2023 (1) TMI 166 - AT - Income Tax

Disallowance of excess commission paid u/s. 40(b)(v) - AO noted that the profit sharing ratio of the three partners is 38 1 1 but commission to the first partner was allowed @ 89.09%, which was excess by 51.08% - CIT-A deleted the addition - HELD THAT - Considering the fact that since salary, bonus, remuneration or commission are collectively termed as remuneration and the remuneration paid during the year is within the permissible limit provided u/s.40(b)(v) of the Act, therefore, we fail to find any infirmity in the findings of the ld. CIT(A). Thus, ground no. 1 is dismissed. Non deduction of TDS on commission paid to partners - AO has alleged that the assessee failed to deduct tax at source on the commission paid to its partners - CIT-A deleted the addition - HELD THAT - Finding of the ld.CIT(A) on fact and considering the judicial precedence remains uncontroverted by the ld. DR placing any other binding precedent in its favour. Therefore, considering the provisions of Explanation 2 to Section 15 of the Act which includes salary, bonus, commission or remuneration received by partner under the head salary and considering the provisions of section 192 of the Act which talks about the salary given u/s. 15 of the Act, thus, we are inclined to confirm the findings of the ld. CIT(A) that there is no requirement under the provisions of the Act for deduction of tax at source by the partnership firm on salary, bonus, commission or remuneration etc or whatever name called given or credited to a partner of a firm. Thus, we fail to find any infirmity in the findings of the ld. CIT(A). Ground no. 2 is dismissed. Disallowance towards various expenses claimed by the assessee - AO made the said disallowance since the assessee failed to file necessary evidence in the course of the hearing - CIT(A) deleted the said disallowance observing that a high-pitched assessment has been concluded by the ld. AO in the present non-adversial tax regime - HELD THAT - We, however, on facts of the case observe that no proper documents to support such claim were filed by the assessee before the ld. AO and looking to quantum of expenses and lack of sufficient evidence filed before the lower authorities, we sustain disallowance of expenses at Rs. 15,00,000/- as against of Rs.3,62,37,711/- made by the ld. AO under various heads of expenses. Thus, ground no. 3 raised by the revenue is partly allowed.

Summary

Issues Involved:
1. Disallowance of excess commission paid under Section 40(b)(v) of the Income Tax Act, 1961.
2. Non-deduction of TDS on commission paid to partners.
3. Disallowance of various expenses claimed by the assessee.

Detailed Analysis:

1. Disallowance of Excess Commission Paid under Section 40(b)(v):
The revenue challenged the deduction of commission paid to the first partner, which was allegedly in excess of the profit-sharing ratio. The Assessing Officer (AO) noted that the profit-sharing ratio among the three partners was 38:1:1, but the first partner received 89.09% of the commission, which was 51.08% more than the permissible limit. The CIT(A) observed that the partnership deed allowed for such commission distribution and that the total remuneration paid (Rs. 1,30,05,216) was within the permissible limit under Section 40(b)(v). The Tribunal upheld the CIT(A)'s findings, noting that the remuneration was within the permissible limit and authorized by the partnership deed. Thus, the disallowance of Rs. 66,43,474 was deleted, and this ground of appeal was dismissed.

2. Non-deduction of TDS on Commission Paid to Partners:
The AO alleged that the assessee failed to deduct TDS on the commission paid to partners, invoking Section 194H. The CIT(A) relied on the ITAT Chandigarh's decision in Assam Tea House, stating that salary, bonus, commission, or remuneration paid to partners is collectively termed as "remuneration" under Section 40(b)(i) and is not subject to TDS under Section 194H. The CIT(A) further noted that Explanation 2 to Section 15 excludes such payments from being regarded as "salary" for TDS purposes. The Tribunal upheld the CIT(A)'s findings, confirming that there is no requirement for TDS deduction on remuneration paid to partners. Therefore, the disallowance of Rs. 14,82,595 under Section 40(a)(ia) was deleted, and this ground of appeal was dismissed.

3. Disallowance of Various Expenses:
The AO made a disallowance of Rs. 3,62,37,711 towards various expenses, citing the assessee's failure to provide necessary evidence. The AO disallowed a percentage of expenses for material consumed, labor charges, stores and spares, and other direct expenses. The CIT(A) deleted the disallowance, stating that the assessment was based on conjectures and surmises without pointing out specific defects in the audited books. However, the Tribunal observed that the assessee did not provide sufficient evidence to support the claimed expenses. Therefore, the Tribunal sustained a disallowance of Rs. 15,00,000 instead of Rs. 3,62,37,711. Thus, this ground of appeal was partly allowed.

4. General Ground:
The fourth ground was general in nature and required no adjudication.

Conclusion:
The appeal of the revenue was partly allowed, with the Tribunal upholding the CIT(A)'s findings on the first two issues and modifying the disallowance on the third issue. The order was pronounced in open court on 02/01/2023.