Rameshwar Synthetics , New Delhi vs Department Of Income Tax

The above appeal has been filed by the revenue against the order of

CIT(A)-XXV, New Delhi dated 15.02.2011 pertaining to AY 2007-08. The

sole ground raised by the revenue reads as under:-

"1. On the facts and in the circumstances and in law the ld. CIT(A) has erred in deleting the demand of Rs.52,53,256/- without appreciating the fact that there was no mention of any liability to be paid by the assessee to Shri Ramesh Kumar Jaitwani on his retirement w.e.f. 1.4.2005."

2. We have heard arguments of both the sides and carefully perused the

record placed before us. Ld. DR submitted that the ld. CIT(A) has erred in 1 ITA No. 1862/D/2011 AY: 2007-08

deleting the demand of Rs.52,53,256/- without appreciating the fact that there

was no mention of any liability to be paid by the assessee to Shri Ramesh

Kumar Jaitwani on his retirement w.e.f. 1.4.2005. Replying to the above, ld.

AR submitted that the assessee has not claimed any expenditure as deduction

and the assessee has also not got any profit out of any cessation of liability,

therefore, wrong addition made by the AO was rightly deleted by the CIT(A).

3. On careful consideration of above submissions of both the sides, at the

outset, we note that the CIT(A) granted relief for the assessee with following

observations and findings:-

"4. The AO has made the addition of Rs 52,53,256/- i.e. the AO had added back both the amounts of Rs 43,93,256/- and Rs 8,60,0001- on the ground that there was no requirement of payment by the Delhi branch to the Ludhiana branch as the accounts were said to be treated as settled as per clause-3 of the partnership deed after the separation of the business and also on the ground that there was no direct confirmation from the Ludhiana party. The main ground of disallowance by the AO is that once the accounts are said to be treated as settled it means nothing is to be paid or received by either of the parties.

5.5. The assessee has submitted that all the details and confirmations were submitted to the AO but the same was not considered by the AO. It is submitted that the partners of the firm were the cousin brothers and they have decided to run independent businesses at Ludhiana and at Delhi and they have drawn a partnership deed for this purpose and the payments have been made as per the partnership deed itself. It is submitted that the payments to Ludhiana party is not claimed as an expenditure in business. It is also submitted that the liabilities are being paid and there is no cessation of

2 ITA No. 1862/D/2011 AY: 2007-08

liability which should invite any addition. It is also submitted that the payments are made through the books of accounts of the assessee out of its own capital and confirmation of the party was also submitted to the AO and the PAN of the Ludhiana party is AAIPR6098K but the same has been ignored by the AO without any valid reason.

5.6. I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee. So far as the facts are concerned there was a single business of three partners namely Sh Ramesh Jaitwani, was looking after the Ludhiana Head Office Branch and the other two partners Sh Madan Lal Jaitwani and Sh Anuj Jaitwani were looking after the Delhi Branch and they have decided to separate and do their independent business and they have drawn a partnership deed accordingly. As per the partnership deed vide page-1 (second para) the assets and liability of the Ludhiana branch is to be taken care of by Sh Ramesh Jaitwani whereas the assets and liability of Delhi branch is to be taken care of by the other two partners Sh Madan Lal Jaitwani and Sh Anuj Jaitwani were looking after the Delhi Branch. As a consequence of the partnership deed, the Delhi branch has to make the payments of liabilities to the Ludhiana branch and in the process the payment of Rs 8,60,000/- has been made during the current AY 2007-08out of the total liability of Rs.43,93,256/-. The assessee has not claimed any expenditure as a deduction and the assessee has also not got any profit out of any cessation of liability. After considering all the facts and circumstances of the case, I am of the view that there is merit in the submission of the assessee and I do not find any merit to sustain the addition of the AO and accordingly, the addition made by the AO is deleted."

4. In view of above, we are unable to see any infirmity, perversity or any

other valid reason to interfere with the order of the first appellate authority as

Delhi Branch has to make payment of liability to the Ludhiana branch and in the

process, the payment of Rs.8,60,000 has been made during the AY 2007-08 out

of the total liability of Rs.43,93,256/- which has also been shown in the balance

3 ITA No. 1862/D/2011 AY: 2007-08

sheet of Delhi branch as liability. We may also point out that the assessee has

not claimed any expenditure in the Profit & loss account as deduction and there

was no cessation of any liability resulting into retirement of Shri Ramesh

Jaitwani. In this situation, the AO was not justified in making the addition

which was rightly deleted by the CIT(A). Accordingly, ground no. 1 of the

revenue being devoid of merits is dismissed.

5. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 27.2.2015.

Sd/- Sd/-

(R.S. SYAL) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 27th FEBRUARY 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt.Registrar

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