IN THE INCOME TAX APPELLATE TRIBUNAL, " D" BENCH, AHMEDABAD Before Shri D. K. TYAGI , JUDICIAL MEMBER and Shri A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. No. 1446/ Ahd/2008 (Assessment year 2005-06) M/s. Sun transporters, Vs. ITO, Ward 2, 45, Umiya Shopping Centre, Mehsana Highway, Mehsana - 384002 PAN/GIR No. : AAGFS5513A (APPELLANT) .. (RESPONDENT) Appellant by: Shri Sunil Talati, AR Respondent by: Shri James Kurian, DR Date of hearing: 19.12.2011 Date of pronouncement: 31.01.2012 ORDER
PER SHRI A. K. GARODIA, AM:-
This is assessee's appeal directed against the order of Ld. CIT(A) Gandhinagar dated 20.02.2008 for the assessment year 2005-06. The grounds raised by the assessee are as under:
"1. The learned C.IT.(Appeals) erred both in law and on facts in confirming the disallowance of salary and interest paid to partners amounting to Rs.4,08,653/-. On the facts and in the circumstances of the case and in view of the compliance of furnishing the Partnership Deed during the course of assessment proceedings, the requirements of Sec. 184(4) were duly complied with and hence the disallowance of salary and interest paid to partners was patently wrong. It be so held now and the salary and interest paid to the partners be allowed as claimed.
2. The learned C.IT.(Appeals) erred both in law and on facts in confirming the erroneous action of the Assessing Officer of making the disallowance of Rs.24,23,085/-. The expenses of Hire 2 I.T.A.No.1446 /Ahd/2008 charges of Trucks amounting to Rs.24,23,085/- was genuinely incurred by the appellant wholly and exclusively for the purpose of business. It is submitted that the appellant having incurred the expenditure of Rs. 24,23,0857- and having paid high hire charges to the owners of the Trucks, the same being genuine business expenditure be allowed.
3. The learned C.IT.(Appeals) has erred in confirming the disallowance of Rs. 24,23,085/- u/s. 40(a)(ia) of the I.T.Act. It is submitted that the appellant was not required to deduct any tax at source as provisions of Sec. 194C or any provision for IDS is not applicable. In view of this there cannot be any disallowance u/s. 40(a)(1a). It is submitted that though no separate addition on this ground is made, no addition be made alternatively also on this ground. It is submitted that the same be so held and so directed now.
4. The learned C.I.T.(Appeals) ought to have allowed the appeal in toto.
5. The Order passed by the learned C.I.T.(Appeals) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now.
6. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing."
2. Regarding ground No.1, the facts are that it is noted by the A.O. in para 5 of the assessment order that the assessee has debited Rs.2,14,879/- regarding partners interest expenditure and Rs.1,93,774/- on account of partners salary expenditure total Rs.4,08,653/-. It is noted by the A.O. in the assessment order that the firm underwent a change in its constitution in as much as three partners have retired from the firm and three new partners have joined w.e.f. 01.04.2004. He further noted that the assessee was required to file certified true copies of the reconstituted partnership deed along with the return of income as required u/s 184(4) of the Income tax Act, 1961. He further noted that as per Section 185 of the Income tax Act, 1961, no deduction by way of any payment of interest, bonus, commission and remuneration whatsoever nature called made by a firm to 3 I.T.A.No.1446 /Ahd/2008 a partner of the firm which has not fulfilled conditions laid down in Sub- section (4) of Section 184 of the Income tax Act, 1961 should be allowed. In this manner, the A.O. made disallowance ofRs.4,08,653/- in respect of the partners' interest expenditure and partners' salary expenditure. Being aggrieved the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us.
3. It is submitted by the Ld. A.R. that the copy of partnership deed is available on pages 32-38 of the paper book and the same was submitted to the A.O. in the course of assessment proceedings along with the letter dated 13.08.2007 copy of which is available on page 39 of the paper book. He further submitted that under these facts, this issue is covered in favour of the assessee by the tribunal decision rendered in the case of ITO Vs Digitronics in I.T.A.No. 281/Ahd/2004 dated 28.03.2008, copy of which is available on page 59-62 of the paper book.
4. As against this, Ld. D.R. supported the orders of authorities below.
5. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the only objection of the authorities below for disallowing the claim of the assessee regarding payment of interest and salary to partners is this that certified copy of the amended partnership deed was not filed by the assessee along with the return of income for the present year since there was change in the partners during this year. As per the Tribunal decision rendered in the case of Digitronics (supra), there was the dispute as to whether the assessee is eligible for deduction in respects of interest and salary payment to the partners if certified copy of partnership deed is not submitted with the return of income. The Tribunal decided this issue in favour of the assessee and the relevant pars of this tribunal order is para 5 which is reproduced below:4
I.T.A.No.1446 /Ahd/2008 "5. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. We find that the assessee filed return of income during the year together with copy of partnership deed certified by one partner and not by both the partners of the firm. The A O assessed the income u/s 143(3) at a loss of Rs.7,00,736/-. Thereafter, the A O reopened the assessment by issue of notice u/s 148 of the Act and assessed the income of the assessee firm in the status of A O P and disallowed payment of interest made to the partners of Rs.1,81 ,877/- and also disallowed carry forward of the loss of Rs.7,00,736/- claimed by the assessee on the ground that the original return filed by the assessee was not accompanied with the copy of the partnership deed certified by both the partners which was in violation of the mandatory requirement of section IS- of the Act. The CIT(A) allowed the appeal of the assessee as the assessee had filed copy of the partnership deed certified by both the partners during the course of reassessment proceedings holding the defect was a rectifiable defect. In these facts arid circumstances of the case, we are of the considered opinion that it is not the case of the Revenue that no partnership deed existed during the year under consideration. The only dispute is that the copy of the partnership deed was not certified by both the partners and filed / along with the return of income. The copy filed was certified by one of the partners. In these facts and circumstances of the case, we are of - the considered opinion that the defect of not filing copy of the certified by both the partners is a curable defect. of section 184 of the Act are directory and not mandatory as held by the Hon'ble Gujarat High Court in the case of Billimora Engineering Mart Vs CIT 156 ITR 153 (Guj). Hence, we find no good reasons to interfere with the findings of the CIT(A) and the grounds of appeal of the Revenue are dismissed."
6. In the present case also, the A.O. has treated the assessee as firm only; and made the disallowance of interest and salary paid to the partners. Hence, the facts in the present case are similar to the facts of this case and hence, by respectfully following the Tribunal decision, we hold that the payment of interest and salary to the partners is to be allowed since the certified copy of the partnership deed was made 5 I.T.A.No.1446 /Ahd/2008 available to the A.O. in the course of assessment proceedings and it was held by the tribunal in the case cited by the Ld. A.R. that this defect of not filing copy of partnership deed with return of income is a curable defect. It is also held by the Tribunal that the provisions of Section 184 of the Income tax Act, 1961 are directory and not mandatory as held by Hon'ble Gujarat High Court in the case of Billimora Engineering Mart Vs CIT as reported in 156 ITR 153 (Guj.). Ground No.1 of the assessee is allowed.
7. Regarding ground No.2, the facts are that it is noted by the A.O. in para 7 of the assessment order that the assessee has claimed expenditure of Rs.24,22,085/- being the amount paid to three sub-contractors for the use of their tankers No.7357, 4367 and 4366. The A.O. further noted that these three vehicles were transferred to the name of the respective sub- contractors only on 21.03.2005 and prior to such transfer, these vehicles were registered in the name of the assessee. He further noted that NOC is issued to the RTO Rajkot on 12.04.2005 in respect of Vehicle NO.7357 and for the remaining two vehicles, the NOC was issued to the RTO Ajmer on 24.04.2005 in respect of Vehicle No. 4367 and on 25.07.2006 for the vehicle No.4366. The A.O. further noted that the assessee has debited the expenses in respect of these three tankers in the present year to the extent of Rs.8,08,995.22 regarding diesel, oil, vehicle insurance, RTO payment, calibration expenses and repairing expenses. In the light of these facts, the A.O. concluded that there was no genuine sub-contract entered into and performed by the so called sub-contractor and hence, the payment of Rs.24,22,085/- alleged to have been paid /payable is nothing but a device to reduce the tax incidence of the assessee. He disallowed the same. Being aggrieved, the assessee carried the matter in appeal 6 I.T.A.No.1446 /Ahd/2008 before CIT(A) but without success and now, the assessee is in further appeal before us.
8. It is submitted by the Ld. A.R. before us that there is genuine sale and lease back transaction regarding vehicles in question sold by the assessee to these three persons on the 1st day of April 2004 and the sale deed of these three vehicles are available on pages 63-65 of the paper book. He also submitted that on pages 53-58 of the paper book are the copies of the application made by these sub-contractors to the respective A.O.s in Form 13C to obtain the certificate for not deducting TDS and such certificates u/s 197(1) of the Income tax Act, 1961 were issued by the A.O. to these sub-contractors on 23.04.2004 and hence, it cannot be said that this transaction of sale and lease back is an afterthought. He submitted that in view of these certificates issued by the A.O. of these sub-contractors, the assessee was not required to deduct TDS and hence, for this reason, no TDS was deducted by the assessee and no adverse inference can be drawn against the assessee. It is also submitted that the vehicles were registered with ONGC and the assessee has declared the income in respect of these vehicles and hire charges were paid by the assessee to these sub-contractors and, therefore, it is genuine business expenditure and hence, should be allowed. It was also submitted that even if it is held that disallowance is justified of hire charges of Rs.24,22,085, matter should be restored back to the file of the A.O. to allow expenses on operation of these three tankers including maintenance and repair expense incurred on these vehicles by sub-contractors and this payment should not be treated as income in the hands of sub-contractors and expense incurred by them should be allowed to the assessee.
9. The Ld. D.R. of the revenue supported the orders of authorities below.7
10. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that in addition to the claiming hire charges for these three vehicles of Rs.24,22,085/-, the assessee has also debited various expenses to the extent of Rs.8,08,995.22 in respect of these three vehicles and hence, the claim of the assessee has to be examined in the light of these facts. If these vehicles were sold by the assessee and were taken on hire, by the assessee from these three persons, then there is no reason of debiting these expenditure in respect of these three vehicles in the books of the assessee firm for the expenditure of tax, diesel and oil expenses, vehicle insurance, RTO payment, calibration expense and repairing expenses etc. Since the assessee has already debited all these expense in respect of these vehicles in its books of account, no further deduction is allowable to the assessee on account of hiring of these tankers. But we find force in this contention that all operating expenses of these three tankers should be allowed as deduction to the assessee. We, therefore, set aside the order of Ld. CIT(A) and restore the matter back to the file of the A.O. for a fresh decision. The assessee has to establish that in addition to Rs.8,08,995.22, any other expenditure was incurred on the vehicles and the same were not debited by the assessee but were debited by the so called contractors, that deduction should be allowed to the assessee for such expenses if the assessee can satisfy the A.O. about allowability of such expenses. In the hands of the contractors, neither this receipt of Rs.24.22 lacs shall be taxed nor any deduction should be allowed for expenditure alleged to be incurred for these three vehicles. The A.O. should pass necessary order as per law as per above discussion after allowing reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.8
11. Regarding ground No.3, we find that since no tax was deductible by the assessee in view of the certificate issued by the A.O. of these sub- contractors u/s 197(1) of the Income tax Act, 1961, no disallowance is justified u/s 40(a)(ia) of the Income tax Act, 1961 but since we have confirmed the disallowance for the reasons stated in the above para, this ground is of academic interest only.
12. In the result, appeal of the assessee stands allowed.
13. Order pronounced in the open court on the date mentioned hereinabove.
Sd./- Sd./- (D. K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Sp Copy of the Order forwarded to: 1. The applicant 2. The Respondent 3. The CIT Concerned 4. The Ld. CIT (Appeals) 5. The DR, Ahmedabad By order 6. The Guard File AR,ITAT,Ahmedabad 1. Date of dictation...24/1
2. Date on which the typed draft is placed before the Dictating Member......27/1.Other Member ............
3. Date on which the approved draft comes to the Sr. P.S./P.S.30/1
4. Date on which the fair order is placed before the Dictating Member for pronouncement ......31/1
5. Date on which the fair order comes back to the Sr. P.S./P.S.31/1
6. Date on which the file goes to the Bench Clerk ...312/01/2012
7. Date on which the file goes to the Head Clerk .......................
8. The date on which the file goes to the Assistant Registrar for signature on the order .........................
9. Date of Despatch of the order. ......................