ANIRUDH A DAMANI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI

The present appeal preferred by the Assessee is directed against the order, dated 03/10/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 25/09/2021, passed under Section 143(3) read with Section 144B of the Act for the Assessment Year 2019-2020. 2. The Assessee has raised following grounds of appeal :

The learned Commissioner of Appeals erred in law by confirming that remuneration paid to working partner is taxable under the head “Income from Salary.

The learned Commissioner of Appeals erred in confirming the addition of Rs. 38,40,000/- without appreciating proviso to section 28(v) of the Act.

Your appellant craves leave to add to, alter, amend or vary all or any of the aforesaid ground(s) of appeal as they/their representative may deem it.”

The relevant facts in brief are that the assessment under Section 143(3) read with Section 144B of the Act was framed on the Assessee whereby the income of the Assessee was assessed at INR.45,15,587/- after making an addition of INR.38,40,000/- under the head salary. The appeal preferred by the Assessee challenging the aforesaid addition was dismissed by the CIT(A) vide order dated 03/10/2024. As a result, the Assessee has preferred the present appeal before the Tribunal on the ground reproduced in Paragraph 2 above.

We have heard both the sides and have perused the material on record

The facts as emerging from record are that the Assessee filed return Assessment Year 2019-2020

During the proceedings before the Tribunal, the Learned Authorized Representative for the Assessee relied upon the copy of submission made before CIT(A) and placed on record return of income tax return for the Assessment Year 2019-2020 filed by the Assessee and the Firm. Per contra the Learned Departmental Representative relied upon the order passed by the Assessing Officer and CIT(A).

On perusal of the material on record, we find that for the Assessment Year 2019-2020, the Firm had claimed deduction only to the extent of INR.1,50,000/- paid as remuneration to the working partners. Therefore, the averment made on behalf of the Assessee that no deduction has been allowed to the Firm for INR.38,40,000/- under Section 40(b) of the Act is factually correct. We further note that Proviso to Section 28(v) of the Act includes within its ambit salary as well as remuneration received by a partner from the firm. While Section 28(v) of the Act provides that income in the nature of salary/remuneration due to or received by a partner of a firm from such firm shall be chargeable to tax under the head ‘Profit & Gains of Business or Profession’. The Proviso to the said section excludes from the ambit of the aforesaid income, the salary/remuneration (or part thereof) that has not been allowed as deduction under Section 40(b) of the Act to the aforesaid firm. Accordingly, in the facts of the present case amount of Rs.38,40,000/- would fall within the ambit of Proviso to Section 28(v) of the Act and shall not be included in income chargeable to tax in terms of Section 28(v) of the Act. Thus, accepting the contention of the Assessee, we hold that Assessing Officer erred in making addition of INR.38,40,000/- in the hands of Assessment Year 2019-2020

In view of the above, order passed by the Assessing Officer and the CIT(A) is overturned. Ground No.1 to 4 raised by the Assessee are allowed.

In result, the appeal preferred by the Assessee is allowed.