Itta/55/2004 Of M/S Prashanth Enterprises v. The Income Tax Officer

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.55 of 2004 JUDGMENT:(Per the Hon’ble Sri Justice L.Narasimha Reddy) This appeal is preferred by the assessee against the order,dated 12.02.2002, passed by the Hyderabad Bench ‘A’ of theIncome Tax Appellate Tribunal in I.T.A.No.1487/Hyd/1997. The dispute is as to whether the Assessing Officer is justifiedin permitting only 1/3[rd] of the salary to a partner, in a prima facieadjustment made under Section 143(1)(a) of the Income Tax Act, inrespect of the returns submitted by the appellant for the assessmentyear 1994-95. Heard Smt. K.Neeraja, learned counsel for the appellant, and Sri S.R.Ashok, learned Standing Counsel for the respondent. The appellant is a firm that came into existence in the year1993, to carry out the business of distribution of Gas in Karimnagar. In the returns filed by the appellant for the assessment year 1994-95,one of the items claimed as deduction was salary paid to thepartners. The Assessing Officer permitted deduction of only to theextent of 1/3[rd] on the basis that the actual partnership deed cameinto existence only on 01.04.1993. The same view was upheld bythe Commissioner as well as the Tribunal. This very question fell for consideration before this Court inI.T.A.No.23 of 2003 filed by the appellant herein. That, however, was in relation to the deduction of interest paid to the partners. Inrespect of the same assessment year in the order, dated 26.08.2014,we took the view that notwithstanding the fact that a formal deed ofpartnership was executed on 01.04.1993, the firm existed much priorto that and with reference to the assessment year 1994-95, it wasvery much operational. Therefore, we allow the appeal and set aside the order of theTribunal. Further, we hold that the appellant is entitled to claimdeduction of the entire salary paid to the partners for the assessmentyear 1994-95. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:09.12.2014 GJ