Tribunal allows appeal, dismisses profit estimation, directs AO on partner salary issue.

The Tribunal condoned the delay in filing the appeal, dismissed the ground on profit percentage estimation, and directed the AO to allow the salary paid to partners, partly allowing the appeal.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Estimation of profit percentage.
3. Allowance of interest on partner's capital, remuneration to partners, and depreciation.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was time-barred by 359 days. The assessee filed a condonation petition supported by an affidavit citing health issues and the COVID-19 lockdown as reasons for the delay. The Tribunal considered the petition and rival submissions, referring to the Supreme Court judgment in Collector, Land Acquisition vs. Mst. Katiji (1987) 167 ITR 471, which states that there should be no presumption of deliberateness or negligence in case of delay. The Tribunal found the reasons sufficient and condoned the delay, admitting the appeal for hearing.

2. Estimation of Profit Percentage:
The assessee did not press Ground No. 1 of the appeal, which contested the CIT(A)'s direction to estimate profit at 3% instead of the 4% estimated by the AO. Consequently, this ground was dismissed as not pressed.

3. Allowance of Interest on Partner's Capital, Remuneration to Partners, and Depreciation:
The assessee firm was engaged in trading and had filed its return of income. The AO completed the assessment under section 144 of the Income-tax Act, 1961, rejecting the books of account under section 145(3) and estimating net profit at 4% of the turnover. The AO also disallowed Rs. 1,20,000/- on account of remuneration to partners. The CIT(A) partly allowed the appeal, reducing the net profit estimate to 3% but confirming the disallowance of salary to partners.

The assessee contended that the salary paid to partners should be allowed as per law, citing similar cases where the Tribunal allowed such deductions. The Tribunal examined the provisions of Section 184(5), which disallows deductions for interest, salary, etc., to partners if the assessment is made under section 144 due to specific failures by the assessee. However, the Tribunal noted that the assessee had filed the return of income and partially complied with notices under sections 142(1) and 143(2).

The Tribunal referred to its earlier decisions and concluded that disallowance under Section 184(5) should not apply in every case of assessment under section 144 but only where there is a complete failure as specified. The Tribunal found that the AO had not justified the invocation of Section 184(5) as there was partial compliance by the assessee. Therefore, the Tribunal directed the AO to allow the salary paid to partners, following the precedent set in similar cases.

Conclusion:
The Tribunal condoned the delay in filing the appeal, dismissed the ground regarding the estimation of profit percentage as not pressed, and directed the AO to allow the salary paid to partners, thereby partly allowing the appeal. The decision was pronounced on 14/06/2021.

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