Tribunal directs AO to verify partner remuneration, reconcile professional fees, and delete disallowed expenses.

The Tribunal partly allowed the appeal by directing the AO to verify the inclusion of remuneration in partners' individual returns, reconcile professional fees disallowance, and delete disallowances of motor car and telephone expenses due to payment of Fringe Benefit Tax (FBT). The Tribunal emphasized the acceptance of the supplementary partnership deed for remuneration calculation and upheld the active involvement of a partner in business activities, overturning incorrect findings by the AO.

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Issues Involved:
1. Disallowance of remuneration to partners under Section 40(b)(v).
2. Incorrect finding regarding the status of a working partner.
3. Disallowance under Section 40(a)(ia) read with Section 194J.
4. Disallowance of motor car expenses.
5. Disallowance of telephone expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Remuneration to Partners under Section 40(b)(v):
The assessee-firm contested the disallowance of Rs. 68,23,498/- as remuneration to working partners, which was confirmed by the CIT(A). The AO had allowed only Rs. 24,000/- per annum as per the partnership deed dated 27-03-1995, rejecting a supplementary partnership deed dated 02-04-2003 due to its uncertified and illegible nature. The Tribunal noted that the supplementary partnership deed was accepted in previous years, and the remuneration was allowed based on this deed. The Tribunal directed the AO to verify whether the remuneration was included in the partners' individual returns and due taxes were paid, and if so, to allow the remuneration.

2. Incorrect Finding Regarding the Status of a Working Partner:
The AO had disallowed the remuneration of Rs. 27,38,999/- paid to Mrs. Kiran R. Puri, questioning her role and qualifications. The Tribunal found that Mrs. Kiran R. Puri was actively involved in the business, handling administration and finance, especially when the other partner was out of Mumbai. The Tribunal observed that the remuneration was allowed in previous years and no new evidence was provided to justify the disallowance. The Tribunal directed the AO to verify the inclusion of this remuneration in her individual return and allow it accordingly.

3. Disallowance under Section 40(a)(ia) read with Section 194J:
The AO disallowed Rs. 63,650/- for non-deduction of TDS on professional fees. The assessee argued that Rs. 44,944/- was already disallowed voluntarily in the computation of income. The Tribunal found a lack of clarity and directed the AO to reconcile the figures and ensure no double addition occurs.

4. Disallowance of Motor Car Expenses:
The AO disallowed 20% of motor car expenses amounting to Rs. 1,19,201/- due to the absence of a logbook and the car being registered in the partner's name. The Tribunal noted that Fringe Benefit Tax (FBT) was paid on these expenses and found no incriminating material to justify the disallowance. The Tribunal ordered the deletion of this disallowance.

5. Disallowance of Telephone Expenses:
The AO disallowed 20% of telephone expenses amounting to Rs. 95,680/- for personal use. The Tribunal observed that FBT was paid on these expenses, and no specific defects were pointed out by the AO. The Tribunal ordered the deletion of this disallowance as well.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to verify the inclusion of remuneration in the partners' individual returns and due taxes paid, to reconcile the professional fees disallowance, and to delete the disallowances of motor car and telephone expenses due to the payment of FBT.

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