FAVOURITE MARINE SERVICES ,MUMBAI vs. INCOME TAX OFFICER-20(1)(1), MUMBAI

I heard the parties and perused the record. The return of income filed by the assessee for the year under consideration was processed u/s 143(1) of the Act. The assessee is a partnership firm and, in the Profit and Loss account, it had debited a sum of Rs.15,60,000/- towards remuneration payable to the partners. However, the amount of remuneration allowable as deduction in terms of sec.40(b) worked out to Rs.39,985/- only. It is the submission of Ld A.R, the assessee voluntarily disallowed partners remuneration of Rs.15,60,000/- and did not claim deduction of even the allowable amount of Rs.39,985/-. However, it appears that the Tax Auditor has wrongly reported the above said details in the Tax audit report. It was submitted that the Tax Auditor has filed a revised tax audit report to rectify his mistakes. It is stated that the CPC, however, did not consider the revised tax audit report and made adjustments as detailed below:-

In the appellate proceedings, the Ld CIT(A) partially allowed the appeal of the assessee and hence the assessee has filed this appeal before the Tribunal.

It is the main contention of the Ld A.R that the assessee did not claim deduction of Partners’ remuneration of Rs.15,60,000/- and hence the question of making disallowance of Rs.15,60,000/- does not arise. Further, the addition of Rs.15,20,015/- is not called for, since the same would amount to double disallowance and further, the assessee did not claim remuneration of Rs.15,60,000/- as deduction. In support of the above, the Ld A.R took us through the copy of return of income and the details furnished therein. However, from the order passed by Ld CIT(A), I notice that the confusion has arisen on account of mistake committed by the Tax auditor in the Tax audit report. There should not be any dispute that the books of accounts shall prevail over the tax audit report, if there are mistakes in the tax audit report.

Though the factual aspects presented by Ld A.R weights in favour of the assessee, yet I of the view that they require verification at the end of the AO. If the factual aspects narrated by the Ld A.R is found to be correct, then no disallowance is called for. Accordingly, I set aside the order passed by Ld CIT(A) and restore all the issues to the file of the AO for examining them afresh. The assessee is also directed to place all factual aspects before the AO. After examining the issue, the AO may take appropriate decision in accordance with law.