M/S MANI OMEGA FABRICS,TIRUCHENGODE vs. ACIT CIRCLE 1, NAMAKKAL

PDF · subscribers
ITA 487/CHNY/2018Status: DisposedITAT Chennai28 September 2022AY 2013-143 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The tribunal held that the amended deed of partnership did not require mandatory registration. Since the terms of the deed were acted upon and the partner offered the remuneration as business income, the disallowance was not sustainable.

What were the facts?

The assessee, a firm, paid remuneration to a partner supported by an amended deed. The Assessing Officer disallowed this remuneration, doubting the genuineness of the deed and noting it was unregistered and not produced for another partner's assessment. The CIT(A) confirmed the disallowance.

What were the issues?

Whether the disallowance of partner's remuneration is justified when the amended partnership deed, though unregistered, was acted upon by the partners.

Which sections of the Income-tax Act were involved?

Section 40(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: HON’BLE SHRI MAHAVIR SINGHAND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

For Respondent: Shri AR V Sreenivasan (Addl CIT) – Ld. DR

सुनवाईकीतारीख/Date of Hearing : 28-09-2022 घोषणाकीतारीख /Date of Pronouncement : 28-09-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

1.

Aforesaid appeal by assessee for Assessment Year (AY) 2013-14 arises out of the order of learned Commissioner of Income Tax (Appeals), Salem [CIT(A)] dated 07.12.2017 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 29.03.2016. The sole grievance of the assessee is disallowance 2 - of partners’ remuneration for Rs.59.70 Lacs u/s 40(b). The assessee is a firm and engaged in manufacturing of over fabrics. Having heard rival submissions, the appeal is disposed-off as under.

2.

The assessee paid remuneration of Rs.59.70 Lacs to one of the partners namely Mr. Vishakar Mani. The remuneration was supported by amended deed dated 01.04.2012. However, raining doubts on the genuineness of the amended deed, Ld. AO opined that the deed was not registered one and the same was not produced in the assessment proceedings of other partner. Further, remuneration was paid in AY 2011-12 also whereas amended deed came into force w.e.f. 01-04- 2012. It also transpired that Mr. Vishakar Mani set-off business losses against this income. Accordingly, the remuneration was disallowed. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us.

3.

We are of the considered opinion that the amended deed does not require mandatory registration. The perusal of amended deed of partnership would show that is besides remuneration, it provides for payment of interest on capital and also define the Profit-sharing ratio of the two partners. The terms of the deed have been acted upon by both the partners. The firm has paid remuneration of Rs.59.70 Lacs but claimed deduction of Rs.57.82 Lacs in the computation of income which is maximum prescribed limit. The partner has offered the remuneration as Business Income. The set-off of losses has been done as per law. Merely because business-losses have been set-off against the same, the same could not be a ground to disallow remuneration in the hands of the firm. Therefore, the impugned addition is not sustainable in law. We order so.

4.

The appeal stand allowed. Order pronounced on 28th September, 2022.

More judgments on Section 40(b)

All 428 judgments and leading authorities on Section 40(b) →

Recent GST High Court judgments

Search GST case law →