AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 948
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....xmann.com 90/235 Taxman 308 (Delhi), M/S Great City Manufacturing Co. ITA No.461/20019 (ALL) and JRA associates ITA 571/2015 etc. deciding issue in favour of assessee with identical facts/circumstances on merits. 3. That, view of ld. PCIT is also against the principle of consistency as remuneration to partners is always allowed in the earlier years after enquiry u/s 143(3) of IT Act, 1961. 4. That, without prejudice to above, order of ld. PCIT is against the provisions of section 263 itself in as much as neither order is erroneous being issue is covered by court cases in favour of assessee nor even it is prejudicial to the interest of revenue as even after such disallowance no extra tax will accrue to deptt. as partners has already paid tax @ 30% on the amount under question and issue of tax is neutral. 5. That, ld. PCIT further erred in observing that AO has not made enquiry on the issue in as much as during the assessment proceedings assessee has provided details of computation of remuneration which only demonstrate the allowance after due application of mind. 6. That, ld. PCIT further erred in issuing show cause notice only on the basis of aud....
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....the Act as the assessment framed by the AO is neither erroneous nor prejudicial to the interest of the Revenue; that remuneration paid to the partners is quantifiable as per partnership deed in which it is clearly mentioned that the amount of remuneration will be determined as per the provisions of sub-clause (v) of clause (b) of section 40 of the Act and will be distributed among the partners equally; that the remuneration received by the partners was also taxed @ 30% in individual hands and even if remuneration was not paid by the firm to its partners, then also the tax @ 30% was payable on it; that the Revenue Department is consistently allowing the remuneration in the preceding years while framing assessment u/s 143 (3) of the Act, so the rule of consistency is required to be followed and as such is not prejudicial to the interest of the Revenue and relied upon the judgments rendered by Hon'ble Supreme Court in CIT, Gujarat-II vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 9SC), Hon'ble Allahabad High Court in CIT vs. Great City Manufacturing Co. (2013) 251 ITR 156 (All.), Hon'ble High Court of Delhi in CIT vs. Vaish Associates (2015) 63 taxmann.com 90 (Delhi) and order o....
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....ers from year to year." (emphasis provided) 11. Bare perusal of clause 5, extracted above, goes to prove that remuneration has been paid by the assessee firm to its working partners is in consonance with the provisions contained u/s 40(b)(v) of the Act, out of the total income tax assessment of the firm in the relevant assessment year, out of the total income of remuneration so calculated shall be allowed to the partners in equal proportions. 12. Hon'ble High Court of Delhi in case cited as Vaish Associates (supra) dealt with the identical issue as to invoking the provisions of section 40(b)(v) of the Act and decided the same in favour of the assessee by returning following findings :- "8. Having heard the submissions of Ms. Suruchi Aggarwal, learned Senior Standing counsel for the Revenue and Ms. Kavita Jha, learned counsel for the Respondent Assessee, the Court finds no reason to take a view different from the one taken by the ITAT in the facts and circumstances of the case. Clause 6(a) of the partnership deed dated 20th June 2008 clearly indicates the methodology and the manner of computing the remuneration of partners. The remuneration of the partners has been co....
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....uneration of Rs. 4,00,000/- per annum to each of the partners. It is also not in dispute that the terms of the partnership deed specifically provided the payment of remuneration to the working partners. Section 40(b) (v) of the Act prescribed limit of remuneration which can be allowed to its partner as deduction while computing the business income. It is not in dispute that the remuneration paid to the working partners was within the provision of clause (v) of subsection (b) of Section 40 of the Act. The Parliament in its wisdom had fixed a limit on allowing the remuneration to the working partners and if the remuneration are within the ceiling limit provided then recourse to provision of Section 40A(2)(a) of the Act cannot be taken. The assessing officer is only required to see as to whether the partners are the working partners mentioned in the partnership deed, the terms and conditions of the partnership deed provide for payment of remuneration to the working partners and whether the remuneration provided is within the limits prescribed under Section 40(b)(v) or not. If all the aforementioned conditions are fulfilled then he cannot disallow any part of the remuneration on the gr....