2022 (5) TMI 335 - AT - Income Tax

Excess payment of remuneration to partners in contravention of provision of section 40(b)(v) - assessee submitted that copy of the supplementary deed which is executed on 1st April, 2011 at assessee s paper book and also filed the copy of the audit report for Assessment Year 2012-13 wherein there is allowance higher remuneration based on the change in remuneration clause in partnership deed - HELD THAT - In the light of two set of evidences when these records are forming part of assessment records, for earlier year, there is no need to call for the remand report of the Assessing Officer at the stage of ld. CIT(A)/NFAC and therefore, we find no infirmity in the finding of the ld. CIT(A)/NFAC and the action of ld. CIT(A)/NFAC is considered and the appeal of the department considering the above finding on fact placed by the assessee is considered and ground for disallowance raised by revenue is dismissed and thus the appeal of the revenue is dismissed.

Summary

Issues involved:
- Disallowance of excess remuneration to partners under section 40(b)(v) of the Act.
- Maintainability of the appeal by the department based on audit objection.

Analysis:

1. Disallowance of Excess Remuneration:
- The appeal was filed by the revenue challenging the deletion of an amount of Rs. 5,80,000 made by the Assessing Officer (AO) due to alleged excess payment of remuneration to partners. The AO issued a notice under section 154 to rectify the mistake, which the assessee did not reply to, leading to a rectification order disallowing the excess remuneration.
- The assessee contended that the appeal was not maintainable based on a circular from the CBDT dated 08/08/2019, which did not provide exceptions as in earlier circulars. However, the tribunal held that the appeal was maintainable as the issue was related to audit objections covered in earlier circulars.
- The CIT(A) allowed the appeal of the assessee, stating that the remuneration allowed to partners was within the limit authorized by the partnership deed and section 40(b)(v) of the IT Act. The department argued that the CIT(A) considered additional evidence without calling for a remand report, but the tribunal upheld the decision based on the evidences already part of the assessment records.

2. Maintainability of Appeal based on Audit Objection:
- The department argued for the maintainability of the appeal based on an audit objection, even though the tax effect was below the threshold limit prescribed by the CBDT. The tribunal held that in the absence of any clarification in the latest circular, the earlier instructions regarding filing an appeal on audit objections would prevail.
- The tribunal emphasized that since the issue was related to audit objections, the appeal was maintainable, even though the tax effect was below the prescribed limit. The department's contention regarding the maintainability of the appeal was not considered, and the appeal was decided on its merits.

In conclusion, the tribunal dismissed the revenue's appeal, upholding the decision of the CIT(A) to allow the appeal of the assessee regarding the disallowance of excess remuneration paid to partners. The tribunal found that the remuneration was within the authorized limit as per the partnership deed and the IT Act, and the appeal was maintainable based on audit objections despite the tax effect being below the prescribed limit.