2022 (9) TMI 580 - AT - Income Tax

Payment of remuneration to working partner - Addition u/s 40(b) - remuneration was paid to the partner in view of the amended deed - HELD THAT - The assessee has apportioned the remuneration which comes to Rs.7,13,709/- but paid only a sum of Rs.6 lakhs and claimed deduction of the same. We noted from the CIT(A) s order that he noted that the assessee has not supported the basis of allocation by any document produced and according to him, the said document was executed before the close of financial year is not very clear. Assessee before CIT(A) categorically made representation in the written submissions that the deed was amended w.e.f. 01.01.2012 by the amended deed dated 12.01.2012 that means the partner Smt. Kanchan Devi became working partner from January, 2012 and for three months, she is entitled for remuneration. The entire details was available before CIT(A) i.e., partnership deed, the computation of book profit and allocation of remuneration to this working partner Smt. Kanchan Devi. Assessee has rightly allocated Rs.6 lakhs rather it is less because if we allocate the remuneration to working partner which comes for these three months. We are of the view that the assessee has rightly claimed the payment of remuneration to working partner Smt. Kanchan Devi in term of provisions of section 40(b) and CIT(A) as well as AO both erred in not allowing the claim. We allow the claim and reverse the orders of lower authorities. - Decided in favour of assessee.

Summary

Issues:
Restriction of remuneration by CIT(A) compared to claimed amount by the assessee.

Analysis:
The appeal concerns the restriction of remuneration by the Commissioner of Income Tax (Appeals) as confirmed by the Assessing Officer (AO) in comparison to the amount claimed by the assessee. The primary issue revolves around the disagreement regarding the remuneration paid to a partner, specifically Smt. Kanchan Devi, as per the amended deed dated 12.01.2012. The AO noted an excess remuneration payment of Rs.4.50 lakhs to Smt. Kanchan Devi, leading to a disallowance request. The CIT(A) upheld this decision, citing lack of supporting documentation for the basis of allocation and the timing of the deed execution. Consequently, the CIT(A) estimated the remuneration at Rs.1.50 lakhs instead of the claimed Rs.6 lakhs, prompting the assessee's appeal.

Upon review of the case records and partnership deed clauses, the ITAT found that Smt. Kanchan Devi was a partner from April 1, 2011, but became a working partner from January 1, 2012, as per the amended deed. The remuneration of Rs.6 lakhs paid by the assessee was in accordance with section 40(b) of the Income Tax Act, as specified in the partnership deed. The ITAT highlighted the relevant clause from the partnership deed outlining the remuneration calculation and payment terms for working partners. The ITAT further analyzed the computation of book profit and the remuneration payable to Smt. Kanchan Devi, emphasizing that she was eligible for three months' remuneration based on the amended deed, contrary to the entire year's entitlement. The ITAT concluded that the assessee rightfully claimed the remuneration payment to Smt. Kanchan Devi as per the Act's provisions, criticizing both the CIT(A) and AO for their erroneous disallowance. Consequently, the ITAT allowed the assessee's appeal, reversing the decisions of the lower authorities.

In summary, the ITAT's judgment revolved around the dispute regarding the remuneration paid to a partner in adherence to the provisions of section 40(b) of the Income Tax Act. The ITAT's detailed analysis of the partnership deed, remuneration computation, and the timing of partner's working status change led to the conclusion that the assessee's claim was valid, overturning the decisions of the CIT(A) and AO.