2023 (3) TMI 361 - AT - Income Tax

Tribunal emphasizes document review in partner remuneration assessment under Income-tax Act

M/s. Nibhas Sinha Versus ACIT, Circle -3, Suri, Birbhum

The Tribunal allowed the appeal of the assessee, emphasizing the importance of considering all relevant documents, such as the supplementary partnership ... Revision u/s 263 by CIT - remuneration to the partners - limit prescribed as per the Partnership Deed - Limit prescribed u/s 40(b) - HELD THAT:- As per the findings of the ld. PCIT, we noticed that no explanation was found in the assessment record as claimed by the assessee to the fact that such supplementary deed was furnished by the assessee, in fact in the assessment record only partnership deed dated 01.04.2007 (notarized on 24.03.2008) was filed. As noticed from the index of papers placed before us by the ld. AR which contains the original partnership deed dated 01.04.2007 notarized on 24.03.2008 and supplementary deed dated 04.01.2008 respectively and in supplementary deed it has discussed the matter relating to clause 13 & clause 11 of deed of partnership dated 01.04.2007 (notarized on 24.03.2008). Therefore, it is clearly indicate that the supplementary deed talks only about clauses of original partnership deed dated 01.04.2007 and in view of the supplementary partnership deed, partners shall be entitled to draw salary or remuneration as per the limit laid down u/s 40(b) of the Act and the ld. PCIT failed to advert the facts placed before him by the assessee. Therefore, we are not agree with the findings of the ld. PCIT and the revisionary action taken by the ld. PCIT cannot be sustained and we set aside the order passed by the PCIT hence grounds taken by the assessee are allowed. Issues:1. Jurisdiction under section 263 of the Income-tax Act.2. Excess remuneration paid to partners under section 40(b) of the Income-tax Act.3. Consideration of supplementary partnership deed in assessment.Jurisdiction under section 263 of the Income-tax Act:The appeal was against an order passed under section 263 of the Income-tax Act for the assessment year 2012-13. The ld. PCIT set aside the order passed by the AO, holding it to be prejudicial to the interest of revenue. The grounds of appeal included challenging the setting aside of the order and determining excess remuneration paid to partners. The ld. PCIT observed that the remuneration paid to partners exceeded the limit prescribed under section 40(b) of the Act. The PCIT issued a notice to the assessee, who submitted a written reply stating that the remuneration was within limits as per the partnership deed. However, the PCIT was not satisfied with the explanation provided by the assessee and set aside the assessment order passed by the AO.Excess remuneration paid to partners under section 40(b) of the Income-tax Act:The ld. PCIT found that the assessee firm had paid excess remuneration to partners, amounting to Rs. 10,56,000, which should have been disallowed by the AO. The PCIT noted discrepancies between the partnership deed submitted by the assessee and the actual remuneration paid to partners. The PCIT rejected the explanation provided by the assessee, stating that the amended partnership deed was not submitted during the assessment proceedings. Despite the assessee's submission of a supplementary partnership deed dated 04.04.2008, the PCIT did not consider it and directed the disallowance of the excess remuneration paid to partners.Consideration of supplementary partnership deed in assessment:During the appeal, the assessee contended that a copy of the supplementary partnership deed dated 04.04.2008 was submitted to the AO to explain the increase in remuneration paid to partners. The supplementary deed clarified contradictions in the original partnership deed and justified the remuneration paid. However, the PCIT did not acknowledge the supplementary deed submitted by the assessee. The Tribunal found that the supplementary deed was indeed filed before the AO during scrutiny assessment, but the PCIT failed to consider this crucial document. The Tribunal concluded that the PCIT's revisionary action was not sustainable, as the facts presented by the assessee were not adequately addressed. Therefore, the Tribunal allowed the grounds raised by the assessee and set aside the order passed by the PCIT.In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of considering all relevant documents, such as the supplementary partnership deed, in assessments to ensure fair and accurate determinations of remuneration paid to partners under section 40(b) of the Income-tax Act.