SAXON FLUID SEALING DEVICES,NEW DELHI vs. ACIT, CIRCLE-41(1), NEW DELHI

The solitary grievance of the assessee is that the CIT(A) erred in sustaining the addition made by the Assessing Officer

During the course of scrutiny assessment proceedings the Assessing Officer noticed that the assessee has paid Rs.9,60,000/- to partner A. K. Soni, Rs.9,40,000/- to partner Anshuman Soni, Rs.9,60,000/- to partner Anuj Saxena and Rs.7,20,000/- to partner Mithlesh Saxena.

On perusal of the partnership deed dated 01.06.2011 the Assessing Officer found that following remuneration was to be paid to the partners :-

The assessee was asked to explain why the excess amount given to partners as salary should not be disallowed. Vide letter dated 05.12.2017 the assessee explained that by mutual agreement it was agreed by the partners to increase the remuneration without amending the partnership deed.

Reply of the assessee did not find any favour with the Assessing Officer who disallowed the excess remuneration of Rs.5,79,082/-.

Before me the counsel for the assessee drew my attention to the partnership deed which is at pages 6 to 9 of the paper book and pointed out that it has been specifically mentioned in the partnership deed that the partners salary may be revised as mutually agreed by the partners but the same shall remain within the limits prescribed under the Act. It is the say of the counsel that it is not the case of the Assessing Officer that the salary paid to the partners is not as per the limit prescribed u/s 40 (b) (v). The counsel further drew my attention to page 10 of the paper book and pointed out that a supplementary deed was made to increase the remuneration to partners.

The DR strongly supported the findings of the CIT(A). It is the say of the DR that the supplementary deed by which the salary has been increased is not a registered document and does not have any evidentiary value.

I have carefully perused the orders of the authorities below. It is true that in the partnership deed dated 01.06.2011 the partners have agreed to revised the remuneration as mutually agreed by them. It is equally true that it is not the case of the revenue that the remuneration paid to partners is in excess of the remuneration provided u/s. 40 (v) (b) of the Act. The supplementary deed which contains the revision of salary and endorses the fact that the salaries paid to partners is within the 4 limit of section 40 (b) (v) of the Act. In my understanding the partnership Act does not require the deed to be registered.

Considering the facts of the case in totality I am of the considered view that the assessee is entitled for the remuneration as claimed by it. Therefore, the Assessing Officer is directed to delete the addition of Rs.5,79,082/-.

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