TaxTMI 
TaxTMI 
2022 (6) TMI 802
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....between 15.03.2020 till 28.02.2022 has been excluded for calculating the limitation period in filing appeal under this period. Since the period of limitation in the course of the Revenue falls during this period, the same deserves to be extended and we, therefore, condone the delay of 59 days and admit the appeal for adjudication. 3. The Revenue is in appeal before the Tribunal raising the following grounds: "1) The ld. CIT(A) erred on fact and in law deleting addition of salary Rs. 1,98,32,856/- as it was treated by him as share profit which is exempted u/s 10(2A) of IT Act, 1961 and on the contrary the amount is treated by the AO as salary income instead of share profit from the LLP. 2) The ld. CIT(A) erred in law as well as facts by not considering the ratio of the decision of Hon'ble Supreme Court in case of McDowell & CO. Ltd. vs. CIT [1985] 154 ITR 148 as the AO mentioned in his/her Asstt. Ord. 3) The ld. CIT(A) erred in law as well as facts by not considering the ratio of the decision of Hon'ble Supreme Court in case of Union of India & Ors. Vs. Playworld Electronics (P) Ltd. & Anr. (1990) 184 ITR 308 as the AO mentioned in his/her Asstt. Ord. ....
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....ved, the assessee preferred appeal before the ld. CIT(A) and succeeded as ld. CIT(A) was of the view that the assessee received the share of profit as per the terms of LLP agreement. There was no legal bar for higher variable contribution and also there is no legal bar either on sharing the profits or losses in the proportion which was different from the proportion in which capital was contributed by the partners. 6. Aggrieved, the Revenue is in appeal before this Tribunal. Ld. D/R vehemently argued supporting the order of ld. AO as well as the decisions referred in the grounds of appeal and mainly doubted the arrangement made by the assessee with the other company by way of which the assessee contributed merely 2.78% of the capital but the assessee was able to get 95% of the share of profit and ld. D/R alleged it to be a mere arrangement of funds in the guise of tax evasion. 7. Per contra, ld. Counsel for the assessee heavily supported the detailed finding of the ld. CIT(A), submissions made before the ld. CIT(A) and also referred to the paper book containing 50 pages and stated that the assessee is an expert in the field of investments and has joined hands with Enam Shares ....
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.... and Rs. 47,500/- respectively towards fixed capital of the LLP. Additionally as at the end of the relevant FV 2015-16, these partners had contributed Rs. 9,00,00,775/- and Rs. 25,30,723/- respectively as their variable contribution. With reference to these facts the AO observed that although the appellant was entitled to receive 95% of the profits and the other partner was entitled to receive remaining 5%, yet, the appellant had contributed only 2.78% of the total capital of the LLP and remaining 97.22% was contributed by the other partner. The AO also noted that as per the deed of partnership the appellant was entitled to share only the profits of the LLP and he had no obligation to bear any losses of the LLP. The AO further noted that even prior to coming into being of Adiman Finance Consultants LLP, the appellant was working as financial analyst with M/s Enam Holdings Pvt. Ltd. drawing substantial salary. He was associated with the employer company since June 2009. The AO also noted that Enam Shares and Securities Pvt. Ltd. was the broking arm of Enam Group and the said associate of the Employer, substantially contributed to the variable capital of the LLP. He also noted that t....
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.... by the AO before recording such finding. As noted, the appellant is a qualified financial analyst holding degree from one of the best known business school in India. The appellant was employed with Enam Holdings Pvt. Ltd. since 2009 drawing substantial salary. Had it not been the case that the appellant was technically and educationally well qualified, a premier company like Enam Holdings Pvt. Ltd. would not have employed the appellant in senior managerial position paying handsome salary. Having regard to the knowledge and the experience which the appellant enjoyed in the field of equity research and financial analysis, Enam Shares and Securities Pvt. Ltd. had opted to enter into partnership with the appellant so that the investible funds of the parties could be gainfully invested and business of financial consultancy could also be carried on through the said LLP. 4.3 Although, in the impugned order the AO doubted the genuineness of the LLP, he did not bring on record any tangible material to disprove its genuine existence. On the contrary I find that in the concluding part of the impugned order, the AO himself allowed the benefit of exemption u/s 10(2A) of the Act in res....
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....mmediately succeeding year, the LLP agreement was amended by the parties by executing supplementary agreement dated 01.11.2013. In the supplementary agreement, the parties agreed that with effect from 01.04.2014 the profits/losses of the LLP would be shared between the appellant and Enam Shares & Securities Pvt. Ltd. in the ratio of 95% and 5% respectively. The provisions of the supplementary LLP agreement were in force during the financial year 2015-16 relevant to AY 2016-17. I therefore find merit in the AR's submission that during the year under consideration, the appellant was liable to share 95% of the losses as well as share 95% of the profits of the LLP. Having regard to these facts therefore, I do not find merit in the AO's conclusion that the formation of LLP was adopted as a device to provide legal shield to the appellant solely for earning tax free income in the form of share of profit. From the accounts as well as the income tax return of the LLP, I find that during the relevant year, the LLP had earned long term capital gains as well as incurred short term capital loss. From the copy of the audited accounts of the LLP, it was noted that the net profit of the LL....
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.... from the said employer. Nothing has been brought on record by the AO which would suggest that the relationship of employer and employee existed between the appellant and Enam Shares and Securities Pvt. Ltd. The AO has claimed that the appellant was permitted to become partner of LLP solely because his employer desired to grant him additional benefit in the form of share in the profits. I however find the logic adopted by the AO as far-fetched. Admittedly, the appellant was not promoter or director or relative of the promoter of his employer company. If the intention of the employer was to provide additional remuneration or emolument to its employee, then the employer would have paid the same in a manner which he would have ensured that in computation of its taxable income the employer would get deduction for the expenditure incurred. No prudent employer would have agreed to an arrangement where under after paying or granting substantial monetary benefit to an employee benefit, the employer did not get deduction therefore in computing his own taxable income. I therefore do not agree with the AO's conclusion that the arrangement was put in place by the employer for providing leg....
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....ry to have optimum human resource. Mere capital by itself cannot create value or bring financial results. Unless the capital is wisely employed by the person incharge of the business mere capital introduction do not produce any significant profits. For these reasons therefore, it was wholly inappropriate for the AO to hold that the assessee's entitlement to share profits of LLP should have been in the proportion of his capital contribution. As noted the AO per se did not doubt the genuineness of the LLP which is evidenced by the deed of partnership executed between the appellant and Enam Share & Securities Pvt. Ltd. The terms of the LLP agreement were acted upon by the parties. Both the parties who were competent to contract had mutually agreed to share the profits as well as losses in the ratios specified in the LLP agreements. There was no legal bar either in the Income Tax Act or in the LLP Act on sharing the profits or losses in the proportion which was different from the proportion in which capital was contributed by the partners. I therefore find merit in the AR's submissions that the AO was unjustified in granting the exemption u/s 10(2A) only for Rs. 5,97,417/- in p....