TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1185
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the assessee had claimed as deduction on account of remuneration / salary u/s 40(b)(v) of the Act at Rs. 25,94,176/- in the profit and loss account. The AO on perusal of the record and partnership deed dated 15- 04-2008 of the firm found that the sum of Rs. 12,97,088/- each was paid to two partners i.e. Shri Ram Niwas Sharma (50% share) and Shri Rajeev Sharma (50% share). The AO observed from clause 6 of the partnership deed as to remuneration paid to two partners, as under:- ''That all the partners referred to above shall be working partners and also entitled to salary at the end of each year as per Section 40(b) of the I.T. Act. However, the partners may be their mutual consent add, amend modify, reduce and cancel this clause in any manner as may be mutually decided between them from time to time.'' The AO thus observed that it is clear that the firm neither specified the amount of remuneration / salary to each working partner nor laid down the manner of quantifying such remuneration / salary. The AO observed that in such cases where neither the amount had been quantified nor even the limit of total remuneration had been specified but the same had been left to be determined....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fying such remuneration. The AO further observed that even the assessee firm had mentioned in their partnership deed that each working partner also entitled to salary at the end of each year as per Section 40(b) of the Act. On the other hand, the remuneration payable was left to future mutual agreement between the partners who are entitled to decide and quantify the quantum. The AO observed that the remuneration can be any amount or figure but not more than the maximum amount stated in Section 40(b)(v) of the Act. The AO thus observed that the requirements of Section 40(b)(v) are not satisfied. The AO relied on the case of Sood Brij & Associates vs. CIT -XIII, New Delhi 15 Taxman.co.76(2011) (Del) in this facts of the case. Ultimately, the AO disallowed a sum of Rs. 25,94,176/- and added to the total income of the assessee. 2.2 Being aggrieved, the assessee carried the matter before the ld. CIT(A) who deleted the addition made by the AO by observing as under:- ''In my opinion, it was sufficient to mention that remuneration would be computed as per Section 40(b) of the I.T. Act. The assessee computed the remuneration as per Section 40(b) of the I.T. Act and credited 50% each to bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... submit any document whether those items were used for resale or reuse. The AO brought this fact into the notice and show caused as to why the sum should not be treated as sales during the year and penal proceedings should not be initiated. The ld. AR submitted the reply before the AO as under:- ''...the payment of Rs. 3,30,287/- (RAPP), Rs. 24,575/- (KAPP), Rs. 46,239 (KAIGA) received short/ deducted from sale bill in the preceding previous year, but the advice/ communication received during the financial year 2009-10 while the awarder has made advice in financial year 2006-07 which was received late. The adjustment has been made during the year 2009-10 as a sales return. These sales are taken in full value in respective previous years also. The relevant document is also filed in earlier reply in this reference.'' The AO thus observed that the assessee firm admitted that the matter was related to financial year 2006-07 but information was received late. It is also clear that the firm had reduced the actual sales in this financial year debiting the old issues which is not related this year. Therefore, the AO added a sum of Rs. 70,433/- to the total income of the assessee applying....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rs. 26,537/- (5%) is considered reasonable and confirmed. The AO is directed to delete balance disallowance of Rs. 26,537/-. This ground of assessee is therefore, partly allowed. '' 4.3 Now the Revenue is before us against the order of the ld. CIT(A). 4.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has wrongly reduced the claim of the assessee from Rs. 53,074/- to Rs. 26,537/- under the head of transportation expenditure. 4.5 During the course of hearing, the ld. AR of the assessee relied on the order of the AO and submitted that the ld. CIT(A) has rightly restricted the disallowance to the extent of Rs. 26,537/-. 4.6 We have heard the rival contentions and perused the materials available on record. We feel that the ld. CIT(A) has rightly restricted the addition towards transportation expenditure to the extent of Rs. 26,537/- considering the facts and circumstances of the case of the assessee. Hence, we find no reason to interfere with the order of the ld. CIT(A) which is sustained. Thus Ground No. 3 of the Revenue is dismissed. 5.1 Apropos Ground No. 4 of the Revenue wherein brie facts of the case are that the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccount with all the supporting vouchers and bill of materials etc. and also the same has been audited by the Chartered Accountant. (iv) The assessee is in similar line of business therefore, full knowledge regarding the supplies of material, labour etc. available at cheaper rate is known to the assessee. Remaining difference in DVO's valuation and shown by the assessee arises due to cheap procurement of raw material, labour etc. (v) The assessee received notice on dated 26-03-2013 to file reply on dated 28-03-2013 which is very short notice period to clarify on difference in cost of construction by the DVO and the actual expenses incurred in construction This is against the principles of natural justice. (vi) It would be unfair and against the public policy to proceed on the assumption that the assessee is dishonest and he must have submitted an incorrect amount of expenses. Considering the above facts of the assessee, there was no reason to add any amount on the presumption that the cost of construction was low, and therefore, addition cannot be made only on the basis of the DVO's report.'' 5.2 The AO considering the submission of the assessee did not find the sane as acceptab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his figure at Rs. 28,77,280/-. There is thus a difference of Rs. 6,55,303. As per the original Valuation Report, the construction expenditure was determined by the DVO at Rs. 98,01,608. The DVO later revised the Valuation Report, as per which the total cost was determined at Rs. 91,46,305/-. The ld. AO has duly passed rectification order under section 154, copy whereof is attached herewith as Annexure E. Therefore, the correct figure in this Ground of Appeal will be Rs. 22,21,977/-. In the Appeal Order, the correct figure has been adopted. A. The ld. AO grossly erred in referring the case for valuation to DVO without rejecting the books of account maintained by the assessee firm. As many as nine judgments were cited as per which such an action was not correct. These judgments are mentioned on Pg. No. 14 of the Appeal Order. The assessee has maintained complete books of account regularly and got them audited by Chartered Accountants. The ld. CIT (A) has given a very vague and unconvincing reasoning on Pg. No. 17 of the Appeal Order, in an attempt to justify the wrong action of the ld. AO. The said reasoning is reproduced below: "Although the AO did not reject the Books of Accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pervision is considered reasonable." It is, therefore, prayed that the decision of the ld. CIT (A) on this issue may kindly be sustained. The judgment of the Hon'ble ITAT, Jaipur Bench "B", Jaipur, vide Composite Order, in the case of (1) ITO, Kota v. Nitesh Maheshwari, Kota and (2) ITO, Kota v. Manish Maheshwari, Kota (2010) 44 Tax World 131 (Copy of the judgment is attached as Annexure G) squarely supports the three issues involved in the assessee's case and discussed above in relation to the determination of cost of construction, viz., A. Referring the case for valuation to DVO without rejecting the books of account maintained by the assessee was held to be wrong. B. 20% deduction was allowed for applying the CPWD Rates for determiningg the cost of construction of property, instead of Rajasthan PWD Rates. C. 12% deduction was allowed for self-supervision while determining the cost of construction. Similarly, the judgment of the Hon'ble ITAT, Jodhpur, Jodhpur, in the case of Shri Kamal Kishore Baheti, Jodhpur v. DCIT, Central Circle-2, Jodhpur (2012) 48 Tax World 155 supports the first two issues involved in the assessee's case and discussed above in relation to the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e balance addition of Rs. 22,21,977/-. We find that in the matter of C.S. Daniel vs Deputy Commissioner of Income-tax, Central Circle [2013] 40 taxmann.com 524 (Kerala) hon'ble Kerla High court held as under :- 6. We place reliance on an earlier decision of this Court in I.T.A. No.109 of 2008 dated 21.10.2008 wherein their Lordships at paragraph 5 onwards opined that the valuation of property has to be made keeping in view the Kerala PWD rates and not Central PWD rates. It is also pertinent to mention that in each State depending upon the scarcity of the material available as well as the cost of labour, the cost of construction may very from State to State, therefore it is just and proper to place reliance on the local PWD rates rather than Central PWD rates in order to arrive at the valuation of the property. Ultimately the assessing officer will have the other materials supplied by the assessee to know what exactly was the material used and what was the prevailing rate of such material apart from ascertaining the rates from PWD department which rate varies from time to time. Ultimately the assessing officer would take into consideration what was the prevailing rates of PWD in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of CIT(A) in connection with granting deduction of 20 per cent in the cost of construction. The appeals of the Department came for hearing before Jodhpur Bench of the Tribunal in connection with assessment years 1995-96, 1996-97 and 1998-99. The Jodhpur Bench of the Tribunal vide order dated 23-7-2004 came to the following conclusion : "The only dispute involved in these revenue appeals is relating to the relief allowed by the learned CIT(A) in respect of cost of construction. The learned CIT(A) has held that the revenue was not justified in applying the CPWD rates in comparison to PWD rates. A deduction of 20 per cent has thus been directed to be allowed. The issue is covered in favour of the assessee by the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Dinesh Talwar [2004] 265 ITR 344. Respectfully following the decision of the Hon'ble jurisdictional High Court, the appeals of the revenue are hereby dismissed." 10. It is not in dispute that the appeals of the revenue were dismissed after hearing the present appellant who was respondent in the aforesaid appeals whereby the order in favour of the assessee was confirmed. It is surprising to note that at the t....