2005 (8) TMI 98 - HC - Income Tax

Appeal Dismissed: Tribunal's Decision Upheld on Partnership Deed Authenticity and Deduction Allowance.

The HC dismissed the appeal, affirming the Tribunal's decision. It upheld the Tribunal's finding that the partnership deed could not be presumed ... Challenged the Order passed by CIT u/s 263 - erroneous and prejudicial Order - Deduction on account of salary paid to the partners - Whether, in the absence of any reference to the partnership deed in the order of assessment and there being no entry in the record of production of the documents and in the absence of document being on record, the presumption of regularity of official act would extend to presumption about the production of document in question before the Assessing Officer? - HELD THAT:- On appeal the Tribunal was of the opinion that the stamps on which the 11 supplementary deed was executed were purchased on April 26, 1996. The genuineness of the purchase of stamps on that date was not in dispute and doubt. It was also not in dispute that it was executed by the signatories of the document. No presumption could have been drawn that it was a manufactured document with a back date. By producing the partnership deed containing the terms and conditions for payment of remuneration to partners and quantifying the amount to be paid to each partner in the deed itself, fulfils the condition u/s 40(b)(v) for allowing the deduction claimed. Primarily the burden which lay on assessee was discharged. No enquiry having been further conducted about the date on which the document was suspected to be executed and no opportunity having been allowed to the assessee before holding otherwise, the document could not have been assumed to be bogus. Hence, it found that the order of the Assessing Officer cannot be held to be erroneous and prejudicial to the interests of the Revenue. The order of the CIT for arriving at this conclusion that the document is ante-dated, no enquiry was concluded, no notice was given to the assessee before rejecting the genuineness of document and no opportunity was given to the partners of the firm to establish that the document was of the date on which stamps were purchased. Normally a document mentions the date of its execution. Ordinarily, the presumption is that it was executed on that date. The burden lies on the person who asserts that it is not executed on the date on which it purports to have been executed. The CIT could not have acted upon mere assumption. Mere suspicion cannot take the place of proof. The finding of the Tribunal about existence of the document during the previous year cannot be said to be perverse. Even assuming that the document dated April 26, 1996 was not in existence during the previous year relevant to the assessment year in question, the situation will be that the existing deed of partnership continued and remained in force without the supplementary agreement. The CIT himself has found that as per the partnership deed dated August 10, 1987, read with the supplementary document dated April 1, 1992, did contain a term relating to payment of salary to partners Nos. 1, 2, 4 and 5 from the firm as per rules. It was for the first time that a ceiling on allowability of salary paid to partners, was introduced with effect from April 1, 1992, vide the Finance Act, 1991, with the condition that allowability of deduction on account of salary from the income of the firm shall be subject to the terms of the deed of partnership providing for such payment. Reference to the rules referred to the limit of remuneration to be paid as per limit allowable as deduction u/s 40(b)(v). The Central Board of Direct Taxes in its circular dated March 25, 1996 21, has accepted the position that there was some confusion about the impact of the aforesaid provision and that most assessees have amended their deeds by incorporating the term like above and directed that on the basis of the said term the permissible deductions on account of salary paid to partners may be allowed from the income of the firm until the assessment year 1996-97. The benefit of ambiguity in the provision of the statute, if it existed prior to the assessment year 1996-97, did not cease to exist after 1996-97. The benefit of such ambiguity from construction of the statute ordinarily goes to the assessee. In that view of the matter the order of the CIT could not be sustained. Thus, we do not find any infirmity in the finding of fact reached by the Tribunal that the document could not have been assumed to be not genuine or ante-dated in the absence of any enquiry having been conducted in this regard, or without giving any opportunity to the assessee on this aspect of the matter. No interference is called for on the merits of the finding of the Tribunal that the assessee claimed deduction as per the terms of section 40(6) of the Act regarding remuneration paid to its partners under the supplementary deed dated April 16, 1998. The appeal, therefore, fails and it is hereby dismissed. Issues Involved:1. Whether the Tribunal had material to assume the partnership deed was produced before the Assessing Officer.2. Whether the presumption of regularity of official acts extends to the presumption about the production of the partnership deed.3. Whether the Tribunal was justified in interfering with the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Assumption of Production of Partnership Deed:The Tribunal assumed the partnership deed was produced before the Assessing Officer without any material evidence. The assessment order dated June 16, 1998, did not mention the partnership deed, nor was there any record of its production. The Tribunal's presumption was found erroneous as the document was not on record, and there was no reference to it in the assessment proceedings. The clear discussion between the authorized representative and the Assessing Officer did not indicate the presence of any material for examination. Therefore, the Tribunal's finding that the document was produced was incorrect.2. Presumption of Regularity of Official Acts:The presumption of regularity of official acts does not extend to the assumption that the partnership deed was produced before the Assessing Officer. The absence of the document from the record and the lack of any reference to it in the assessment order negate the possibility of such a presumption. The Tribunal erred in concluding that the document was presented based on the presumption of regularity, as there was no material evidence to support this assumption.3. Justification of Tribunal's Interference with Commissioner's Order:The Commissioner of Income-tax issued a notice under section 263 of the Income-tax Act, finding the assessment order erroneous and prejudicial to the interests of the Revenue due to the absence of the partnership deed. The Tribunal, however, found that the document was genuine, executed on the date mentioned, and fulfilled the conditions under section 40(b)(v) for allowing the deduction. The Tribunal concluded that the Commissioner acted on mere suspicion without conducting an enquiry or giving the assessee an opportunity to establish the document's authenticity. The Tribunal's finding that the document was genuine and not ante-dated was upheld, as the Commissioner failed to provide evidence to the contrary. The Tribunal's decision to allow the deduction claimed by the assessee was found to be justified.Conclusion:The High Court dismissed the appeal, finding no infirmity in the Tribunal's decision. The Tribunal's finding that the document could not be assumed to be not genuine or ante-dated without an enquiry or opportunity to the assessee was upheld. The appeal was dismissed with no order as to costs.