MATHURA PRASAD DHOOMIMAL v. INCOME TAX OFFICER
[Citation -1984-LL-0309-3]

Citation 1984-LL-0309-3
Appellant Name MATHURA PRASAD DHOOMIMAL
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 09/03/1984
Assessment Year 1980-81, 1981-82
Judgment View Judgment
Keyword Tags principles of res judicata • registered firm • money-lending • vanaspati
Bot Summary: The first claim common for both the years relates to the disallowance of salaries paid to Shree Suresh Chandra, Shree Mahesh Prasad and Shree Ganesh Prasad under s. 40A of the IT Act, 1961 on the ground that they were excessive and unreasonable. Dasodia Traders having shares of 25 per cent, 15 per cent and 15 per cent, respectively, each in addition to money-lending business. Thereafter, a fresh partnership deed was executed on 4th Oct., 1976 w.e.f. 1st Oct., 1976 with only Durga Prasad and Jagdish Prasad as partners with 50 per cent share each. The aforesaid three persons also executed separate but similar agreements on 4th Oct., 1976 under which they were to get the following percentage of profits in lieu of salary or the minimum salary as mentioned in the table below whichever was higher. Percentage of profit allowed Minimum Name in lieu of salary salary Rs Suresh 500 per 25 per cent Chandra month Mahesh 250 per 12 1/2 per cent Prasad month Ganesh 250 per 12 1/2 per cent Prasad month Apart from the qualifications, etc. 1977-78 to 1979-80 even though the salaries in respect of these three persons were claimed by the assessee on the same basis, they were allowed by the ITO without any deduction. The learned CIT was not justified in observing that even though the assessee had placed full facts before the ITO in the previous two years, there was no applicable of mind by the ITO. We are of the view that both on account of the earlier history of the assessee as also on merits the salaries paid to the three aforesaid persons could neither be termed excessive nor unreasonable.


VICE PRESIDENT ELHENCE, J.M.: ORDER assessee is aggrieved of order dt. 23rd June, 1982 and 27th May, 1983 of learned CIT (A), for asst. yrs. 1980-81 and 1981-82, respectively. 2 . assessee, Mathura Prasad Dhoomimal, is registered firm which carries on business of sale of sugar and vanaspati, etc. first claim common for both years relates to disallowance of salaries paid to Shree Suresh Chandra, Shree Mahesh Prasad and Shree Ganesh Prasad under s. 40A (2) (a) of IT Act, 1961 ('the Act') on ground that they were excessive and unreasonable. following table shows that amounts claimed and allowed : Mathura Prasad Dhoomimal Claimed Allowed 1980- 1981- 1980- 1981- 81 82 81 82 Rs Rs Rs Rs Suresh 27,118 39,618 3,600 21,600 Chandra Mahesh 13,559 19,809 3,600 16,800 Prasad Ganesh 13,559 19,809 3,600 18,000 Prasad These persons were earlier partners in assessee-firm and dissociated themselves by giving written notices dt. 1st Sept., 1976. ITO noticed that in assessee's reply dt. 19th Sept., 1981, details of work assigned and qualification of these employees were as follows : His work is purchase of goods from Suresh Aged M. Mandi and factories, etc., Chandra 30 years Com. LLB n d dealing for out- station sale of goods His work is to maintain contacts with Mahesh Aged High bank deposits of cheque, Prasad 33 years School withdrawal and preparation of bank drafts His work is supply Ganesh Aged M. of goods to dealing Prasad 35 years Com parties from godown. He mainly stays at godown ITO also observed that above mentioned employees were partners in firm. Dasodia Traders having shares of 25 per cent, 15 per cent and 15 per cent, respectively, each in addition to money-lending business. disallowances were made by ITO taking into consideration their qualifications and fact that they were only part-time employees. 3. In appeal, learned CIT (A) maintained disallowances. He noticed that in earlier years no disallowance of salaries was made by ITO but in his view there had never been any application of mind in previous years on question of reasonableness of salaries and, therefore, he held that principle of res judicata was not applicable to present case. He took view that new arrangement placed three persons in much better position as they started getting interest on their capital balances as well as profit in from of salary without any risk involved on their capital contributions. He also took view that amount of receipts to which these persons became entitled as salaried employees were more or less same to which they were entitled before their exit from firm as partners. He also observed that firm would not have paid same amount to stranger with similar qualifications and experience. He, therefore, confirmed orders of ITO with these additional reasons. 4. We have considered rival submissions. We find that originally under partnership deed dt. 12th Sept., 1975 firm consisted of fix partners including aforesaid three partners. For reasons disclosed in assessee's reply dt. 4th Feb., 1980, namely, promulgation of U. P. Essential Articles and Things (Restriction on Grant and Supply to Unplanned Families) (Order, 1976), these persons vide notices dt. 1st Sept., 1976 retired from said partnership. Thereafter, fresh partnership deed was executed on 4th Oct., 1976 w.e.f. 1st Oct., 1976 with only Durga Prasad and Jagdish Prasad as partners with 50 per cent share each. aforesaid three persons also executed separate but similar agreements on 4th Oct., 1976 under which they were to get following percentage of profits in lieu of salary or minimum salary as mentioned in table below whichever was higher. In addition it was also agreed to pay to these persons interest at rate of 1 per cent per month on amounts standing to their credit in firm. Percentage of profit allowed Minimum Name in lieu of salary salary Rs Suresh 500 per 25 per cent Chandra month Mahesh 250 per 12 1/2 per cent Prasad month Ganesh 250 per 12 1/2 per cent Prasad month Apart from qualifications, etc., of these three persons mentioned above and which were taken into consideration by ITO, assessee had also mentioned in this reply dt. 4th Feb., 1980 that these persons had to perform some more duties like collection of money from parties and booking of orders for future supply of goods due to reason that they were young as compared to remaining two partners. We find that at time when these three persons were surviving partners in assessee-firm they were having same share as surviving partners even though surviving partners are old. Therefore, fact that these three persons were not working full time but only part-time, would not be material. It is, no doubt, true that strictly speaking, principles of res judicata are not applicable to assessment proceedings because each assessment year is separate unit and assessment is to be made on basis of facts obtaining for each year. However, at same time and as recognised by Hon'ble Bombay High Court in case of H. A. Shah & Co. vs. CIT (1956) 30 ITR 618 if previous decision of ITO had been arrived at after due enquiry and no fresh facts came to light, there is no reason why same decision should not be taken for subsequent years. This is also principle recognised and applied by Tribunal in case of G. W. Lawrie & Co. vs. ITO (1983) 4 ITD 273 (All) (TM) which was relied upon on behalf of assessee before learned CIT (A) as also before us. We find that for asst. yrs. 1977-78 to 1979-80 even though salaries in respect of these three persons were claimed by assessee on same basis, they were allowed by ITO without any deduction. learned CIT (A) was, therefore, not justified in observing that even though assessee had placed full facts before ITO in previous two years, there was no applicable of mind by ITO. We are, therefore, of view that both on account of earlier history of assessee as also on merits salaries paid to three aforesaid persons could neither be termed excessive nor unreasonable. In coming to this conclusion, we have duly taken into consideration qualifications and experience of these persons, duties performed by them and salaries payable to them in terms of agreements executed by them individually along with other facts and circumstances referred to above. We are, therefore, of view that there was no justification whatsoever for IT authorities to make and sustain disputed disallowances. We hold accordingly. 5 . only other ground relates to disallowances of miscellaneous expenses amounting to Rs. 1,000 for each of assessment years in question out of Rs. 2,097 claimed for asst. yr. 1980-81 and Rs. 13,111 claimed for asst. yr. 1981-82. ITO made disallowance for want of details and because expenses were unvouched. position being no better before learned CIT (A) as also before us, we see no reason to interfere with orders of IT authorities in this regard. 6. In result, appeals are partly allowed. *** MATHURA PRASAD DHOOMIMAL v. INCOME TAX OFFICER
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