M/S SHREE SHAKUNTALA INDUSTRIES,ALWAR vs. ITO, WARD-1(1), ALWAR, ALWAR

ITA 1396/JPR/2025Status: DisposedITAT Jaipur16 October 2026AY 2002-038 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that for the purposes of computing book profits for calculating remuneration allowable to partners under Section 40(b) of the Income Tax Act, 1961, the profits as reflected in the profit and loss account of the partnership firm (commercial profits) are to be considered, not the business profits computed as per the Act. The Tribunal noted that it is a judicially settled proposition that book profits are derived from the net profit shown in the P&L account. The interest earned on FDRs and KVPs, having been included in the profit and loss account of the partnership firm, should not be excluded for determining the book profits on which remuneration is computed. The Tribunal found that the Ld. DR was unable to present any contrary judicial decision. Therefore, the orders of the authorities below, which excluded the interest income, were held to be not in accordance with law. The disallowance of Rs. 1,93,183/- made by the authorities below as a consequence of excluding the interest income from book profits was directed to be deleted. The Tribunal expressly left undecided the validity of the notice issued under Section 148 and the consequent order passed under Section 147, as it was not addressed in the final decision.

What were the facts?

The assessee, M/s Shree Shakuntala Industries, a partnership firm, filed an appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated September 10, 2025, passed under Section 250 of the Income Tax Act, 1961. The dispute pertains to the assessment year(s) not explicitly stated but implied to be the year for which remuneration was claimed. The assessee had earned interest on FDRs and KVPs amounting to Rs. 8,10,553/-. The Assessing Officer (AO) treated this interest income as 'income from other sources' and excluded it from book profits for calculating remuneration to partners under Section 40(b) of the Act. This resulted in a disallowance of Rs. 1,93,183/- in the partner's remuneration. The CIT(A) upheld the AO's order. The total amount in dispute related to the disallowance of remuneration is Rs. 1,93,183/-.

What were the issues?

1. Whether the notice issued under Section 148 and the consequent order passed under Section 147 of the Income Tax Act, 1961, were valid? 2. Whether the interest/accrued interest on FDR amounting to Rs. 4,82,953/- (as stated in ground 2, though the total interest income was Rs. 8,10,553/-) should be treated as income from other sources, thereby excluding it from book profits for the purpose of calculating allowable remuneration under Section 40(b) of the Act, or if it should be considered part of business income for such calculation? Assessee's Contentions: - For calculating remuneration under Section 40(b), book profit means net profit as shown in the profit and loss account, not business profits computed under the Act. Explanation 3 to Section 40 defines book profit based on the net profit in the P&L account. (Relied on: ACIT Vs. Seth Brothers, Deepa Agro Agencies Vs. ITO, Feelings Vs. PCIT, Suresh A. Shroff & Co. Vs. JCIT). - Interest income, being part of the net profit in the P&L account, should be included in book profits for remuneration calculation. - The CIT(A) summarily rejected these submissions without addressing the applicability of cited decisions. Revenue's Contentions: - The Ld. DR supported the order of the Ld. CIT(A). No specific arguments or reliance on authorities were recorded for the revenue.

Which sections of the Income-tax Act were involved?

Section 40(b),Section 250,Section 148,Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, “SMC” BENCH, JAIPUR

Hearing: 23.07.2026Pronounced: 16.10.2026

Per Annapurna Gupta, AM:- The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi

P a g e | 2 M/s Shree Shakuntala Industries (hereinafter referred to as “Ld. CIT(A)”), dated 10.09.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2.

The grounds raised by the assessee read as under:-

1.

The Ld. CIT(A), NFAC has erred on facts and in law in upholding the validity of notice issued u/s 148 of the Act and the consequent order passed u/s 147 of the Act.

2.

The Ld. CIT(A), NFAC has erred on facts and in law in upholding the finding of AO in

The order continues below.

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