2000 (7) TMI 229 - AT - Income Tax

Summary

Issues:
1. Addition of partners' salary as an admissible expenditure under section 40(b).
2. Enhancement of income by the Dy. CIT(A) based on various adjustments.

Issue 1: Addition of partners' salary
The appeal was against the Dy. CIT(A) order regarding the addition of Rs. 54,650, which included partners' salary. The assessee contended that partners' salary is provided in the partnership deed and is admissible under section 40(b). The ITAT, considering the decision of the Hon'ble High Court of Rajasthan and amended provisions of section 40(b), decided in favor of the assessee, directing the AO to allow partners' salary as per the partnership deed.

Issue 2: Enhancement of income by Dy. CIT(A)
The Dy. CIT(A) enhanced the income by Rs. 3,49,595, making various adjustments like changing the net profit rate, disallowing certain deductions, etc. The assessee argued that the Dy. CIT(A) did not consider their submissions and that the issues were covered in their favor by previous court decisions. The Departmental Representative supported the Dy. CIT(A)'s order, stating that the issues were interdependent. The ITAT, after reviewing the judgments of the Hon'ble jurisdictional High Court, concluded that the Dy. CIT(A) was not justified in enhancing the income. They restored the AO's order, allowing partners' salary deduction and rejecting the income enhancement.

In conclusion, the ITAT allowed the appeal of the assessee, ruling in their favor on both issues. The partners' salary was considered admissible, and the enhancement of income by the Dy. CIT(A) was overturned based on the judgments of the Hon'ble jurisdictional High Court.