2023 (4) TMI 887 - AT - Income Tax

Appeal allowed, disallowance set aside under Sec. 40(b) - ITAT's ruling on audit report non-mentioning

S.A. Aluminium Versus The Income Tax Officer, Raipur (C. G.).

The ITAT Raipur allowed the appeal of the assessee, setting aside the disallowance of Rs. 4,01,002 made by the AO under Sec. 40(b) of the Income-tax Act, ... Disallowance u/s.40(b) - remuneration paid to partners - requirement of discloser in Clause 21(c) of Form 3CD - claim for deduction was disallowed for the reason that the assessee firm had failed to mention Clause 21(c) of Form 3CD of his audit report the amount of remuneration that was admissible u/s. 40(b)/40(ba) - HELD THAT:- Now when Clause 21(c), inter alia, envisages mentioning of the amount of remuneration that is inadmissible u/s.40(b) of the Act, therefore, no adverse inferences could have been drawn for the reason that the assessee firm had failed to make mention of the amount admissible under the said statutory provision. Although the details referred to in Clause 21(c) does make a reference of both the amounts admissible and inadmissible, but a careful perusal of the same reveals that the said details are sought only as regards the expenses therein set out which are inadmissible u/ss.40(b)/40(ba) of the Act. On the basis above no infirmity emerges from the non-mentioning of the amount of remuneration paid by the assessee firm to its partners in Clause 21(c). Unable to persuade to subscribe to the view taken by the lower authorities who had disallowed the assessee’s claim for deduction of remuneration under sec. 40(b) - Decided in favour of assessee. Issues involved: Appeal against order disallowing deduction of remuneration to partners under Sec.40(b) of the Income-tax Act, 1961 for the assessment year 2020-21.Summary:Grounds of Appeal:The appellant challenged the order passed by the Commissioner of Income-Tax (Appeals) regarding the disallowance of the claim of Rs. 4,01,002 as entitled salary payable to partners under Sec. 40(b) of the Act. The appellant contended that the remuneration was duly assessed and allowed in preceding years, and partners had included this income in their tax returns. The appellant also argued against double taxation and the disallowance of expenses based on inadvertent mistakes in the Tax Audit Report.Assessee's Return and Disallowance:The assessee firm filed its return for A.Y. 2020-21, declaring income of Rs. 1,17,340. The CPC disallowed the deduction claimed for remuneration paid to partners, resulting in the determination of income at Rs. 5,18,340.Appeal and Dispute:The assessee appealed to the CIT(Appeals) but was unsuccessful. Subsequently, the matter was brought before the ITAT Raipur by the assessee.Controversy and Decision:The main issue revolved around the disallowance of the deduction claimed for remuneration paid to partners under Sec. 40(b) of the Act. The AO disallowed the claim citing non-mention of the amount in the audit report. However, the ITAT held that the non-mentioning of the remuneration amount did not violate the provisions of Sec. 40(b). The ITAT concluded that the disallowance was unwarranted as the claim did not contravene the specified conditions under Sec. 40(b).Judgment and Disposal:The ITAT set aside the order of the CIT(Appeals) and vacated the disallowance of Rs. 4,01,002 made by the AO under Sec. 40(b) of the Act. The ITAT also directed the AO to rework the interest levied under Sec. 234B and 234C. Consequently, the appeal of the assessee was allowed.This summary provides a detailed overview of the legal judgment, highlighting the grounds of appeal, the dispute, the controversy, and the final decision rendered by the ITAT Raipur.