Partnership deed can not be said invalid as stamp paper was issued on a prior date – ITAT

Assessing Officer was wrong to disbelieve partnership rectification deed when stamp paper was issued on a prior date – ITAT

ABCAUS Case Law Citation:
ABCAUS 3801 (2023) (09) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A)/NFAC in confirming the action of Assessing Officer (AO) disallowing the claim of salary & interest on capital for partners.

The assesse/firm e-filed its return of income which was later selected for scrutiny. And AO having taken note that the assessee has claimed expenditure on account of disbursal of salary as well as interest on partner’s capital directed assessee to furnish evidence as well as requisitioned from the Bank where the assessee had bank account.

The bank forwarded to AO a copy of the partnership deed filed by the assessee firm. The AO on perusal of the same, noted that there was no provision in the partnership deed for payment of salary as well as interest on capital.

When confronted with this fact, the assessee filed copy of a rectification partnership dated. The AO did not accept the veracity of the said submission of the assessee on the ground that it was an afterthought and there was no mention of the earlier deed in the rectified deed; and rejected the revised partnership deed and disallowed the claim of partnership salary as well as interest on partner’s capital.

Before the ITAT, the case of the assessee was that disallowance was made due to erroneous consideration of the original partnership deed ignoring the rectified partnership deed despite Income Tax Department had issued PAN for the assesse/Firm on the basis of the rectification deed.

According to the assessee, the initial partnership deed was made in order to open the bank account and was later rectified.

As per the rectification deed specific provisions existed for the firm to give remuneration/salary as well as interest on the capital contribution of the partners.

The Tribunal observed from the copy of PAN that the date endorsed on it was that of rectification deed and not the original deed.

On the contrary the Revenue contended the second deed was an afterthought and stated that the dates of the stamp-paper of the second deed shows contradictions.

The Tribunal scrutinise both the deeds and opined that there was no material contradiction to doubt the veracity of the contention of assesse about two deeds.

The Tribunal found that the first deed [i.e, executed on 01.02.2013] the stamp-paper was dated 29.02.2013 and the reverse page of ibid stamp-paper showed that the stamp-paper had been issued to the assesse-Firm on 31.01.2013 ; whereas with respect to the second partnership deed executed on 13.05.2013, the stamp-paper was dated 22.01.2013 and the reverse page of this deed showed that the stamp-vendor issued to partner of assesse-Firm the stamp-paper on 31.01.2013.

The Tribunal opined that the assesse-Firm/partner had themselves got issued stamp-paper in the month of January 2013, and prepared first deed on 01 February 2013 and rectified deed was executed on 13 May 2013, which was the basis for registration of PAN wherein date endorsed is 13.05.2013.

The Tribunal stated that the action of the AO CIT(A) on this issue was not correct and opined that the AO ought to have considered the rectification deed for adjudicating the claim of the assessee in respect of expenditure regarding salary as well as interest on capital.

The Tribunal set aside the issue back to the file of the AO for the limited purpose of verification of rectification deed dated with regard to claim of expenditure i.e. salary and interest) and directed that on verification, if the claim made by assesse/firm is found to be correct, then assessee be allowed the claim in respect of expenditure regarding salary and interest on partner’s capital.

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