U.N. CORPORATION,AHMEDABAD vs. DCIT, CIRCLE-3(1)(1), AHMEDABAD

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ITA 1788/AHD/2024Status: DisposedITAT Ahmedabad24 July 2025AY 2017-18Bench: SMT. ANNAPURNA GUPTA (Accountant Member), SHRI T.R. SENTHIL KUMAR (Judicial Member)7 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 there is no legal requirement for a partnership deed to be registered or notarized. Even if the supplementary deed were rejected, the remuneration should be allowed as per the original deed, as the quantum of allowable remuneration remained the same.

What were the facts?

The assessee, a partnership firm, changed the terms of remuneration to its partners through a supplementary deed. The Assessing Officer (AO) rejected the supplementary deed as not genuine (one was notarized late, the other not notarized) and disallowed the remuneration paid to one partner.

What were the issues?

Whether disallowance of remuneration paid to partners is justified when the supplementary deed is rejected, and whether a supplementary deed needs to be notarized to be valid.

Which sections of the Income-tax Act were involved?

Section 40(b),Section 250,Section 234A,Section 234B,Section 234C,Section 234D,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR

For Appellant: Shri Parin Shah, A.R, Shri Arvind Kumbhare, Sr. DR
For Respondent: Shri Arvind Kumbhare, Sr. DR
Hearing: 17/07/2025Pronounced: 24/07/2025

The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi dated 13.08.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.

2.

The grounds of appeal raised by the assessee are as under:

“1. The order passed by lower authorities is bad in law and required to be quashed. 2. Ld. NFAC erred in law and on facts in confirming disallowance of Rs. 80,00,000/- made invoking section 40(b) of the Act ignoring submissions and documentary evidences. 3. Charging of Interest u/s 234A,234B,234C & 234D are unjustified. 4. Initiation of penalty proceedings u/s 270A is unjustified.”

3.

The solitary issue in the present appeal relates to disallowance of claim of remuneration paid to partners, the assessee being a partnership firm.

4.

The orders of the authorities below reveal that the assessee was found to have changed the terms of payment of remuneration to its partners as agreed to in the original partnership deed. While the original terms agreed to, required remuneration to be paid to the extent allowable u/s.40(b) of the Act @ 25% each to all the four partners of the assessee firm, however, during the impugned year, the assessee was noted to have paid remuneration only to two partners, with one of the partner getting 75% share and the other getting 25% share. The partnership deed was noted to contain clause stating that any change in terms of payment of remuneration to partners was to be provided for by way of supplementary deed. The assessee submitted a supplementary deed in support of its claim of remuneration paid only to two partners during the year, but, the same was found to be not [U. N. Corporation vs. DCIT] A.Y. 2017-18 - 3 – notarized. When the same was pointed out to the assessee, he filed another copy of the same supplementary deed duly notarized. The AO rejected both supplementary deeds stating that the first one not being notarized could not be treated as genuine while the second one was found to be notarized by back date and, therefore, was also rejected as being not genuine. The case of the AO also was that the assessee was resorting to the practice of changing the amount of remuneration paid to all the four partners who allegedly were all related so as to minimize the amount of tax paid in all by them. That the change in remuneration and interest paid to partners year-to-year was a tax planning scheme of the assessee in the impugned year, since it was found to be not supported by a genuine supplementary deed. The AO accordingly disallowed the excess 50% remuneration paid to one partner, amounting to Rs.80,00,000/-. The order of the AO was upheld by the Ld.CIT(A).

5.

We have heard both the parties. We are not in agreement with the Revenue on this score primarily for two reasons:

 The Ld.Counsel for the assessee contended that there is no requirement in law for a partnership deed to be either registered or notarized. He contended that even an unnotarized deed had sanctity as long as it had the approval of all the partners and until it was challenged by the partners themselves. The Ld.DR was unable to controvert this contention of the Ld.Counsel for the assessee by pointing [U. N. Corporation vs. DCIT] A.Y. 2017-18 - 4 – out any provision of law to the contrary. In view of the same, the Revenue has no case at all for denying claim of remuneration of Rs. 80 lacs merely because the supplementary deed supporting the revised remuneration terms was not notarized.

 Even otherwise, even if the supplementary deed is rejected as in-genuine, then remuneration is to be distributed as per the original partnership deed and the said deed states that the remuneration is to be paid to the partners to the extent allowable u/s.40(b) of the Act. It is a fact on record that it is only the manner of distribution of remuneration which varies in the original deed and supplementary deed, the quantum of remuneration to be paid in all being to the extent allowable u/s 40(b) of the Act, in both the deeds. Having rejected the supplementary deed as ingenuine the remuneration should have been allowed as per terms of the original deed and since the quantum allowable in the said deed is the same as in the supplementary deed, the remuneration ought to have been allowed in full to the assessee. The only difference that the original deed would have made was to the share of remuneration to each partners. The effect of the supplementary deed being found unacceptable therefore was only to the quantum of remuneration taxable in the hands of each partner and action if any ought to have been taken by the Revenue in their hands. For this reason also the disallowance made of remuneration of Rs.80 lacs is not sustainable.

In the light of the above, the disallowance made of remuneration paid to partners to the tune of Rs.80,00,000/- is directed to be deleted.

6.

In the result, appeal filed by the assessee is allowed.

This Order pronounced on 24/07/2025 Sd/- Sd/- (T.R. SENTHIL KUMAR) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 24/07/2025 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. 3. संबंिधत आयकर आयु� / Concerned CIT आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,

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