M/S. D.S ENTERPRISES ,MUMBAI vs. DCIT, CIRCLE 22(1), MUMBAI
IN THE INCOME-TAX APPELLATE TRIBUNAL “D” BENCH,
MUMBAI
BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER
&
SMT.RENU JAUHRI, ACCOUNTANT MEMBER
7
(A.Y.2023-24)
M/s. D. S. Enterprises
B-2, Gr. Floor, Inez Tower,
Mori Road, Mahim,
Mumbai-400016. Vs.
DCIT Circle 22(1)
Room No. 322, 3rd Floor,
Piramal Chamber,
Lalbaug,
Mumbai-400012. थायी लेखा सं./जीआइआर सं./PAN/GIR No:AAMFD2838H
Appellant
..
Respondent
Appellant by :
Ms Dinkle Hariya & Ms Sruti
Kalyanikar
Respondent by :
Shri Annaravan Kosuri- Sr. AR
Date of Hearing
18.11.2025
Date of Pronouncement
21.11.2025
आदेश / O R D E R
PER RENU JAUHRI [A.M.] :-
This appeal is filed by the assessee against the order of the National
Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”]
dated 25.06.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2023-24. 2. The grounds of appeal are as follows:
“1. THE ORDER IS BAD IN LAW, ILLEGAL AND WITHOUT
JURI ICTION
1 In the facts and the circumstances of the case, and in law, the appellate order u/s. 250 of the Income tax Act, 1961 ['the Act'] framed and passed on P a g e | 2 ITA NO. 4778/mum/2025. 25.06.2025 by the Commissioner of Income tax (Appeals), National Faceless Appeal Centre ['Ld. CIT (A)'] is bad in law, illegal and without juri iction, as the same is framed in breach of the statutory provisions of the Act and the scheme and as otherwise also is not in accordance with the law. 1.2 Without prejudice to the generality of the above, the appellate order so passed is bad in law, illegal and void as the same is arbitrary and perverse. 2. VIOLATION OF PRINCIPLES OF NATURAL JUSTICE 2.1 In the facts and the circumstances of the case, and in law, the appellate order so framed in bad in law and illegal, as the same is framed in breach of the principles of Natural Justice. 2.2 Without prejudice to the generality of the above ground, in the facts and the circumstances of the case, the Ld. CIT (A) erred in –“ (i) not granting proper, sufficient, reasonable and fair opportunity of being heard to the Appellant while passing the appellate order; and (ii) not granting an opportunity of personal hearing. WITHOUT PREJUDICE TO THE ABOVE 3. DISALLOWANCE OF THE AMOUNT OF RS. 18,00,000/- CLAIMED AS REMUNERATION PAID TO PARTNERS 3.1 The Ld. CIT (A) erred in confirming the action of the A.O. in disallowing the claim of remuneration of Rs. 18,00,000/- paid to the partners in accordance with the provisions of section 40(b) of the Act and taxing this amount under the head 'Income from Other Sources'. 3.2 While doing so, the CIT (A) erred in: (i) Basing his action on surmises, suspicion and conjecture; (ii) Taking into account irrelevant and extraneous considerations; and (iii) Ignoring relevant material and considerations as submitted by the Appellant. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 3.4 Without prejudice to the above, assuming - but not admitting - that some disallowance was called for, the Ld. CIT (A) failed to appreciate that the computation of the disallowance made by the A.O. was arbitrary, excessive and not in accordance with the law. 4. LIBERTY The Appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.”
Although multiple grounds have been raised by the assessee, sole substantive issue relates to disallowance of remuneration of Rs. 18,00,000/- paid to the partners u/s. 40(b) of the Act.
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ITA NO. 4778/mum/2025. 3.2 Brief facts of the case are that the assessee, a partnership firm, filed return for A.Y. 2023-24 declaring total income of Rs. 92,58,810/-. Case was selected for scrutiny during the course of which ld. AO noted that Rs.
18,00,000/- had been paid by way of salary to its two partners, viz. Jay
Jaywant Shinde (Rs. 6,00,000/-) and Anoop Khurana (Rs. 12,00,000/-).
Ld. AO observed that salary had been paid without making any changes in the partnership deed and, therefore, disallowed the same while finalizing assessment u/s. 143(3) r.w.s 144B of the Act.
3.3 Aggrieved, the assessee preferred an appeal before ld. CIT(A). Ld. CIT(A) noted that the partnership deed was registered on 26.06.2019 and since then the remuneration has been paid as under:
A.Y.
2020-21
2021-22
2022-23
2023-24
Remuneration
No remuneration
4,00,000/-
4,50,000/-
18,00,000/-
Net Profit
4,213,888.32
60,92,709/-
86,82,978/-
92,55,585/-
Noting the steep rise in the salary paid during the year, Ld. CIT(A) dismissed the assessee’s appeal on this issue with the following observations:
“It is seen from the partnership deed that all partners have agreed to actively devote their time and attention to the business of partnership. It further outlines that in consideration of parties here to mentioned above actively devoted their time and attention to the business of partnership, they shall be entitled to draw remuneration. Deviating from the partnership deed which was registered on 26.06.2019, the remuneration has been paid only to two partners whereas, the partnership deed states that all the partners have agreed to devote their time and attention and accordingly they shall be entitled to the remuneration.
The decision of the Hon'ble Himachal Pradesh High Court in Durga Das Devki
Nandan vs ITO (2011) is not applicable to the facts of appellant case as in the said case salary was paid at Rs. 2,500/- per month as per the clause 6 to each of the working partner and the sole reason was AO's reliance on circular No. 739 of CBDT.
In the instant case, the AO made disallowance on the ground that changes were made in partnership remuneration without any changes in partnership deed.
Further, Hon'ble High Court noted that its book of accounts clearly indicates that the partners have agreed to pay remuneration at Rs. 2,500/- per month. In this case however the ledgers clearly indicate no pattern while making actual payments are being made. Further, in the above quoted case as seen from the order, the P a g e | 4
ITA NO. 4778/mum/2025. remuneration was paid to each working partners as per clause 6 whereas in the instant case in spite of clearly being mentioned in clause 8 of the partnership deed, the remuneration was paid only to the two partners. The partnership deed states that all the partners have agreed to devote their time and attention and accordingly they shall be entitled to the remuneration.
Therefore, in view of the facts of this case, the following is observed:
i). The actual monthly payments to partners during the year are irregular and many times beyond the quantum actually due. The amount paid and the amount claimed to be remuneration through journal entry does not indicate any pattern as seen from the ledger of partners in the book of D. S. Enterprises.
ii). As per partnership deed all the partners agreed to actively devote their time.
However, in reality only two partners have been given remuneration. Therefore, there is clearly an element of discretion beyond partnership deed.
In view of the above discussion this ground of appeal the addition of Rs.
18,00,000/-on account of partners remuneration is hereby sustained on the ground that it has only traversed beyond the partnership deed but also followed discretionary method of granting monthly remuneration. This Ground of appeal is accordingly DISMISSED.”
4 Further aggrieved, the assessee preferred an appeal before the Tribunal. 4. Before us, ld. AR has submitted a copy of the registered partnership deed dated 26.06.2019 to demonstrate that the remuneration has been paid as per the remuneration clause therein and in accordance with the provision of section 40(b) of the Act. He has further submitted that in the earlier years, the partners had decided to take no remuneration/lesser remuneration voluntarily. Even during the year under consideration only two of the three partners have been given remuneration. The remuneration has been mutually decided by the partners keeping in view the interest of the business and within the permissible limits prescribed u/s. 40(b) of the Act. It has been further argued that provisions of section 40(b) have to be construed strictly and no additional condition can be read into it. On this point, Ld. AR has placed reliance on several judgments in support of his contention, some of which are as under:
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ITA NO. 4778/mum/2025. i.
CIT V Anil Hardware Store [(2010) 323 ITR 368 (HP)] wherein
Hon’ble High Court had held that in a given year, the partners may decide to invest certain amounts of the profits into other venture and receive less remuneration than that which is permissible under the partnership deed, but there is nothing which debars them from claiming the maximum amount of remuneration payable in terms of the partnership deed. The method of remuneration having been laid down, the assessee-firm is entitled to deduct the remuneration paid to the partners under section 40(b) (v) of the Income-tax Act.”
ii.
CIT V Great City Manufacturing. Co. [(2013) 351 ITR 156 (All)]
wherein the Hon’ble High Court has held as under:
“............The Parliament in its wi om had fixed a limit on allowing the remuneration to the working partners and if the remuneration are within the ceiling limit provided then recourse to provision of Section 40A(2)(a) of the Act cannot be taken. The assessing officer is only required to see as to whether the partners are the working partners mentioned in the partnership deed, the terms and conditions of the partnership deed provide for payment of remuneration to the working partners and whether the remuneration provided is within the limits prescribed under Section 40(b)(v) or not. If all the aforementioned conditions are fulfilled then he cannot disallow any part of the remuneration on the ground that it is excessive. Since in the present case, all the conditions required has been fulfilled the question of disallowance does not arise”
iii.
Unitec Marketing Services V. ACIT [(2019) 175 ITD 90 (Mumbai
Trib.)] wherein the co-ordinate bench as held as under:
“......After taking cumulative effect of the facts of the present case, relevant clause of partnership deed and judgments cited by both the parties, we are of the considered view that a reading of section 40(b) (v) clearly shows that amount of remuneration which does not exceed the amount specified in the Act is deductible. The Board has provided that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of qualifying such remuneration. The circular has to be read along with section 40(b)(v) and has to be made subject to section 40(b)(v). This section does not lay down any condition of fixing the remuneration or the method of P a g e | 6
ITA NO. 4778/mum/2025. remuneration in the partnership deed. All that the section provides is that in case the payment of remuneration made to any working partner is in accordance with the terms of the partnership deed and does not exceed the aggregate amount as laid down in the subsequent portion of the section the deduction is permissible.”
Lastly, ld. AR has pointed out that in the subsequent years, remuneration has been paid to the partners as under, which has been accepted by the department and no such disallowance has been made:
D.S. Enterprises
Remuneration [Amount in Rs.]
A.Y.
Net Profit
Anoop
Khurana
Jay
Jaywant
Shinde
Malvindar
Khurana
Total
2023-24
92,55,586
12,00,000
6,00,000
18,00,000-
2024-25
99,58,492
12,00,000
6,00,000
-
18,00,000
2025-26
1,30,54,049
12,00,000
6,00,000
-
18,00,000
Ld. DR on the other hand, has , strongly relied on the orders of the lower authorities. He has argued that no reason for sudden rise in the remuneration of parties has been given by the assessee. Further, the payment of remuneration during the year is irregular and in the case of one partner, Shri. Anoop Khurana payment of Rs. 2,00,000/- is made in June, 2022 and Rs. 5,00,000/- is paid on 22.07.2022 instead of regular payment of Rs. 1,00,000/- per month and thus in some months the payment exceeds the quantum actually due. Moreover, no remuneration has been paid to the third partner, even though as per the partnership deed, all partners had agreed to actively devote their time to the business. 6. We have heard the rival submissions. Admittedly, the payment of remuneration to the parties is within the prescribed limits u/s. 40(b) of the Act. Simply because in earlier years, the partners had drawn no or less remuneration, the remuneration during the year under consideration cannot be disallowed. Further, we note from the ledger account of P a g e | 7 ITA NO. 4778/mum/2025. remuneration of partners that the same has been credited every month @Rs. 1,00,000/- and Rs. 50,000/- respectively in their accounts. It is the withdrawal of remuneration, which is irregular as the same is as per their individual requirements and no adverse view can be taken for the same. In view of these facts considered in the light of relevant judicial pronouncements cited hereinbefore, it is clear that no disallowance can be made if the remuneration paid is as per the partnership deed and does not exceed the prescribed limit u/s. 40(b) of the Act. Accordingly, we hold that the remuneration paid by the assessee to its partners is in accordance with the partnership deed and within the limits prescribed u/s. 40(b) of the Act and, therefore, no disallowance out of the same was warranted. Hence disallowance of Rs. 18,00,000/- is hereby deleted. 7. In the result, appeal of the assessee is allowed. Order Pronounced in Open Court on 21.11.2025 (BEENA PILLAI) (RENU JAUHRI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)
Place: Mumbai
Date 21.11.2025
Anandi.Nambi/STENO
आदेश की ितिलिप अेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. थ / The Respondent.
3. आयकर आयु / CIT
P a g e | 8
ITA NO. 4778/mum/2025. 4. िवभागीय
ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT,
Mumbai
5. गाड फाईल / Guard file.
स ािपत
ित ////
आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.