2022 (10) TMI 598 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on partners' remuneration under Income-tax Act

The Joint Commissioner of Income-tax (OSD), Anand Circle, Anand Versus M/s. Asian Food Industries

The Tribunal dismissed the Revenue's appeal, upholding the decision of the CIT(A) to delete the addition made by the Assessing Officer on account of ... Remuneration to partners - assessee has claimed deduction on account of remuneration paid to partners, even in respect of interest income on investment in FDRs etc. - According to the AO, the said interest income was chargeable to tax under the head “income from other sources” and the same, therefore, could not be taken into account for the purpose of allowing deduction to the assessee on account of remuneration paid to the partners under Section 40(b) - HELD THAT:- As the issue involved in this appeal of the Revenue is squarely covered in favour of the assessee by the decision of Co-ordinate Bench of this Tribunal in assessee’s own case for AY 2012-13 [2019 (2) TMI 512 - ITAT AHMEDABAD] as well as the decision in the case of CIT Vs. J.J. Industries, [2013 (7) TMI 577 - GUJARAT HIGH COURT] Respectfully following the said judicial pronouncements, we uphold the impugned order of the learned CIT(A) deleting the addition made by the Assessing Officer on account of disallowance of partners’ remuneration and dismiss the appeal of the Revenue. Issues:1. Deletion of addition of partners' remuneration under Section 40(b) of the Income-tax Act, 1961.Analysis:The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) regarding the deletion of an addition made by the Assessing Officer on account of disallowance of partners' remuneration under Section 40(b) of the Income-tax Act, 1961. The Assessing Officer disallowed the claim of the assessee for deduction on account of remuneration to partners due to interest income being chargeable to tax under 'income from other sources.' The learned CIT(A) deleted the addition based on precedents from the ITAT and the Gujarat High Court. The Tribunal noted that a similar issue had been decided in favor of the assessee previously. The Tribunal upheld the decision of the CIT(A) based on the previous rulings, confirming the deletion of the addition made by the Assessing Officer. The issue was found to be squarely covered in favor of the assessee by the decisions of the Co-ordinate Bench of the Tribunal and the Gujarat High Court.The assessee, a partnership firm engaged in exporting processed spices and foodstuff, filed its income tax return declaring a total income. During assessment, the Assessing Officer disallowed the deduction claimed by the assessee on remuneration paid to partners due to interest income being considered under 'income from other sources.' The CIT(A) deleted the addition citing precedents from the ITAT and the Gujarat High Court. The Tribunal, after considering arguments from both sides, upheld the decision of the CIT(A) based on the previous rulings. The Tribunal confirmed the deletion of the addition made by the Assessing Officer, as the issue was found to be covered in favor of the assessee by previous decisions.The key argument revolved around whether interest income should be excluded for determining the allowable deduction of remuneration paid to partners under Section 40(b) of the Act. The Tribunal, following previous rulings, held that interest income cannot be excluded for this purpose. The Tribunal emphasized that for ascertaining the ceiling on the basis of book profit, the profit must be in the profit and loss account, and interest income should not be excluded. The Tribunal's decision was based on the interpretation of relevant provisions and judicial precedents, ultimately leading to the dismissal of the Revenue's appeal.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the CIT(A) to delete the addition made by the Assessing Officer on account of disallowance of partners' remuneration. The Tribunal's decision was based on the consistent interpretation of the law and precedents set by the ITAT and the Gujarat High Court, ultimately favoring the assessee in this case.