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TMI Blog2018 (6) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to as "the Act") dated 31/12/2015 relevant to Assessment Year (AY) 2013-14. 2. The grounds of appeal raised by the assessee are as under:- "(1) That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs. 12,58,800/- made u/s.40(b) of the Act, by treating it as excessive remuneration paid to partners. (2) That on facts, evidence on record, and in law, the learned CIT(A) ought to have deleted the entire disallowance as prayed for." 3. The solitary issue raised by the assessee in this appeal is that the learned CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs. 12,58,800/- on account of remuneration paid to the partners in excess to the amount eligible as specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. 7. The assessee in support of his claim has also relied on the judgment of Hon'ble High Court of Himachal Pradesh, in the case of CIT vs. Anil Hardware Store reported in 323 ITR 368. 8. However, the AO referred the supplementary partnership deed made on 18-05-2006, which reads as under: "Remuneration to Partners:- Mr. Parag Dineshbhai Shah shall devote his full time and Ms. Rupali Tushar Kothori shall devote her time for the business of Partnership firm and in consideration, both partners are entitled to the amount of remuneration on the basis of "Book Profit" calculated as provided under section 40(b)(v)(2) of Income Tax Act read with explanation 3 to Section 40(b)(v) of Income Tax Act, 05 under: On the first Rs. 75,000/- of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Book Profit and 40% of the Book Profit on the remaining amount. Thus, the assessee is entitled for the remuneration in the following manner: Book Profit 1,32,12,505 Rate First 75,000 67,500 90% Next 75,000 45,000 60% Balance 1,30,62,505 52,25,002 40% Remuneration 53,37,502 Thus, the AO worked out the allowable amount of remuneration for Rs. 53,37,502/- and disallowed the excess amount of Rs. 12,58,800/- (65,96,302-53,37,502) and added to the total income of the assessee. 9. Aggrieved, assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it was clearly mentioned in the supplementary deed of partnership dated 18-05-2006 that the workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that in the assessment order for A.Y. 2009-10 framed u/s.143(3) of the Act the remuneration was allowed. 3.5. The facts of the case and the submission are considered. The case of the appellant is that the remuneration paid to working partners and claimed by the assessee in the instant case was supported by the supplementary deed executed by the firm and was also within the limits prescribed u/s.40(b) of the Act. On the other hand the case of the AO is that the assessee has specified the amount of remuneration payable to the partners and it has further inserted a clause that the remuneration to the working partner shall be credited to his respective account at the end of the accounting year on the ascertainment of book profit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uneration to partners:- Mr. Parag Dineshbhai Shah shall devote his full time and Ms. Rupali Tushar Kothari shall devote her time for the business of Partnership firm and in consideration, both partners are entitled to the amount of remuneration on the basis of "Book Profit" calculated as provided under section 40(b)(v)(2) of Income Tax Act read with explanation -3 to Section 40(b)(v) of Income Tax Act., as under: On the first Rs. 75,000/- of the Book Profit At the rate of 90% of the Book Profit On the next Rs. 75,000/- of the Book Profit At the rate of 60% of the Book Profit On the balance of the Book Profit At the rate of 40% of the Book" Whereas, the assessee claims that the limit for the remuneration to the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard of Direct Taxes circular referred to above lays down two conditions. Either the amount of remuneration payable should be specified or the manner of quantifying the remuneration should be specified. In the present case, the manner of fixing the remuneration of the partners has been specified. In a given year, the partners may decide to invest certain amounts of the profits into other venture and receive less remuneration than that which is permissible under the partnership deed, but there is nothing which debars them from claiming the maximum amount of remuneration payable in terms of the partnership deed. The method of remuneration having been laid down, the assessee- firm is entitled to deduct the remuneration paid to the partners unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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