMPUGNED REMUNERATION HAS BE EN PAID IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. IT WAS ALSO POINTED OUT THAT THE EXPRESSION ACTIVELY ENGAGED IN THE CONDUCT OF AFFAIRS OF THE B USINESS CONTAINED IN EXPLANATION 4 BELOW SECTION 40(B) IS T O BE CONSTRUED LIBERALLY SO AS TO COVER EVEN A PARTNER WHO DOES NOT CONTINUOUSL Y PARTICIPATE IN THE ACTUAL TRANSACTION OF THE DAY TO DAY BUSINESS OF TH E FIRM. IN THIS REGARD RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V NATWARLAL TRIBHOVANDAS 87 ITR 703 (GU J). THE AFORESAID SUBMISSIONS OF THE ASSESSEE DID NOT FIND FAVOUR WIT H THE COMMISSIONER OF INCOME-TAX (APPEALS). AS PER THE COMMISSIONER OF IN COME-TAX (APPEALS) STATEMENT OF AN EMPLOYEE RECORDED ON 6.7.2006 DURI NG THE COURSE OF SURVEY OPERATION UNDER SECTION 133A OF THE ACT CLEARLY EST ABLISHED THAT MRS NANDINI LADKAT WAS NOT DOING ANY WORK FOR THE ASSESSEE FIRM . THE COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER NOTED THAT THE MANAGIN G PARTNER SHRI MANISH LADKAT ALSO AFFIRMED THE STATEMENT OF THE EMPLOYEE VIDE HIS DEPOSITION ON 7.7.2006. THE COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER NOTED THAT STATEMENTS BY THE EMPLOYEE OF THE FIRM AND ITS MANA GING PARTNER WERE NOT RETRACTED AND IN THE ABSENCE OF THE SAME SAID PAR TNER COULD NOT BE CONSTRUED AS A WORKING PARTNER FOR THE PURPOSES O F SECTION 40(B) OF THE ACT. ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 4 THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING O FFICER WAS UPHELD AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 6. BEFORE US THE LEARNED CIT-DR HAS DEFENDED THE A CTION OF THE AUTHORITIES BELOW BY REITERATING THE REASONING CONT AINED IN THEIR RESPECTIVE ORDERS WHICH WE HAVE ALREADY NOTICED IN THE EARLIE R PARAGRAPHS AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 7. AFTER PERUSING THE RESPECTIVE ORDERS OF THE AUTH ORITIES BELOW AS ALSO THE STAND OF THE ASSESSEE MANIFESTED IN THE MEMO OF APPEAL AND THE SUBMISSIONS PUT-FORTH BEFORE THE LOWER AUTHORITIES WE PROCEED TO DISPOSE OF THE SAID APPEALS IN THE FOLLOWING MANNER. THE SUM A ND SUBSTANCE OF THE DISPUTE IN ALL THE APPEALS IS COMMON AND RELATES TO SALARY PAID BY THE ASSESSEE FIRM TO A PARTNER OF RS 18 000/- FOR EACH OF THE SIX ASSESSMENT YEARS. SECTION 40(B) PROVIDES THAT IN THE CASE OF A FIRM ALLOWANCE FOR THE REMUNERATION TO A PARTNER WHO IS A WORKING PARTNER IS PERMISSIBLE ONLY TO THE EXTENT AS AUTHORIZED AND IN ACCORDANCE WITH THE TER MS OF THE PARTNERSHIP DEED SUBJECT TO MONETARY LIMITS PRESCRIBED IN THE SAID SECTION. IN THIS CONTEXT THE ASSESSEE HAD CLAIMED THAT SALARY PAID TO MRS NANDINI LADKAT A PARTNER OF RS 18 000/- PER ANNUM WAS ALLOWABLE SINC E IT HAS BEEN PAID IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED. THE CLAIM HAS BEEN DENIED FOR A SINGULAR REASON THAT THE SAID PARTNER IS NOT DOING ANY WORK FOR THE FIRM BECAUSE ACCORDING TO THE ASSESSING OFFICE R SHE IS NOT ACTIVELY ENGAGED IN THE BUSINESS ACTIVITIES OF THE FIRM. SI MILAR IS THE STAND OF THE COMMISSIONER OF INCOME-TAX (APPEALS). HOWEVER IN T HE MEMO OF APPEAL THE ASSESSEE HAS CLAIMED THAT THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN MAKING THE SAID DISALLOWANCE. IT IS FURTHE R STATED THAT THE LOWER AUTHORITIES HAVE NOT APPRECIATED THE EVIDENCES FURN ISHED BY THE ASSESSEE IN SUPPORT OF THE CONTENTION THAT SALARY WAS PAID TO A WORKING PARTNER AND THAT ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 5 MORE IMPORTANCE HAS BEEN GIVEN TO THE STATEMENT OF THE EMPLOYEE. IN OTHER WORDS THE CLAIM OF THE ASSESSEE IS THAT THE EVIDEN CES BROUGHT BEFORE THE ASSESSING OFFICER HAVE NOT BEEN APPRECIATED. WE HAV E EXAMINED THE SAID PLEA OF THE ASSESSEE WHICH HAS ALSO BEEN NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS REP RODUCED THE SUBMISSIONS OF THE ASSESSEE IN PARAGRAPH 5 WHICH AR E ON THE SAID LINES. THE ASSESSEE CLAIMED THAT MRS NANDINI LADKAT WAS A WORK ING PARTNER IN THE FIRM AND SALARY IS PAID AS PER THE PARTNERSHIP DEED. IN SUPPORT THE ASSESSEE ALSO FILED A COPY OF LETTER OBTAINED FROM THE BANK STATI NG THAT THE SAID PARTNER WAS AN ACTIVE PARTNER AND HAS SIGNING AUTHORITY FOR THE BANKING TRANSACTIONS. IT WAS ALSO STATED THAT THE DISALLOWANCE CANNOT BE MAD E ONLY ON THE STATEMENT OF AN EMPLOYEE. THE ABOVE CONTENTIONS OF THE ASSESS EE ARE DEALT BY THE ASSESSING OFFICER IN THIS MANNER: AN ACCOUNTANT OR ANY WISE EMPLOYEE CAN LOOK AFTER THE BANK TRANSACTIONS. IT IS AN ADMITTED FACT THAT SMT NANDINI IS NOT DOING ANY WOR K FOR THE FIRM. AN EMPLOYEE GETS A SALARY FOR CERTAIN DUTIES AND NOT FOR A FEW MERE ROUTINE WORK. IN VIEW OF THIS THE EXPENSES ON ACCOUNT OF SALARY PAID TO SMT NANDINI I S DISALLOWED AND ADDED TO THE TOTAL INCOME. 8. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALS O UPHELD THE LINE OF REASONING TAKEN BY THE ASSESSING OFFICER BY POINTIN G THAT ONE OF THE EMPLOYEES OF THE ASSESSEE SHRI DEEPAK BORAWAKE IN HIS STATEMENT RECORDED ON 6.7.2006 DURING SURVEY STATED THAT SMT NANDINI LADKAT IS NOT AT ALL DOING ANY WORK. IT IS ALSO POINTED OUT BY THE C OMMISSIONER OF INCOME-TAX (APPEALS) THAT ANOTHER PARTNER SHRI MANISH LADKAT I N HIS STATEMENT RECORDED ON 7.7.2006 HAS AGREED WITH THE STATEMENT OF SHRI D EEPAK BORAWAKE RECORDED ON 6.7.2006. 9. WE HAVE EXAMINED THE CASE SET UP BY THE REVENUE AND FIND THAT THE ASSERTIONS OF THE ASSESSEE MADE BEFORE THE ASSESSIN G OFFICER HAVE BEEN REJECTED WITHOUT JUSTIFIABLE REASONS. NO DOUBT EXP LANATION 4 TO SECTION 40(B) EXPLAINS A WORKING PARTNER TO BE AN INDIVIDUAL WH O IS ACTIVELY ENGAGED IN ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 6 CONDUCTING THE AFFAIRS OF THE BUSINESS OR PROFESSIO N OF THE FIRM IN WHICH HE IS A PARTNER. THE PROVISIONS OF SECTION 40(B) PERMITS ALLOWANCE FOR PAYMENT OF A PRESCRIBED AMOUNT OF REMUNERATION TO A PARTNER WHO IS A WORKING PARTNER. FACTUALLY IN THIS CONTEXT ASSESSEE SUBMITTED THAT MRS NANDINI LADKAT IS AN ACTIVE PARTNER AND ALSO HAS SIGNING AUTHORITY FOR B ANKING TRANSACTIONS WHICH HAS BEEN CONFIRMED BY THE BANK. IN PARAGRAPH 5 THE ASSESSMENT ORDER THE ASSESSING OFFICER ALSO RECORDS THAT THE ASSESSEE PR ODUCED DOCUMENTS LIKE BANK PASSBOOK CHEQUES BOOKS CORRESPONDENCE WITH B ANKS ETC. IN SUPPORT OF ITS CLAIM THAT MRS NANDINI LADKAT WAS LOOKING AF TER THE TRANSACTIONS RELATED TO THE BANK. IN THIS MANNER THE ASSESSEE SOUGHT TO MAKE OUT A CASE THAT MRS NANDINI LADKAT WAS QUALIFIED TO BE A WORKING PARTN ER WITHIN THE MEANING OF SECTION 40(B) OF THE ACT. THE SAID MATERIAL HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND NOR HAS IT BEEN FOUND TO BE FALSE. THE SAME HAS BEEN MERELY DISBELIEVED WITHOUT ANY COGENT REASONS. PRIM ARILY THE ASSESSING OFFICER WAS GUIDED BY THE STATEMENT OF SHRI DEEPAK BORAWAKE RECORDED DURING THE COURSE OF SURVEY. RELEVANT EXTRACT OF TH E SAID STATEMENT HAS BEEN REPRODUCED BY THE COMMISSIONER OF INCOME-TAX (APPEA LS) IN PARAGRAPH 5 OF HIS ORDER AND THE RELEVANT QUESTION PUT TO THE EMPL OYEE WAS TO ASCERTAIN THE DUTIES PERFORMED BY EACH PARTNER. THE SAID EMPLOYEE DID STATE THAT MRS NANDINI LADKAT WAS NOT AT ALL DOING ANY WORK. THE A PPARENTLY CONTRADICTORY MATERIAL WAS BEFORE THE ASSESSING OFFICER INASMUCH AS ON ONE HAND WAS THE STATEMENT OF THE EMPLOYEE AND ON THE OTHER HAN D ASSESSEE HAD PRODUCED DOCUMENTS INCLUDING A LETTER OBTAINED FRO M THE BANK STATING THAT THE CONCERNED PARTNER WAS AN ACTIVE PARTNER AND WAS A SIGNING AUTHORITY FOR BANKING TRANSACTIONS. WE FIND NO REASON ASSIGNED BY THE ASSESSING OFFICER AS TO WHY HE HAS PREFERRED TO RELY ON THE STATEMENT OF THE EMPLOYEE WHEREAS MATERIAL ON RECORD INCLUDING AN EXTERNAL EV IDENCE IN THE SHAPE OF A ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 7 LETTER OBTAINED FROM THE BANK DID PROVE THAT THE C ONCERNED PARTNER WAS CARRYING OUT ACTIVITIES IN CONDUCT OF THE AFFAIRS O F THE FIRM. THE LEVEL OF INVOLVEMENT OR THE TYPE OF WORK TO BE UNDERTAKEN BY A PARTNER IN ORDER TO QUALITY TO BE A WORKING PARTNER IS NOT TO BE VIEW ED FROM THE POINT OF THE ASSESSING OFFICER. LOOKING AFTER THE BANK RELATED W ORK BY THE PARTNER WOULD CERTAINLY MAKE THE CONCERNED PARTNER A WORKING PAR TNER FOR THE PURPOSES OF SECTION 40(B) OF THE ACT. IT IS CERTAINLY NOT MANDA TORY THAT A PARTNER NEEDS TO BE INVOLVED IN ACTIVITIES OF THE FIRM ON A DAY TO D AY AND CONTINUOUS BASIS TO QUALIFY TO BE A WORKING PARTNER' FOR THE PURPOSES OF SECTION 40(B) OF THE ACT. IN OUR CONSIDERED OPINION HAVING REGARD TO THE MAT ERIAL AND EVIDENCE ON RECORD ASSESSEE HAS BEEN SUCCESSFUL IN ESTABLISHIN G THAT THE CONCERNED PARTNER QUALIFIES TO BE A WORKING PARTNER WITHIN THE MEANING OF SECTION 40(B) OF THE ACT AND THE LOWER AUTHORITIES IN OUR VIEW ERRED IN DENYING THE CLAIM OF PAYMENT OF SALARY TO PARTNER OF RS 18 000/-. 10. ACCORDINGLY WE SET ASIDE THE ORDER OF THE COMM ISSIONER OF INCOME- TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO D ELETE THE ADDITION IN ALL THE CAPTIONED SIX ASSESSMENT YEARS. 11. RESULTANTLY THE CAPTIONED APPEALS OF THE ASSES SEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 22ND DAY OF DE CEMBER 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PA NNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 22ND DECEMBER 2010 COPY TO:- 1) THE APPELLANT. 2) THE ITO CENT.1 PUNE. 3) THE CIT (A) I PUNE. 4) THE CIT (CEN) PUNE. ITA NOS 557 TO 561/PN/10 LADK AT BROTHERS SERVICE STATION PUNE 8 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH ITAT PUNE BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B