2019 (2) TMI 333

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....he case are as follows:- The assessee is a firm running a dealership of three wheelers manufactured by M/s.Piaggio Vehicles Private Limited. For the assessment year 2011-2012, the return of income was filed on 12.01.2012 declaring an income of Rs. 4,11,690. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 22.01.2014 making total addition of Rs. 11,21,261. The details of the additions made by the Assessing Officer read as follows:- Sr. No. Item Amount (Rs.) Reason 1. Commission received 140810 Difference with 26AS 2. Disallowance u/s 40A(3) 92760 Cash payment 3. Audit fee 45000 TDS not deducted 4. Remuneration paid to Mrs.Neethu 136937 Not working partner ....

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....f such expenditure. The CBDT circular stating that each of the individual working partner should be provided with specified remuneration, goes against the provisions of the Act and cannot be relied on. 6. The learned Departmental Representative, on the other hand, strongly supported the orders of the Income-tax authorities. 7. I have heard the rival submissions and perused the material on record. The solitary issue for my consideration is whether the CIT(A) has erred in confirming the A.O.'s action in disallowing the remuneration paid to the working partners. The allowance / disallowance of remuneration paid to working partners is governed by the provisions of section 40(b)(v) of the I.T.Act. Section 40(b)(v) reads as follows:- ....

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.... allowed as deduction. In the instant case, the total remuneration payable to the working partners was authorized as per clause 8(a) in the partnership deed dated 15.09.2007. The remuneration payable to the working partners as per deed dated 15.09.2007 are as follows:- Upto Rs. 75,000/- of the book profit for the year Rs.50,000/- or 90% of the book profit whichever is higher On the next Rs. 75,000/- of the book profit 60% of Rs. 75,000/- On the book profit in excess of Rs. 1,50,000/- 40% of the excess over Rs. 1,50,000/- 7.2 The quantum of total remuneration to the working partners was revised by clause 8(b) of the partnership deed dated 08.01.2011 as follows:- If the book profit is negative Rs.1,50,000/- In ca....

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.... is trite law that CBDT cannot issue a Circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A reading of section 40(b)(v) clearly shows that the amount of remuneration which does not exceed the amount given in the Income-tax Act is deductible. In the present case, the partnership deed provides that the remuneration will be as per the provisions of the Income-tax Act. It clearly means that the remuneration payable to the partners shall be quantified as per the provisions of the Income-tax Act and shall not exceed the maximum remuneration provided. It is not in dispute that the partners were paid remuneration which was less than t....