Pr. Commissioner Of Income Tax, Kota v. M/S Modern Motors, Plot

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No. 176/2016 APPELLANT Pr. Commissioner of Income Tax, Kota. VERSUS RESPONDENT M/s Modern Motors, Plot No. 162, Jhalawar Road,Kota. DATE OF ORDER ::: 30.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE BANWARI LAL SHARMA Mrs. Parinitoo Jain for the appellant. 1.By way of this appeal, the department hasassailed the judgment and order of the Tribunalwhereby the Tribunal confirmed the order of CIT(A)on two issues namely entry tax payment andremuneration to the partners has been reversedwhich has been added by the Assessing Officer. 2.Counsel for the appellant contended that theEntry Tax issue they cannot show in both side theliability & credit in books of accounts.Remuneration of partners is to be fixed if cannotbe varied. 3.Hence, considering the totality of the facts,provisions of entry tax liability to the tune ofRs. 40,03,853/- is not allowable and is,therefore, disallowed u/s 43B and added to theassessee's total income. The observations made atpage 41 is quoted as under: “I am satisfied that the assesseefirm has furnished inaccurateparticulars of income of Rs.40,03,853/-.Hence,penaltyproceedings u/s 271(1)(c) forfurnishing inaccurate particulars ofincome of Rs. 40,03,853/- areinitiated separately. I have gone through AssessingOfficer's findings and assessee'ssubmissions. It was seen thatassessee created the provision bydebiting “Advance against entry tax”account. The same was not debited toP & L account but shown in thebalance sheet. The Assessing Officer can disallowany expenditure only when it isclaimed by assessee. In the currentcase the same was not claimed. It isalso not the case that assesseecollected the same from clients butnot credited the same to “P & Laccount”. Considering the above, I am of thefirm view that the addition, was notnecessary.” 4. The same was also considered by the Tribunalin paragraph 2.5 as under: “2.5. We have heard the rivalcontentions and pursued the materialon record. Firstly, it is not thecase of the Revenue that theappellant has collected entry taxfrom its customers and tax socollected has not been depositedwith the entry tax authorities. Thelimited issue relates to accountingentry towards liability towards theentry tax passed by the appellant inits books of accounts and whetherprovisions of section 43B of the Actare attracted. The assessee hassubmitted that in view of theongoing litigation before theSupreme Court, as a matter ofprecaution, it has created aLiability being the “provision forentry tax on one hand and at thesame time to nullify the effect ofsuch a provision, it has also passedanother entry on the asset side as“advance against Entry tax”. Thus,following the double entry system ofaccounting, the appellant has created a liability by way of aprovision towards the entry tax anda corresponding asset in its balancesheetandthereisnocharge/transfer of provision to theprofit/loss account. The appellanthas been consistently passing theseentries for earlier years as welli.e., A.Y. 2008-09, 2009-10. Giventhat there is no claim of provisionof entry tax in the profit/lossaccount and hence in absence of aclaim of an expense, the question ofsection 43B getting attracteddoesn't arise at first place.Section 43B postulates a situationwheretheexpenseotherwiseallowable under the Act is subjectto disallowance on non-fulfillmentof conditions stipulated therein.Unlike claim of depreciation wherethe statue stipulates a mandatoryallowance of depreciation even ifnot claimed, there is no suchstatutory provisions in respect ofclaim of statutory liability whicheven though not claimed but wouldstill be deemed to be allowed fortax purposes. We have also gonethrough the order of CIT vs. AssamRoller Flour Mills (226 ITR 876)(Raj.) and CIT vs. Padmavati RajeCotton Mill Ltd. (203 ITR 375)(Cal.) which doesn't advance thecase of the Revenue. In light ofabove, there is no need to interferewith the finding of ld. CIT(AP whichis hereby confirmed. Hence, groundno 1 of Revenue's appeal isdismissed.” 5.The Tribunal has further observed that for theassessment year 2008-09 and 2009-2010, same methodwas accepted and appeal of the revenue wasdismissed. The authority namely, the AssessingOfficer and CIT(A) while considering the issue ofentry tax and remuneration of the partners at page45, observed as under:- “I have gone through theAssessing Officer's findings andAssessee's submission. In thepartner-ship deed the relevantprovision was as under:-“Thattheworking allowance/remunerationshallbeallowed after allowing interest on-capital to the partners as under:1On the first-Rs.Rs. 75000/-50000/-of the bookor at theprofitrate of90% ofthe bookprofit,whichever ismore2On the next-@ 60%Rs. 75000/-of3Onthe-@ 40%balance ofthe bookProfit The above salary shall be sharedamongest all the partners equally. Incase of loss no salary shall beallowed to partners. 6.The same was also considered by the Tribunal,observed as under: “It was further submitted that thepartnership deed was executed on09/12/2002 and firm came intoexistence w.e.f.09/12/2002 i.e. fromAY 2003-04 and since then, theassesseehasbeenclaimingremuneration based on this verypartnership deed. In the past as andwhen such claim was made, was dulyallowed by the AO. Here also thereappears no special reason as to whythe AO should have taken a contraryview or read the partnership deed,the way he does this year. In support, he relied upon thefollowing case laws:- .CIT vs. Anil Hardware Store 323 ITR368 (HP).Durga Dass Devki Nandan vs. ITO(2012) 342 ITR 17 (HP).ACIT vs. Suman Construction (2009)20 DTR 450 (Pune Trib).Ld. Mohd. Nizamuddin vs. ACIT(2014) 39 CCH 439 (Jp Trib).CIT(A) vs. Supreme Builders (2008) 303 ITR 1 (PH). 3.3 The ld DR is heard who hasrelied on the order of the IO. In support, he relied upon thefollowing case laws:- .CIT vs. Anil Hardware Store 323 ITR368 (HP).Durga Dass Devki Nandan vs. ITO(2012) 342 ITR 17 (HP).ACIT vs. Suman Construction (2009)20 DTR 450 (Pune Trib).Ld. Mohd. Nizamuddin vs. ACIT(2014) 39 CCH 439 (Jp Trib).CIT(A) vs. Supreme Builders (2008) 303 ITR 1 (PH). 3.3 The ld DR is heard who hasrelied on the order of the IO. 3.4. We have heard the rivalcontentions and pursued the materialon record. As apparent from theassessment order, clause 6 of thepartnership deed provides the mannerof quantifying the remunerationwhich is payable to the partners.The remuneration has to be workedout based on certain percentage ofthe book profit which will bedetermined at the end of the year.It is also provided that the totalamount of the remuneration so workedout is to be shared equally amongstall the three partners and in caseof loss, no salary would beallowable to the partners. The CBDTcircular similarly provides thatwhere either the quantum or themannerofquantificationofremuneration to the partners hasbeen specified in the partnership,the same shall be allowable undersection 40(b)(v) of the Act and nototherwise. In the instant case,given that the salary has been madea function of annual book profitwhich can be determined only at theend of the year, the exact quantumof remuneration has not beenspecified. At the same time, thepartnership deed clearly providesfor the manner of quantification ofremuneration. It is not a casesimpliciter that the partners haveleft the doors open to claim theremuneration as per section 40(b)(v)of the Act which apparently is thebackdrop for issuance of CBDTcircular no. 739 dated 25.03.1996.Given the clear facts and CDBTguidance which rather supports thecase of the appellant than therevenue, the ld CIT(A) has rightlydeleted the disallowance where ishereby confirmed. Hence, ground no.2 of Revenue is dismissed.” 7.In our opinion, the view taken by the Tribunalis just and proper. No substantial question of lawarises in this appeal. 8.The appeal is devoid of merit and deserves tobe dismissed.be dismissed. The appeal is dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/7