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

1. 1. 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.

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 2 Assessment Year 2019-2020 of income for the Assessment Year 2019-2020 on 31/10/2019 declaring total income of INR.6,75,590/- which was selected for regular scrutiny. During the assessment proceeding the Assessing Officer noted that the Assessee was a working partner in M/s. Artha Signularity Venture Partners LLP, a limited liability partnership [hereinafter referred to as ‘the Firm’] and had received remuneration of INR.39,90,000/-. As per Form 26AS, the Firm had deducted tax at source under Section 192A of the Act in respect of aforesaid remuneration whereas in the return of income the Assessee had not disclosed any salary income. Accordingly, the Assessee was asked to explain the aforesaid discrepancy. In response, the Assessee filed reply, letter dated 28/08/2021, wherein it was contended that the Assessee was a partner in the Firm and was entitled to draw remuneration as per the terms of the Limited Liability Partnership Deed. The Firm had incorrectly deducted tax at source under Section 192A of the Act in respect of remuneration of INR.39,90,000/- paid to the Assessee. In support of the aforesaid contention, the Assessee furnished computation of income and Income Tax Return of the Firm for the Assessment Year 2019-2020. Reliance was also placed on behalf of the Assessee on the provision contained in Section 28(v) of the Act to contend that any salary/remuneration (or any part thereof) received by a partner of a firm from such firm shall not be taxed under the head ‘Profit & Gains Business or Profession’ to the extent the same has not been allowed as deduction to such Firm under Section 40(b) of the Act. It was submitted that while computing income of the Firm, INR.38,40,000/- (INR,39,90,000 – INR.1,50,000/-) was disallowed and therefore, no addition to the extent of the aforesaid amount could be made in the hands of the Assessee. However, the Assessing Officer was not convinced and submitted that the Assessee had failed to furnish any justification and documentary evidence. Observing as aforesaid, the Assessing Officer made addition of INR.38,40,000/- in the hands of 3 Assessment Year 2019-2020 the Assessee. During the appellate proceedings before the CIT(A), the Assessee reiterated the submission made before the Assessing Officer. However, the CIT(A) agreed with the Assessing Officer and confirmed addition of INR.38,40,000/- in the hands of the Assessee as salary income.

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 4 Assessment Year 2019-2020 the Assessee and therefore, the same is deleted.

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.