FIVE STAR AUDIO,CHENNAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CHENNAI

ITA 4761/CHNY/2026Status: DisposedITAT Chennai05 October 2026AY 2018-201910 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that a valid revised return filed under Section 139(5) substitutes the original return for assessment purposes. The revised return, filed before the Section 143(1) processing, meant the computation of allowable remuneration should be based on the enhanced book profit. The Tribunal noted that the CIT(A) himself accepted that on the revised book profit, the remuneration of Rs.15,80,000/- was within the permissible limit of Rs.29,56,010/-. Therefore, the disallowance of Rs.5,83,984/- had no surviving basis. The Tribunal further held that the issue of authorization under the partnership deed, requiring examination of the instrument, could not be a basis for sustaining the CPC's adjustment, which was based on an arithmetical error from the original return. The non-production of the deed at a particular stage, especially when the assessee subsequently furnished it and there were no adverse findings on the deed's terms, could not automatically invalidate the claim. The Tribunal found the CIT(A)'s conclusion internally inconsistent and deleted the disallowance.

What were the facts?

The assessee, M/s. Five Star Audio, a partnership firm, filed its return for AY 2018-19 declaring a total income of Rs.5,14,000/- and claiming partners' remuneration of Rs.15,80,000/-. The CPC processed the return under Section 143(1) and disallowed Rs.5,83,984/- as excess remuneration based on the original book profit. The assessee later discovered an omission of Rs.36,00,000/- and filed a revised return, increasing the book profit to Rs.51,10,016/-. Based on this revised profit, the permissible remuneration was Rs.29,56,010/-, making the actual remuneration of Rs.15,80,000/- within the limit. The CPC, however, issued an intimation retaining the disallowance. The CIT(A) confirmed the disallowance, not on merits, but due to the non-production of the partnership deed.

What were the issues?

1. Whether the disallowance of partners' remuneration of Rs.5,83,984/- made by the CPC under Section 143(1) is sustainable, considering the assessee filed a revised return before processing? Assessee's Contention: The assessee argued that the CPC erred by processing the original return and failing to give effect to the valid revised return filed under Section 139(5). The revised return substituted the original, and based on the increased book profit, the remuneration was within the statutory limit. The assessee also contended that the CPC, under Section 143(1), cannot go beyond prima-facie adjustments and examine the partnership deed, and that the CIT(A) should have provided an opportunity to produce the deed. Revenue's Contention: The Revenue supported the CIT(A)'s order, arguing that deduction of remuneration is subject to conditions under Section 40(b), including authorization by the partnership deed. They relied on the principle in Rashik Lal & Co. v. CIT and CBDT Circular No. 739, stating that the terms of the partnership deed must authorize the payment. The Revenue contended that without the deed, the assessee failed to establish statutory conditions.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 40(b),Section 40(b)(v),Section 139(5),Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: GAGAN GOYAL & SHRI MANU KUMAR GIRI

Hearing: 21.09.2026

PER MANU KUMAR GIRI, JM:

The captioned appeal has been filed by the assessee against the order dated 13.07.2026 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], whereby the Ld. CIT(A) confirmed the intimation issued by the Central Processing Centre u/s.143(1) of the Five Star Audio Vs ACIT NCC 10(1) Income Tax Act, 1961 (“the Act”)

The order continues below.

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