2009 (3) TMI 224 - AT - Income Tax

Summary

Issues:
Challenge to deletion of disallowance on remuneration paid to partners by the assessee firm.

Analysis:
The Revenue appealed against the CIT(A)'s decision to delete the disallowance made by the AO on remuneration paid by the assessee firm to its partners. The AO found the remuneration excessive and unreasonable, invoking s. 40A(2) to disallow a portion of it. The CIT(A) held that the remuneration was within the prescribed limits of s. 40(b) and deleted the disallowance. The Revenue contended that the remuneration was excessive, but the Tribunal noted that the partners were working partners, and the remuneration was as per the partnership deed and s. 40(b)(v). Citing precedents, the Tribunal held that s. 40A(2) did not apply where s. 40(b) was invoked. Therefore, the disallowance made by the AO was deemed unsustainable, and the CIT(A)'s decision was upheld, dismissing the Revenue's appeal.

In summary, the key issue revolved around the challenge to the deletion of disallowance on remuneration paid to partners by the assessee firm. The AO found the remuneration excessive, invoking s. 40A(2), but the CIT(A) and the Tribunal determined that the remuneration was within the prescribed limits of s. 40(b), leading to the dismissal of the Revenue's appeal.