2015 (5) TMI 1193 - AT - Income Tax

Tribunal rules in favor of partnership firm, declares disclosed income as business income

The Tribunal overturned the Assessing Officer's addition of Rs. 1,49,052 towards income estimation for a partnership firm in the wholesale and retail ... Partners entitlement to higher remuneration on enhanced income - Estimation of income by allowing the remuneration to partners on the declared income during the survey operation - as per AO this income was from undisclosed sources over and above the business income for the particular year - HELD THAT:- The amount of ₹ 4 lacs disclosed during the course of survey was on the basis of excess stock found and loose papers relating to business found during survey operation. Thus, both these aspects on the basis of which disclosure was made were relating to the business of the assessee. Whatever income was declared was related to the business of the assessee and it was assessee’s business income. The assessee shall be entitled to pay remuneration to its partners as per clauses of partnership deed. Therefore, we allow this ground of appeal of the assessee. Issues:1. Addition of income towards estimation by Assessing Officer.2. Dispute over remuneration to partners on declared income during survey operation.Analysis:1. The appeal pertains to the addition of Rs. 1,49,052 made by the Assessing Officer towards income estimation despite the assessee providing all materials. The assessee, a partnership firm in the wholesale and retail business of sarees and cloth, filed a return declaring income at Rs. 2,51,048. A survey conducted by the department resulted in the assessee surrendering Rs. 4 lakhs due to excess stock and loose papers found. The main issue is the remuneration to partners on the declared income during the survey. The Assessing Officer considered this income as undisclosed, while the assessee argued it was related to excess stock and papers found during the survey, constituting business income. The Tribunal held that the disclosed income was related to the business, allowing remuneration to partners as per the partnership deed, and overturned the addition.2. The Tribunal noted that the Rs. 4 lakhs disclosed during the survey was based on excess stock and papers related to the business. As the disclosed income was connected to the business, the assessee was entitled to pay remuneration to partners as per the partnership deed. The Tribunal concluded that the income declared was the business income of the assessee, and partners should receive remuneration accordingly. Consequently, the Tribunal allowed the appeal of the assessee, emphasizing that the disclosed income was part of the business and partners were entitled to remuneration as per the partnership agreement.