JUPITER INTERNATIONAL (SALES),DARBHANGA vs. D CIT, CIRCLE-3, DARBHANGA

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ITA 116/PAT/2019Status: DisposedITAT Patna19 March 2024AY 2014-153 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the partnership deed clearly provided for the remuneration to partners and the mechanism for its quantification. Therefore, the disallowance made by the AO and upheld by the CIT(A) was incorrect.

What were the facts?

The assessee, a partnership firm, claimed remuneration paid to its working partners. The Assessing Officer disallowed this remuneration, stating it was not quantified as per CBDT Circular No. 739. The CIT(A) upheld this disallowance.

What were the issues?

Whether the remuneration paid to working partners is allowable when the partnership deed provides a mechanism for its quantification, despite a CBDT circular suggesting otherwise in certain scenarios.

Which sections of the Income-tax Act were involved?

Section 40(b)(iv)

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Income Tax Appellate Tribunal, “PATNA” BENCH: PATNA

Before: Shri Sanjay Garg & Shri Rajesh Kumar]

Per Rajesh Kumar, AM:

1.

This is the appeal preferred by the assessee against the order of the Ld. Ld. Commissioner of Income Tax (Appeal)-Jamshedpur (hereinafter referred to as the Ld. CIT(A)”] dated 11.02.2019 for the AY 2014-15.

2.

The only effective issue raised by the assessee is against the order of Ld. CIT(A) upholding the order of AO disallowing the remuneration paid to working partners amounting to Rs. 52,92,216/-.

Assessment Year: 2014-15 Jupiter International (Sales) 3. Facts in brief are that the assessee is a partnership concern engaged in the business of civil constructors. The assessee filed return of income on 30.09.2014 declaring total income of Rs. 78,09,070/-. The case of the assessee was selected through CASS under limited category of scrutiny to examine high interest expenditure vis a vis turnover reported in service tax return compared to ITR and mismatch in amount paid to related persons u/s 40A(2)(b) of the Act. The AO called upon the assessee to furnish the relevant information/details in support of its claim which the assessee filed during the proceedings from time to time . The AO, on the basis of information submitted by the assessee, observed that the assessee has amended the partnership dated 8.7.2008 which was effective for the instant previous year also and calculated remuneration accordingly. According to AO, the remuneration is in contravention of the CBDT Circular No. 739 dated 25.03.1996. Accordingly the assessee was asked to explain why remuneration (Rs. 52,92,216/-) should not be disallowed on the ground that same is not quantified. The said show cause was duly replied by the assessee. The AO finally rejecting the reply of the assessee disallowed the remuneration to partners by adding the same to the income of the assessee in the assessment framed u/s 143(3) of the Act dated 23.12.2016.

4.

In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee.

5.

After hearing the rival contentions and perusing the material on record, and the partnership dated 8.7.2008 clause (vii) particularly which provides for remuneration to partners and the manner how that to be quantified. We note that the remuneration paid to working partners u/s 40(b)(iv) of the Act. In our opinion, the assessee has rightly claimed the remuneration as authorized vide deed of partnership dated 8.7.2008 and therefore we do not find any infirmity in the claim of the assessee. We also observe that the case of the assessee finds support from the decision of Hon’ble Himachal Pradesh High Court in the case of Durga Das Devki Nandan vs. ITO in [2012] 342 ITR 17 (HP). We also note that the circular referred by the authorities

Assessment Year: 2014-15 Jupiter International (Sales) below in CBDT Circular no. 739 dated 25.03.1996 is not applicable as the said circular states that where deed either does not specify the amount of remuneration payable to each individual working partner or does not lay down the manner of quantifying such remuneration, then no remuneration shall not be allowed which is not the case at hand. While in the present case the assessee has fully provided the mechanism for quantification for salary to partners . Considering the facts, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance by allowing remuneration to the partners as claimed by the assessee firm.

6.

In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 19th March, 2024

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