TaxTMI 
TaxTMI 
2011 (10) TMI 497
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.... loss account, while arriving at the net profit of Rs. 71,80,678/- for the impugned assessment year. A.O. was of the opinion that payment of remuneration to the sole working partner of the assessee-firm was not specified in the partnership deed and therefore, the claim of partner's remuneration could not be allowed. A disallowance of the claimed amount was therefore, made by the A.O. 4. In its appeal before the CIT(Appeals), submission of the assessee was that the firm was originally constituted by deed dated 10.4.1997 wherein remuneration to partners was clearly specified in a table and such table was in accordance with section 40(b) of the Act. Further, according to it, while reconstituting the firm on 1.4.2005, the relevant reconstitution deed specified remuneration to be paid to the sole working partner and amount payable was also clearly indicated. Argument of the assessee was that as per section 40(b) of the Act, remuneration once authorized under the deed of partnership could not be disallowed. As per the assessee, instead of repeating in a tabular format the limits for allowance specified under section 40(b) of the Act, it had stipulated such payment to be made in accord....
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....arly mentioned therein and the relevant clause was in accordance with section 40(b) of the Act. In support of his contention, that quantification of the amount of remuneration in the partnership deed was not essential, learned A.R. placed reliance on the decision of Pune Bench of this Tribunal in Suman Construction mentioned supra. 7. We have perused the orders and heard the rival contentions. There is no dispute on facts. Assessee-firm was constituted through a partnership deed on 10th April, 1997. In the partnership deed, clause (8) authorized remuneration to partners that was payable in the following manner:- "8. All the partners of the parties have agreed to devote their time and attention to the business of the partnership. It is hereby agreed that in consideration that FIRST part of the parties shall be entitled to draw yearly remuneration as follows: (i) The yearly remuneration payable to the FIRST part shall be calculated as under:- Particulars Remuneration (a) In case of loss Nil Or (b) In case of Income less than or Rs. 50,000/- Actual Income ....
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.... PART shall be computed in the manner laid down in Explanation 3 to section 40(b) of the Income-tax Act 1961 or any other applicable provision as may be in force in the Income-tax Assessment of the partnership firm for the relevant accounting year. The partners are also entitled to increase or decrease the above remuneration. The parties hereto may also agree to revise the above said remuneration and interest on capital as may be agreed to and between the partners from to time." 9. As per the Revenue, the above clause in reconstitution deed was not sufficient for a claim of remuneration under section 40(b) of the Act. According to it, the remuneration payable to the sole working partner was not specified in terms of money. We find that Partnership Retirement Deed dated 1st April 2005 does not have a clause stating that the provisions of earlier deed dated 10th April, 1997 would apply wherever it had not been varied, altered, substituted, or deleted through the deed dated 1st April, 2005. Therefore, the question boils down to allowability of the claim of assessee on the basis of clause (8) of the deed of Partnership Retirement Deed dated 1st April, 2005. It does mention that Mr. ....
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....quantification. We are also of the opinion that reliance placed by the ld. CIT(Appeals), on the partnership deed dated 10th April, 1997, was incorrect. This is for the reason that the later deed dated 1st April, 2005 does not have any clause which would enable the assessee to fall back upon the old deed dated 10th April, 1997, in case of any deficiency therein. In our opinion, the CIT(Appeals) fell in error when he directed the A.O. to delete the disallowance of Rs. 54,83,571/- being remuneration paid to working partner considering it as not allowable. We, therefore, set aside the order of the CIT(Appeals) in this regard and reinstate the disallowance made by the A.O. 11. Vide ground No.3, Revenue is aggrieved that the CIT(Appeals) deleted the disallowance of Rs. 16,57,950/- made by the A.O. The said disallowance was on account of a loss on sale of flat at Saligramam claimed by the assessee in its profit and loss account which was not acceptable to the A.O. 12. Short facts apropos are that assessee in its Schedule No.5 forming part of its audited final accounts, had given a break-up of indirect expenses which included a sum of Rs. 16,57,950/- shown as loss incurred on sale of....
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..... 15. Per contra, the learned A.R. supporting the order of the CIT(Appeals) submitted that without doubting the sale deed and purchase deed relating to the transactions, the loss could not have been disallowed. Pointing out the partnership deed dated 1st April, 2005, he submitted that the business of the assessee-firm was of promoting commercial and residential flats as also constructing, maintaining, altering, improving, reconstructing and otherwise dealing with buildings or to carry on any other line or lines of business which the partners decide from time to time as beneficial. According to him, land was shown as stock-in-trade in the balance sheet and hence, loss arising on sale thereof could not have been disallowed. 16. We have perused the orders and heard the rival contentions. Assessing Officer's disallowance was based on two reasons - first, that the assessee was not engaged in the business of purchase and sale of land and second was that there could not have been depreciation in the value of land so as to claim loss on sale. Leaving aside the reasons given by the CIT(Appeals), we are of the opinion that both these assertions of the A.O. were misplaced. Assessee was ....
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....imed a loss on sale of property at T. Nagar to the tune of Rs. 36,83,334/-. For the same reason as mentioned by the A.O. with regard to the disallowance of Saligramam property, this claim of loss was also disallowed. 20. In its appeal before the CIT(Appeals), submission of the assessee was that it could not effect any construction in the property at T. Nagar, Chennai, on account of certain difficulties in getting the plan approved and therefore, was constrained to sell it out at a loss. According to assessee, there was a recession in real estate business, which resulted in the loss. CIT(Appeals) appreciated this contention of the assessee. According to him, assessee had to abandon the project in the land at T. Nagar, finding it not viable and in order to meet financial commitments, it had effected the sale. He therefore, deleted the disallowance. 21. Now before us, learned D.R. assailing the order of the CIT(Appeals), made more or less similar submissions as he made in ground No.3. 22. Per contra, the learned A.R. strongly supported the order of the CIT(Appeals). 23. We have perused the orders and heard the rival contentions. The A.O. had made the disallowance of claim ....
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....ing and holding that the purchase and sale of land did not fall in the business line of the assessee. The assessee further argued that the lands purchased were held by it as stock-in-trade and not as capital asset. The assessee also tried to explain the circumstances in which it had incurred loss on sale of flat at Saligramam. In as much as the assessee was constructing the commercial flat for one Shri Kalaivanan, who made default in payments of contracted amounts. The contractee had to pay the assessee Rs. 30,00,000/- in lieu of which he had given an old flat towards final settlement of the dues and the assessee submitted that the contractee was an influential man who could damage its business prospects and therefore, it accepted the old flat in lieu of the amount due from him and that flat was sold at loss. As such, the loss was during the course of the business of the assessee and had to be allowed. The assessee also raised an alternative claim before the ld. CIT(A) that the amount was not collected, hence same ought to have been allowed as business loss. The assessee has duly filed explanation before the Assessing Officer and the loss could be allowed and even if it is not allo....
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..... in the said premises comprised in survey Nos. 143/1, 143/2, 144/1 and 144/2 of Saligramam Village, Egmore - Nungambakkam Taluk" to Shri P. Jagadeesan [as per Schedule of Property at page No. 19 of the sale deed dated 23.06.2006 placed at pages 1 to 21 of the compilation dated 22.11.2010]. Otherwise, there is no documentary evidence produced by the assessee or is found on record of the appeal papers, which could show that the assessee has purchased any property or any consideration amount has been fixed or adjusted which was due. What is available on record is a copy of sale deed dated 23.06.2006, at pages 1 to 21 of compilation dated 22.11.2010, executed by Shri S.S.R. Kalaivanan, in which Shri K. Rasheed Khan, partner of the assessee firm has been shown to be power of attorney holder and has signed such deed in that capacity only and, as per covenant at page 10, it is mentioned that "THUS the said Mr. S.S.R. Kalaivanan (the vendor herein) is truly seized and in absolute possession and in enjoyment of the property being shop bearing No.1, situated in the Ground Floor of Anubhav S.S.R. Pankajam Enclave at No.24, Arunachalam Road, Saligramam, Chennai - 93 measuring 1050 sq.ft. c....
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....ame acquired. If a person transfers absolute ownership, then he must first acquire absolute ownership else he cannot transfer absolute ownership without first acquiring it. It is thus the date of acquisition of absolute ownership and the date of transfer of absolute ownership giving rise to gain or profit, which is relevant for determining the period of holding of what has been transferred. So in the absence of anything having been established to show that assessee firm has ever acquired any right in the said property against which the assessee is claiming loss on sale, whether it could be further alienated in order to consider the claim of loss. 32. From the discussion as made above and in view of documentary evidence and material on record, it could be seen that the Assessing Officer has not properly considered and appreciated the issue while deciding the said loss amount as claimed by the assessee and even did not look into the documentary evidence placed before him at assessment stage, which is apparent from the fact that in para 4 of his order, he is discussing about short term loss on sale of land, whereas this is a case of sale of shop giving his logic that land cannot de....
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....re was difficulty in getting the plan approved. Since the appellant has to abandon the project as not viable, the land purchased was sold and the appellant incurred a loss of Rs. 36,83,334/-as there was recession in real estate at that particular point of time. Since the appellant has to meet the financial commitments, they had to compulsorily sell the land to the maximum amount that could be realized. The loss has arisen in the course of the appellant's regular business and therefore, the same has to be allowed. The AO is not doubting the purchase consideration or sale consideration of the land and the loss sustained. Since the land was only the appellant's 'stock in trade' and not 'capital asset',' the loss on sale of such stock in trade is to be treated as business loss and the AO is not justified in treating the same as 'capital loss' and disallowing the same. 68 I have considered the submissions of the appellant's representative and the reasoning of the AO. I am of allowed as business expenditure or in the alternative, the loss could even be allowed as a bad debt u/s 36(vii) of the Income tax Act, 1961, as the amount has already been written off in his books of account and ....
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.... loss having been incurred by the assessee and moreover, the land stated to have been sold is 5250 sq.ft., whereas purported acquisition is 5470 sq.ft. leaving 220 sq.ft. unsold and cost of which comes to be more than Rs. 8.00 lakhs, which in any case could not be part of loss, if considered to be allowable, so the Assessing Officer has rightly refused to allow such loss and the ld. CIT(A) is not justified in deleting such disallowance made by the Assessing Officer. It was thus, pleaded for setting aside the order of the ld. CIT(A) and restoring that of the Assessing Officer. 35. The ld. Counsel for the assessee relied upon the order of the ld. CIT(A) in this regard and pleaded that since permission to construct building could not be obtained by the assessee despite having made efforts and the assessee was in need of money, therefore, he had to sell the land purchased even at loss and this way loss was incurred, which is business loss during the course of normal business activity, which had to be allowed and the ld. CIT(A) considering all these facts has deleted the addition made by the Assessing Officer, whose action is proper and justified, which should be upheld. 36. After....
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....perty then it cannot be said that he has all the rights and interest in the property as an absolute owner thereof would have. A person cannot transfer what he does not have. The relevant question therefore is as to what has been transferred by the assessee and when was the same acquired. If a person transfers absolute ownership, then he must first acquire absolute ownership else he cannot transfer absolute ownership without first acquiring it and only then he can further alienate the same. In this case when the assessee firm's partner Shri K. Rasheed Khan is just acting as attorney holder/confirming party, it does not follow that he has acquired any right, which is being alienating further. Moreover, neither copy of the power of attorney executed by the so-called seller of the land to the partner of the assessee's firm has been filed nor any other document to show what was the extent of authority given to the attorney holder and whether any absolute right in property has been conferred upon the assessee at any point of time. Since all these aspects have not been looked into or considered during assessment and the Assessing Officer has disallowed the claim of loss by passing very sk....
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....nce made by the assessing authority. That issue was accordingly decided against the assessee. In the matter of the other two disallowances, being loss on sale of flat and loss on sale of land, the learned Accountant Member agreed with the Commissioner of Income-tax(Appeals) and dismissed the corresponding grounds raised by the Revenue. Thus the learned Accountant Member proposed disposing of the appeal filed by the Revenue by deciding one issue in favour of the Revenue and deciding two issues in favour of the assessee. 4. The learned Judicial Member, who dissented, agreed with the order of the learned Accountant Member as far as the first issue of disallowance of partners' remuneration is concerned. As far as the remaining two issues of loss on sale of flat and loss on sale of land are concerned, the learned Judicial Member upheld the order of the assessing authority and set aside the orders of the Commissioner of Income-tax(Appeals) and thus dissented from the view of the learned Accountant Member. 5. It is with reference to the above two disallowances, namely, loss on sale of flat and loss on sale of land that the question is referred to the Third Member. 6. I considered....
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....ted by the Commissioner of Income-tax(Appeals), the assessee is authorised by the deed of partnership to carry on the business of construction and that of promoting commercial and residential flats and in such circumstances the purchase and sale of flat and land are very much part of the business regularly carried on by the assessee. (v) The assessee treated the land in its accounts as stock in trade and when stock in trade is sold, the result would be naturally either business profit or business loss. (vi) The assessee was forced to sell the properties for loss for its own business reasons which cannot be overlooked by the assessing authority for his own reasons. (vii) The purchase and sale deeds have not been doubted by the assessing authority. (viii) The books of account have not been rejected by the assessing authority. 10. In the light of the above findings, the learned Accountant Member held that there is no justification for the disallowance of the losses arising out of the sale of the two properties. He accordingly upheld the orders of the Commissioner of Income-tax(Appeals). 11. The learned Judicial Member, on the other hand, has s....