TaxTMI 
TaxTMI 
2022 (6) TMI 184
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...., in respect of Assessment Year 2015-16. The impugned order was originated from order of the ld. Assistant Commissioner of Income Tax- Circle-1, Jalandhar bearing order dated 06/07/2017, passed U/s 143(3) of the Act. 2. Brief fact of the case is that the assessee is a partnership firm & filed its income tax return in form no- 5 as per income tax rule 1962, during the year 2015- 16 & claimed partners' remuneration U/s 40(b)(v) of the Act. The assessee claimed partners' remuneration Rs. 36 lakhs related to 3 (three) partners of the firm, named Mr. Naresh Kumar Sharma, Mr. Sudershan Kumar Sharma and Mr. Suresh Kumr Sharma amount of remuneration Rs. 12 lakh each for the financial year 14-15. The assessment was made under section 143(3)....
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....partners shall be working partners and shall be entitled to draw salary from the firm to the extent allowable under the provisions of Income Tax Act, 1961 but shall be drawing salary to the maximum of: 1. Sh. Sudershan Kumar Sharma -- Rs. 24,00,000 per Annum 2. Sh. Suresh Kumar Sharma -- Rs. 24,00,000 per Annum 3. Sh. Naresh Kumar Sharma -- Rs. 24,00,000 per Annum The amount of salary shall be treated as expenses of the partnership business and shall be deducted as expenses before net profit is determined. In case there is loss in partnership business, working partners shall not be entitled to any salary and if the books profit computed in accordance with the provisions of the Income Tax Act is not sufficient to cover the amount of ....
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.... partners shall be entitled to draw salary to the extent allowable under the provisions of Income Tax Act, 1961 to the maximum of Rs. 24,00,000/- per annum to each partner. Since, the salary to the partners has not been quantified in the deed as required u/s. 40(b)(ii), the Assessing Officer, while framing assessment, was required to disallow the salary amounting to Rs. 36,00,000/- debited by the assessee firm in its P & L Account but the Assessing Officer failed to do so." Accordingly, in view of above discrepancies, I propose to hold the said order to be erroneous, in so far as it is prejudicial to the interest of revenue and take suitable remedial action, as per section 263 of the Income Tax Act, 1961. Your reply/objections, if any, to....
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....ot in accordance with, the terms of the partnership deed is not allowed. This section clearly says that the salary allowed should be authorized by the partnership deed and does not talk about the quantification of salary. It seems that the quantification of salary to partner has been derived from Circular No. 739 dated 25-03-96 which is being produced for the sake of ready reference only." 6. The learned counsel, Mr. Bansal further pointed out that invoking section 263 is not prejudicial to the interest of the revenue. In fact invoking this section the revenue is losing the tax. In his argument, he clarified that the assessee claimed partners' remuneration in its profit and loss account Rs. 36 lakhs. During the computation of income by....
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.... remuneration amount to Rs. 36 lakhs the tax was paid in assessee's return. Accordingly the refund will be claimed in the hands of the partners related to tax on disallowed partners' remuneration. The same amount cannot be taxed twice. He had taken the prudence of the law. The amount would be liable for refund by the revenue authority. 8. The learned CIT-DR vehemently argued and mentioned that the tax will be levied in the hand of specific person. The question of refund or loss of revenue is not the point. He relied on the order of the learned Pr. CIT. 9. We heard the rival submission & considered the documents available on record. The section 263 has two limbs, the erroneous order and prejudicial to the interest of revenue. The a....