ITAT Kolkata partially allows appeal, remands disallowance issue, overturns Section 40(b) disallowance, emphasizes partners' remuneration rights.

The ITAT Kolkata partly allowed the appeal, remanding the issue of disallowance of advertisement charges back to the AO for fresh adjudication due to the retrospective operation of the relevant provisions. The disallowance of remuneration/commission paid to partners under Section 40(b) of the Income Tax Act was overturned, with the ITAT emphasizing that partners can draw remuneration from multiple firms if actively involved in the business. The appellant's additional grounds were allowed, resulting in the deletion of the disallowance and a partial success in the appeal.

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Issues:
1. Disallowance of advertisement charges under section 40(a)(ia) of the Income Tax Act.
2. Disallowance of remuneration/commission paid to partners under section 40(b) of the Income Tax Act.

Issue 1: Disallowance of Advertisement Charges under Section 40(a)(ia) of the Income Tax Act:
The appellant, a partnership firm dealing in sarees and salwar suits, appealed against the disallowance of advertisement charges and remuneration/commission by the Ld. CIT(A) for the Assessment Year 2012-13. The AO disallowed advertisement charges of Rs. 10,20,144 for non-deduction of tax under section 40(a)(ia) of the Act. The appellant argued that since the amount was paid during the year, the provisions of section 40(a)(ia) were not applicable as it applied only when the amount remained payable at year-end. However, the Ld. CIT(A) upheld the disallowance citing the judgment of the Supreme Court in the case of Palm Gas Services Vs CIT. The ITAT Kolkata remanded the issue back to the AO for fresh adjudication considering the retrospective operation of the second proviso to section 40(a)(ia) read with section 201(1) of the Act, allowing the appellant to provide additional evidence.

Issue 2: Disallowance of Remuneration/Commission Paid to Partners under Section 40(b) of the Income Tax Act:
The second issue revolved around the disallowance of remuneration/commission paid to two women partners who were also partners in another firm. The Ld. CIT(A) partially confirmed the AO's disallowance of commission paid to two partners, citing their involvement in another partnership firm. The ITAT Kolkata noted that the disallowance was made based on conjectures and allowed the appeal, emphasizing that there is no legal prohibition for a partner to draw remuneration from more than one partnership firm. The ITAT held that the disallowance of commission/remuneration paid to the partners was unjustified, as both partners were actively involved in the business and had the capacity to render services. Consequently, the disallowance was deleted, and the additional grounds taken by the appellant were allowed.

In conclusion, the ITAT Kolkata partly allowed the appeal of the assessee for statistical purposes, emphasizing the need for a fresh adjudication on the disallowance of advertisement charges and overturning the disallowance of remuneration/commission paid to partners.

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