2014 (11) TMI 1218 - AT - Income Tax

Revision u/s 263 - CIT in restricting the partners remuneration u/s 40(b) by not treating the surrendered amount as business income - disallowance out of claimed remuneration made deserves to be deleted - HELD THAT - We find that, in the instant case, CIT(A) vide its order dated 21.10.2010 has already decided the issue which was considered by the CIT in the impugned order purportedly passed u/s 263 - As the order of the AO had already merged with the order of the CIT(A) in respect of the issue of head under which income disclosed in the course of the survey is assessable and consequently allowance of remuneration to partners, in our considered view, the CIT had no justification to decide the very same issue again u/s 263 of the Act. Therefore, the impugned order passed u/s 263 is bad in law and without jurisdiction. We, therefore, cancel the impugned order passed u/s 263 of the Act and allow the appeal of the assessee.

Summary

Issues involved:
Restriction of partners' remuneration under Section 40(b) and treatment of surrendered amount as business income.

Analysis:

Issue 1: Restriction of partners' remuneration under Section 40(b)
The appeal was filed against the Commissioner of Income Tax's order restricting partners' remuneration to Rs. 50,000 under Section 40(b). The CIT contended that the excess remuneration claimed by the assessee should be added back to the income. The Assessing Officer allowed a deduction for remuneration at Rs. 5,01,680, which the CIT deemed erroneous. The CIT's decision was based on the view that the income of Rs. 20 lakhs disclosed during the survey was assessable as income from other sources, not business income, thus limiting the remuneration to Rs. 50,000 as per Section 40(b)(v). The CIT set aside the Assessing Officer's order and directed to restrict the remuneration to Rs. 50,000 only.

Issue 2: Treatment of surrendered amount as business income
The CIT(A) had already decided the issue of how the income disclosed during the survey should be assessed and the remuneration to partners. The Tribunal found that the CIT had no justification to decide the same issue again under Section 263 as the Assessing Officer's order had merged with the CIT(A)'s order. Therefore, the Tribunal concluded that the CIT's order under Section 263 was without jurisdiction and bad in law. Consequently, the Tribunal allowed the appeal of the assessee, canceling the order passed under Section 263.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and canceling the CIT's order under Section 263. The decision highlighted the importance of correctly assessing income sources and the corresponding remuneration under Section 40(b) of the Income Tax Act.