ORDER
1. This order shall dispose of the above appeals which involve common issues. Two issues have been raised which are exactly common.
2. The first issue is with relation to liability of remuneration paid to working partners in their capacity as Karta of HUF and not in their individual capacity.
3. The assessee in all these cases is M/s National Automobiles, Barmer, who is doing the business of trading in petroleum items. The assessee-firm came into existence in the year 1995 by the execution of partnership deed till asst. yr. 1992-93, whereafter, ultimately, the constitution of the firm changed and was constituted by three partners, namely, Shri Prakash Chand, Shri Babu Lal and Shri Hasti Mal. Due to the changes introduced by the Finance Act, 1992, with regard to assessment of the firms and amendments made in the provisions of Section 40(b) of the IT Act, 1961, a new deed of partnership was executed on 3rd April, 1992, and in this instrument of partnership, the following clause, with regard to payment of salary to the working partners was introduced by Clause {5} which reads as under:
“(5) That all the parties have agreed to keep themselves actively engaged in conducting the affairs of the business of the partnership firm as working partners. It is hereby agreed that in consideration of the parties working in the partnership they shall be entitled to remuneration. The remuneration payable to the abovesaid working partners shall be computed in the manner laid down in Expln. 3 to Section 40(b) of the IT Act, 1961, or any other applicable provision as may be in force in income-tax assessment of the partnership from for the relevant accounting year. Such amount shall be distributed between the said working partners in the following proportion :
1. Shri Prakash Chand 1/3
2. Shri Babu Lal 1/3
3. Shri Hasti Mal 1/3
Such remuneration shall be calculated at the close of the accounting year and shall be credited to the account of each working partner. The working partners shall be entitled to withdraw out of remuneration for their personal means from time to time. The partner shall be entitled to increase or reduce the above, remuneration as may be agreed up on by the partners from time to time. They may also revise the mode of calculating the above said remuneration.”
4. Such salary payments were allowed by the ITO as per above clause of the agreement for asst. yrs. 1993-94 to 1999-2000. But, subsequently, as a consequence of survey carried on 27th March, 1996, under Section 133A of the Act, the assessment for asst. yr. 1996-97 was done under Section 143(3) and in this order also, the AO, vide order dt. 3rd April, 1992, allowed salary to all the three working partners. But, thereafter, the AO issued notice under Section 148 of the Act for all the years, i.e., from 1993-94 to 1999-2000. The AO was of the opinion that the salary paid to partners of the firm in the capacity of Karta of their HUF was not allowable as the salary paid to individual is only allowable. The AO passed orders for all these years and made addition or the salaries paid to partners of HUF as Karta of HUF.
5. In appeal, the CIT(A), however, allowed the claim of the assessee. Now, the Department is aggrieved.
6. At the very outset, it was brought to our notice by the learned Authorised Representative, Shri Rajendra Jain, that the issue is squarely covered by various decisions of the Tribunal including the decisions of this Bench in the cases of:
(1) Shri Kishan Chand Harish Chand v. Asstt. CIT (Tribunal, Jodhpur Bench, in ITA No. 255/Jd/1996, dt. 16th Sept., 1996.
(2) ITO, Sriganganagar v. Chunnilal Prem Prakash (Jodhpur Bench) in ITA No. 724/Jp/1997, dt. 6th Oct., 2003.
(3) Palaram & Co. Bhatinda v. ITO (2003) 22 IT Rep 211 (Asr).
(4) Smruti Trading Co. v. ITO (2001) 70 TTJ (Mumbai) 114.
(5) Vanson Kids Stuff v. Asstt. CIT (2003) 79 TTJ (Del) 155 : (2002) 83 ITD 268 (Del).
6. The learned Departmental Representative has also fairly conceded that the issue is squarely covered in favour of the assessee by the decisions of Tribunal as mentioned above.
7. We have heard the rival submissions and have perused the evidence of record.
8. According to these Tribunal orders it has been held that “when one of the partners was a working-partner within the meaning of Expln. 4 to Section 40(b), such remuneration paid to him is allowable.”
9. As a result, we hold that the issue stands squarely covered even by the decision of this Bench. So, respectfully following the above decisions, we dismiss the ground of appeal.
10. The next issue pertains to deletion of addition made by the AO on account of shortage in diesel. This ground is also common in all these years.
11. The shortage claimed by the assessee for different accounts is as under :
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Asst. yr. Total sales in Total shortage % of Addition by
Ltrs. in Ltrs shortage AO (Rs.)
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1993-94 10,46,888 6,312 0.60 24,924
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1994-95 10,69,310 6,890 0.64 35,304
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1995-96 10,18,650 6,100 0.60 29,991
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1997-98 20,47,532 12,368 0.60 70,841
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1998-99 18,36,928 9,172 0.50 53,601
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1999-2000 38,08,528 14,971 0.40 75,125
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12. This is evident from the above chart that the claim of shortages ranges from 0.40 per cent to 0.60 per cent which is less than 1 per cent. When the shortage is less 1% in such cases, it has been held consistently by various decisions of this Bench that this shortage can be treated as negligible and hence no addition can be made on this count.
13. The following decisions relied by the learned Authorised Representative are placed on record ;
In BRD Service Station, Jodhpur v. ITO, ITA No. 1956/Jp/1994 decided on 25th Oct., 2002, it has been held as under :
“We have heard the rival parties. We find that this is the first year of business and the appellant has shown shortage in petrol account of 0.65 per cent. The AO had compared with the subsequent year 1993-94 because this is the first year of business. However, the AO and the CIT{A) had failed to consider the fact that the shortage to the extent of 0.75 per cent had been prescribed by the Ministry of Petroleum and Chemicals and shortage shown by appellant at 0.67 per cent is below the prescribed limit. In this connection, it is also pertinent to refer to the case of Marwar Petrol Services v. ITO, Ward-II, Jodhpur, in ITA No. 2442/Jp/1994 for asst. yr. 1991-92 through order dt, 24th April, 2000. At p. 4, para 8, it was held by the Bench of Tribunal that shortage to the extent of 1 per cent is normal shortage on the basis of letter dt. 26th June, 1996, issued from the office of the Indian Oil Corporation which has confirmed that 1 per cent handling loss should be allowed to the dealers on total receipts. Therefore, the addition made by the AO and sustained by the CIT(A) is hereby deleted.”
In Marwar Petrol Service, Jodhpur v. ITO (ITA No. 2442/Ju/1994, decided on 24th April, 2002 [reported at (2000) 69 TTJ(Jd) 772-Ed.], it has been held as under:
Ground Nos. 2 and 3 relate to confirmation of addition of Rs. 8,000 and Rs. 5,390 in diesel account and petrol expenditure, respectively, on account of alleged excessive shortage. The assessee has maintained proper books of account. The entire purchases are supported by vouchers. The complete quantitative details have been maintained. The office of Indian Oil Corporation vide their letter dt. 26th June, 1996, have confirmed that 1 per cent handling loss should be allowed to the dealers on total receipts. Thus, the oil. company regards 1 per cent shortage as normal shortage. Shortage claimed by the assessee in diesel and petrol account in the year under consideration is less than 1 per cent. The books of account have been audited. No trading additions have been made in the past years. On a careful consideration of the entire relevant facts, we are of the view that there is no justification for sustaining any part of the addition in the declared trading results of diesel account and petrol account. The AO is, therefore, directed to delete the additions of the account and petrol account, respectively.”
14. The learned Departmental Representative has fairly conceded this issue also.
15. So, respectfully following the Tribunal order, we dismiss this ground of appeal for all these years.
16. In the result, all the appeals of the Department are dismissed.