Income Tax Appellate Tribunal - Mumbai
Classic Communication, Mumbai vs Assessee on 17 February, 2012
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'सी' मंुबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, MUMBAI
सव ी संजय अरोड़ा,
अरोड़ा, लेखा सद य एवं ी वजयपाल राव,
राव या.स
या स ।
BEFORE SHRI SANJAY ARORA,
ARORA , AM & SHRI VIJAY PAL RAO, JM
आयकर अपील सं./I.T
I.T .A. No. 1748/Mum/2012
( नधारण वष / Assessment Year : 2001-02)
Classic Communication, बनाम Income Tax Officer 16(1)(1)
बनाम/
Flat No. 24, Block 5B, Mumbai
Vs.
Shyam Niwas, Bhulabhai
Desai Road,
Mumbai-400026
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AACFC0615P
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
अपीलाथ ओर से / Appellant by : Shri Vimal Punmiya
यथ क ओर से/Respondent by : Shri T. Roumuan Paite
सनवाई
ु क तार ख / D t. o f H e a ri n g : 2nd July 2013
घोषणा क तार ख/D t . O f P ro n o u n c em e n t: 24th July 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
This appeal by the assessee is directed against the order dated 17.2.2012 of Commissioner of Income Tax(Appeals) arising from penalty order passed u/s 271(1)(c) for the Income Tax Act for the assessment year 2001-02.
2. The assessee has raised the only ground in this appeal as under:
"The Ld. Commissioner of Income Tax (A) has erred in confirming the penalty of ` 1,37,397/- u/s 271(1)(c) levied by the Ld. Assessing Officer."2 ITA No. 1748/M/2012
Classic Communication .
3. The assessee is a partnership firm and engaged in Advertising, Printing, Sales promotion and other inter-related activities. The assessee had claimed remuneration paid to partners amounting to ` 4,80,000/- in aggregate. The assessee has executed two partnership i.e. deed dated 1.1.2000 and thereafter supplementary deed bearing dated 1.4.2001. However, the assessee has claimed that the supplementary deed was entered into on 1.4.2000 and there was a typographical mistake in writing the date. As per the supplementary deed the remuneration of the partners have been enhanced from 1,80,000/- to 4,80,000/-. The Assessing Officer in the assessment proceedings found that as per the original partnership deed the remuneration payable to the partners is ` 1,80,000/- and since the assessee firm has paid remuneration to the partners amounting to ` 4,80,000/-, the differential remuneration was not allowable in terms of section 40(b) of the Income Tax Act. Accordingly, the AO disallowed and added a sum of ` 3,00,000/- to the total income of the assessee on account of excess claim of remuneration to partners. Apart from this the AO also found that the assessee has claimed the interest paid to bank to ` 50,504/-. The AO observed that the assessee is borrowing amount from bank on which the interest is paid whereas on the other hand, the main partner had withdrawn substantial amount from the firm without paying any interest. Thus, the AO disallowed a sum of ` 50,504/- on account of interest paid to bank. The assessee challenged the disallowance made by the AO before the CIT(A) and further before this Tribunal but could not succeed as the disallowance made on account of excessive remuneration 3 ITA No. 1748/M/2012 Classic Communication .
paid to the partners have been confirmed by this Tribunal vide order dated 4.10.2007 whereas the ground regarding disallowance of interest of ` 50,504/- was not pressed by the assessee and accordingly dismissed by this Tribunal. In the meantime, the AO initiated proceedings u/s 271(1)(c) and levied the penalty of ` 1,37,397/- vide order dated 27.3.2006 in respect of this two disallowance. The CIT(A) has confirmed the levy of penalty u/s 271(1)(c).
4. Before us the Ld. AR of the assessee has submitted that as per the supplementary partnership deed the remuneration of the partners was enhanced from 1,80,000/- to 4,80,000/-. He has referred clause 2 and 4 of the preamble of the deed of partnership as well as clause 2, 3 and 9 of the terms of deed of partnership and submitted that the supplementary deed of partnership authorise the partners to received the remuneration. The claim of the assessee has been disallowed because of the typographical mistake and wrong stamp paper use for the purpose of execution of the partnership deed. He has further submitted that the remuneration is otherwise commensurate to the partners skill, expertise, knowledge and time and efforts devoted by the partners for the progress of the firm. Therefore, the payment of remuneration to the partners has been made as per the deed of partnership however, it was considered by this Tribunal that the provisions of partnership deed would be prospective and therefore the enhance remuneration cannot be allowed in the year under consideration. He has further submitted that the assessee has explained the reason of mistake in using a wrong paper and typographical mistake 4 ITA No. 1748/M/2012 Classic Communication .
due to in advertent mistake in the office of Charter Accountant who had prepared the deed of partnership. The Ld. AR of the assessee has submitted that under these circumstances even if the disallowance has been confirmed, the same does not if so facto lead to the levy of penalty when the assessee had disclosed all the relevant facts and material which were necessary for the assessment. He has filed the copy of the acknowledgment of the return and submitted that the supplementary deed was filed along with the return and therefore the assessee has disclosed and furnish all the necessary material on the basis of which the remuneration paid to the partners has been claimed. He has further submitted that the mistake in the date has been committed only at one place in paragraph one of the deed of partnership. However, the effective date of partnership deed has been mentioned as 1.4.2000 in all the relevant clause of the deed of the partnership, therefore the claim of the assessee cannot be considered as bogus or false claim.
5. He has relied upon the decision of Hon'ble Supreme Court in case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158 and submitted that mere making of claim which is not sustainable in law will not amount to furnish inaccurate particulars of income. Thus, the Ld. AR has pleaded that considering the facts and circumstances of the case penalty u/s 271(1)(c) cannot be levied on the addition which has been resulted due to clerical/typographical mistake in the deed of partnership.
6. As regards the disallowance of interest the Ld. AR has submitted that the claim of interest is not false or bogus because the assessee has 5 ITA No. 1748/M/2012 Classic Communication .
paid the interest to the bank. The disallowance has been made by the AO on the ground that the assessee has allowed the partner to withdraw the amount from the firm and no interest was charged to the partners overdraft. Thus, the disallowance is not based on false was bogus claim but due to the difference of opinion between the assessee and the AO. Hence, it cannot be said that the assessee has concealed particulars of income or furnished inaccurate particulars of income. On the other hand, the Ld. DR has relied upon the orders of the authorities below and submitted that when the disallowance has been confirmed and become final then the penalty levied u/s 271(1)(c) is justified.
7. We have considered the rival submissions and carefully peruse the relevant material. The claim of remuneration paid to the partners is based on the supplementary deed of partnership. The disallowance was made by the AO because in the preamble of the partnership deed it bears the date of execution as 1.4.2001. However, the other clause of the deed of partnership mentioned the effective dated as 1.4.2000. The clauses 2 & 4 of the recitals and clause 2, 3 and 9 of the terms and conditions of the partnership deed are relevant on this point. We reproduce these relevant clauses as under:
" 2. With effect from 1st April, 2000 the parties of the First and Second Part have agreed to carry on business in Partnership in the firm name and style of M/s Classic Communications at 16, Brij Bhavan, Peddar Road, Mumbai-400026.
.....................................................................................................
4. The parties hereto are desirous of recording the terms and conditions on which they have agreed to carry on business in 6 ITA No. 1748/M/2012 Classic Communication .
Partnership in the firm of M/s Classic Communications with effect from 1st April, 2000.
.................................................................................................
2. The Partnership as constituted under this Deed shall commence (or shall be deemed to have commenced) on 1st April, 2000.
3. The Partnership business shall be carried on at 16, Brij Bhavan, Peddar Road, Mumbai-400026 w.e.f. 1st April, 2000, and or such other place or places as mutually agreed upon by and between the parties hereto.
9. It is agreed by and between the parties to this Deed that they shall devote their time and attention for the conduct of the affairs of the firm, as the circumstances and business needs may require. The Partners shall be entitled to remuneration as under:
1. Mr. Anil Jagga ` 30,000/- per month.
2. Mrs. Indra Jagga ` 10,000/- per month.
However, the remuneration in no case shall exceed the book profit as provided in section 40(b) of the Income Tax Act, 1961."
8. Thus, it is clear that the claim of the assessee regarding enhance remuneration is based on the supplementary partnership deed though the same bears the date of execution as 1.4.2001. We find that the assessee produce the supplementary partnership deed along with the return of income therefore the claim of the assessee is not bogus or false but was found as not allowable because of the date of the partnership deed and the provisions of the deed of partnership would be applicable prospectively. The assessee has disclosed the claim and also in the partnership deed in the return of income as well as audit report and therefore it cannot be said that the claim is without any basis or absolutely wrong or false. The explanation given by the assessee though has not been substantiate, however, the same appear to be bonafide as 7 ITA No. 1748/M/2012 Classic Communication .
the deed of partnership provides the effective date as 1.4.2000 whereas in the first paragraph of the preamble of the deed bears the date as 1.4.2001. Otherwise the claim of the assessee is permissible as within the limit of the remuneration as provided u/s 40(b) because the book profit of the assessee firm for the years is ` 11,51,609/- and therefore as per the formula given u/s 40(b), the remuneration permissible can be to the extent of ` 7,80,000/-. Therefore, the claim does not fall under the category of excessive claim. Since the partnership deed prescribes the remuneration to the partners therefore the remuneration paid to the partnership cannot more than the deed of partnership permits. Having regard to the facts and circumstances of the case we are of the view that the case of the assessee does not fall under the category of concealment of income or furnishing inaccurate particulars of income so far as the claim of remuneration paid to the partners is concerned.
9. As regards the disallowance of interest paid to the bank there is no quarrel on the fact that the assessee paid the said interest to the bank and accordingly claimed as expenditure. The AO disallow the claim of the assessee on the ground that one of the partners has withdrawn money from the firm and the firm has not charge any interest by the partner. Therefore the disallowance of interest was due to non-charging of interest on the amount withdrawn that the partner. The claim of the interest though was not acceptable and sustainable because the assessee did not charge interest from the partner however when the assessee has furnished all the particulars in respect of the claim then the disallowance 8 ITA No. 1748/M/2012 Classic Communication .
of the claim would not lead to the conclusion that the assessee has concealed particulars of income or furnish inaccurate particulars of income. Accordingly, in view of the decision of Hon'ble Supreme Court in case of CIT Vs Reliance Petroproducts Pvt. Ltd. (supra) a mere making of the claim which is not sustainable in law by itself will not amount to furnish inaccurate particulars of income and as such the disallowance of the same would not if so facto attract the penalty u/s 271(1)(c) of the Act. Hence, penalty levied u/s 271(1)(c) is deleted.
10. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 24th day of July 2013 आदे श क घोषणा खले ु यायालय म दनांकः 24th जलाई ु को क गई ।
Sd/- Sd/-
(संजय अरोड़ा) ( वजयपाल राव )
लेखा सद य या यक सद य
(SANJAY ARORA) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 24th July 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai