2005 (2) TMI 464 - AT - Income Tax

Summary

Issues:
1. Disallowance of remuneration paid to working partners
2. Disallowance of brokerage
3. Disallowance of interest differential amount

Issue 1: Disallowance of remuneration paid to working partners
The appeal was against the disallowance of remuneration paid to working partners due to the non-reduction of unabsorbed brought forward depreciation from the profit of the year. The AO disallowed the remuneration as the result was negative. The CIT(A) upheld the AO's decision. The Authorized Representative argued that unabsorbed depreciation should not be considered for net profit computation and that the remuneration should be allowed under section 40(b)(v) or section 28(v). The Departmental Representative supported the lower authorities, stating that unabsorbed depreciation must be considered for book profit computation. The Tribunal held that remuneration paid to working partners should be allowed under section 40(b)(v) and should not be taxed twice, modifying the lower authorities' orders and directing the AO to allow the claim.

Issue 2: Disallowance of brokerage
The appeal addressed the disallowance of brokerage paid and settled during the assessment year under consideration. The lower authorities disallowed the brokerage as it was not related to the current assessment year. The Tribunal found that the brokerage was settled and paid during the current assessment year, following the mercantile system, and allowed the deduction of the brokerage amount, deleting the addition.

Issue 3: Disallowance of interest differential amount
The appeal challenged the disallowance of a differential interest amount related to M/s Data Enterprises. The Tribunal agreed with the lower authorities' decision, finding no merit in the appeal and dismissing the ground.

Conclusion:
The appeal was partly allowed concerning the disallowance of remuneration paid to working partners and the disallowance of brokerage. The disallowance of the interest differential amount was upheld. Grounds 4 and 5 were withdrawn. The Tribunal directed the AO to reconsider the disallowed remuneration claim in light of the discussion provided, ensuring no double taxation occurs.