2022 (6) TMI 184 - AT - Income Tax

Tribunal rules in favor of assessee on partners' remuneration dispute

M/s H.R. International Versus Pr. CIT-1, Income Tax Office, Jalandhar

M/s H.R. International Versus Pr. CIT-1, Income Tax Office, Jalandhar - [2022] 97 ITR (Trib) 129 (ITAT [Amrit]) Issues:Assessment under section 263 of the Income Tax Act, 1961 for Assessment Year 2015-16 related to partners' remuneration quantification under section 40(b)(v) of the Act.Analysis:1. The appeal was against the order passed by the Principal Commissioner of Income Tax-1, Jalandhar under section 263 of the Income Tax Act, 1961, regarding the quantification of partners' remuneration. The partnership deed did not explicitly quantify the partners' salaries, leading to the initiation of the notice under section 263 by the Principal Commissioner.2. The assessee argued that the partnership deed did quantify the salaries of partners in point number 7, allowing each partner a maximum of Rs. 24,00,000 per annum. The counsel contended that the assessing officer had considered the partnership deed during the assessment, and the salaries were within the authorized limits, hence not erroneous. However, the CIT-DR argued that the quantification was not explicitly mentioned in the deed, making the entire order erroneous.3. The Principal Commissioner's order under section 263 highlighted discrepancies in the assessment order, emphasizing the non-quantification of salaries in the partnership deed as required by section 40(b)(ii). The response from the assessee's counsel reiterated that the salaries were quantified as per the deed and authorized limits, citing relevant sections of the Income Tax Act.4. The counsel further argued that invoking section 263 was not in the interest of revenue, as the assessee had paid taxes on the full remuneration amount of Rs. 36 lakhs, resulting in double taxation if disallowed. Documents attached supported the claim that the partners had already paid taxes individually on their share of the remuneration.5. The Tribunal analyzed the two views presented by the assessing officer and the Principal Commissioner regarding the acceptance of the partnership deed's clause on partners' remuneration. Referring to relevant judgments, the Tribunal concluded that the assessing officer's view was plausible and not erroneous or prejudicial to the interest of revenue, ultimately allowing the appeal filed by the assessee.6. The Tribunal highlighted the importance of considering the book profit in regulating partner remuneration under section 40(b)(5) of the Act, emphasizing that the same income should not be taxed twice. The Tribunal's decision was based on the plausibility of the assessing officer's view and the lack of error or prejudice to revenue in the original order.7. In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the assessing officer's decision was not erroneous or prejudicial to the interest of revenue. The order was pronounced in favor of the assessee on 19.05.2022.