MITUL ENTERPRISES,MUMBAI vs. ITO 24(2)(4), MUMBAI

In this appeal the assessee is aggrieved for disallowance of remuneration paid to the partner, on the plea that interest income was not considered as firm’s income.

I have considered rival contentions and found that the AO has disallowed the remuneration paid to partners Rs.1,73,567/- (Rs.2,23,567 – 50000). The reason being the profit of firm of Rs.2,04,059/- included interest Rs.1,09,370/- on fixed deposits and Rs.8,21,974/- interest received on loans. As per AO if the interest income i.e on fixed deposit and on loans is reduced, there is a loss for the year under consideration.

I found that assessee had also paid interest of Rs.10,14,487/-. Thus total amount of interest received was less than interest paid during the year. Accordingly there is debit in the head of interest expenditure. Hence AO was not justified in excluding the interest income from the profit of firm, disregarding the interest expenditure incurred by assessee, thereby reducing the amount of remuneration paid to the partners. I direct the AO to allow assessee’s claim of remuneration paid to partners.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 27/07/2016.