2010 (11) TMI 1126 - AT - Income Tax

Tribunal upholds higher partner remuneration based on disclosed business income

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow higher remuneration to partners based on the disclosed business ... - Issues involved: Appeal filed by Revenue against deletion of addition of excess claim of remuneration u/s 40(b).The judgment pertains to an appeal filed by the Revenue challenging the deletion of an addition of Rs.18,07,389 as excess claim of remuneration u/s 40(b). The assessee firm, engaged in the business of purchasing gold for manufacturing ornaments, filed its income tax return declaring total income of Rs.30,26,120, claiming deductions u/s 40(b)(v) for remuneration and interest payments to partners. A survey u/s 133A revealed excess gold ornaments and cash, with a partner admitting the undisclosed income as business income for the relevant assessment year. The Assessing Officer (AO) treated the disclosed income as deemed income u/s 69B, disallowing reduction against business income. However, the CIT(A) allowed the claim for higher remuneration to partners, considering the disclosed income as business income. The Tribunal upheld this decision, emphasizing that the undisclosed assets were integral to the business and not independently identifiable for invoking section 69. The Tribunal cited precedents supporting the treatment of undisclosed income as business income, entitling the assessee to claim higher remuneration u/s 40(b).The key contention revolved around the treatment of the disclosed undisclosed income as business income, impacting the calculation of remuneration u/s 40(b). The partner's admission during the survey that the undisclosed amount constituted additional business income was pivotal in determining the tax treatment. The CIT(A) upheld the claim for higher remuneration, emphasizing the business nature of the undisclosed income and rejecting the AO's approach of deeming it as separate income. The Tribunal concurred with this view, highlighting the lack of independent identity for the undisclosed assets, precluding their classification as separate income under section 69.The Tribunal's decision was supported by legal precedents emphasizing the nexus between undisclosed income and business activities, warranting the allowance of higher remuneration to partners u/s 40(b). The Tribunal's analysis underscored the importance of establishing a clear link between undisclosed income and business operations before invoking provisions like section 69. By considering the undisclosed assets as integral to the business, the Tribunal affirmed the CIT(A)'s decision to grant higher remuneration to the partners based on the disclosed business income during the survey.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow higher remuneration to partners based on the disclosed business income during the survey. The judgment highlighted the significance of treating undisclosed income in connection with business activities to determine the applicability of tax provisions and entitlement to deductions u/s 40(b).