I.T.O., WARD 3(3), AURANGABAD vs. RAM BRIKSH SINGH, AURANGABAD

The solitary grievance raised by the Revenue is that ld. CIT(A) has erred in directing the Assessing Officer (in short ld. 'AO') to include interest earned by the partnership firm for making remuneration u/s 40b of the Income Tax Act, 1961 (in short the 'Act').

This appeal was earlier dismissed on the ground that tax effect involved in the appeal is less than the monetary limit. However, later on Revenue filed a Miscellaneous Application pleading therein that this action u/s 154 of the Act was taken on account of audit objection and therefore, circular of tax effect is not applicable on the present case. This application of the Revenue was allowed by the Tribunal vide its order dated 23.05.2023 passed on MA No. 4/PAT/2019. The appeal has been restored to its original number.

With the assistance of ld. representatives, we have gone through the record carefully. It emerges out that assessee has filed its return of income on 03.10.2010. An assessment order was passed on 01.03.2013 determining the total taxable income at Rs. 3,23,300/-. Thereafter, ld. AO took action u/s 154 of the Act. The AO was of the view that a deduction was allowed to the assessee amounting to Rs. 5,84,823/- on account of remuneration paid to the partners. He further observed the remuneration which ought to have been allowed to the partner was of Rs. 4,30,561/- and an error has crept in the proceeding whereby excess deduction has been granted to the assessee. The AO was of the view that interest earned by the partnership firm would not be eligible upon which the remuneration u/s 40b of the Act could be calculated. Dissatisfied with the action of the AO, the assessee carried the matter in appeal before ld. CIT(A). The ld. CIT(A) has deleted the disallowance made by the AO and held that assessing officer should recompute remuneration including interest income on bank and post deposits made by the firm.

On due consideration of the above facts, we are of the view that the power of rectification u/s 154 of the Act can be exercised only when the mistake which is sought to be rectified is an obvious and patent mistake which is apparent from the record, and not a mistake which requires to be established by arguments and a long-drawn process of reasoning on points on which there may conceivably be two opinions. It is pertinent to note that the issue whether interest earned by the partnership firm on deposits with the bank or postal authority would fall in the category upon which remuneration to the partners could be granted or not is such an item which require lots of debates. During the course of hearing, ld. D/R pointed out that Page 2 of 3