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TMI Blog2022 (6) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... s of colourable nature. As the remuneration is from the firm to the Working Partner, which is nothing but sharing of profits, the identity of the payer and payee is also not doubted by the Revenue. Further, the genuineness of remuneration and source is also not in dispute. Thus, even in view of the above, the applicability of section 40A(3) of the Act, in the present case, is not justified. As section 40A is a general provision and section 40(b) is a special provision and only in situation which are not covered by section 40(b), section 40A shall be applicable. In the present case, assessee being a partnership firm and section 40(b) being the special provision dealing with computation of income of firm, same shall be applicable for determining the amount of deduction available to the assessee. Further, in the present case, there is no dispute that the remuneration was paid to the Working Partner. Also, there is no allegation that conditions of section 40(b) of the Act are not complied with. Thus, in view of the aforesaid judicial pronouncements also, we are of the view that section 40A(3) was wrongly invoked by the Revenue for disallowing remuneration paid to the Working Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a partnership firm and is engaged in the business of wholesale of Canvas Tarpoulins. For the year under consideration, the assessee e-filed its return of income on 26.09.2015 declaring total income of Rs. 9,40,320. 5. During the course of assessment proceedings, upon verification of Ledger account filed by the assessee, the Assessing Officer found that assessee has paid remuneration of Rs. 30,000 to Mr. Prakash Desai (i.e. one of its Working Partners) in cash. Accordingly, the assessee was asked to show cause as to why said payment be not disallowed under section 40A(3) of the Act. In reply, assessee submitted that remuneration paid to Partner within the limit of section 40(b) of the Act is fully allowable expense. The Assessing Officer, vide order dated 31.10.2017, passed under section 143(3) of the Act held that remuneration paid to Shri Prakash Desai, in cash, is above the limit fixed by the provisions of section 40A(3) of the Act, which restricts deduction of cash expenditure above Rs.20,000. Accordingly, the Assessing Officer added a sum of Rs.3,60,000 under section 40A(3) of the Act, to the total income of the assessee. 6. The learned CIT(A) vide impugned order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lays down certain conditions under which payment to the partner shall not be allowed as a deduction while computing the income of the firm under the head Profits and gains of business or profession . Thus, if the payment to partner is not covered under any provision of section 40(b) of the Act, the firm can claim deduction of same from its taxable income and the amount shall be taxed in the hands of the partner. However, if the provisions of section 40(b) of the Act are applicable, the firm cannot claim the payment as a deduction and shall be liable to pay tax on same. On the other hand, it will be allowable in the hands of the partner receiving such remuneration. It is pertinent to note that it is not a case of the Revenue that assessee has violated any of the provisions of section 40(b) of the Act. In the present case, the Assessing Officer denied the deduction to assessee only on the basis that the remuneration was paid to the Working Partner, in cash, over and above the limit prescribed under section 40A(3) of the Act. 11. Section 40A(3) of the Act, as applicable during the relevant assessment year, provides as under: (3) Where the assessee incurs any expenditure in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which payment is made. It means all outgoings are brought under the word 'expenditure' for the purpose of the section. The expenditure for purchasing the stock-in-trade is one of such outgoings. 14. However, remuneration to Working Partner is nothing but a share of profit of the partnership firm and same is not in the nature of an outgoing or any payment made for any expenditure. Thus, same is not covered even under the wider definition of term expenditure . 15. Further, in Attar Singh Gurmukh Singh (supra), the Hon ble Supreme Court noted the objective of provisions of section 40A(3) of the Act and observed as under: Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from 1st April, 1993. Even otherwise, section 40(b) is applicable only to the payment made by a firm to its partner whereas provision of section 40A(2) is of general nature applicable to several situations. It is settled law that a special provision governing a special situation has to be applied when that situation arises and not a general provision which governs several fields. 18. Further, the Hon ble Allahabad High Court in CIT v. Great City Manufacturing Co: [2013] 351 ITR 156 (Allahabad), while dismissing Revenue s appeal, observed as under: The assessing officer is only required to see as to whether the partners are the working partners mentioned in the partnership deed, the terms and conditions of the partnership deed provide for payment of remuneration to the working partners and whether the remuneration provided is within the limits prescribed under Section 40(b)(v) or not. If all the aforementioned conditions are fulfilled then he cannot disallow any part of the remuneration on the ground that it is excessive. Since in the present case, all the conditions required has been fulfilled the question of disallowance does not arise. 19. In N.M. Annia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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