Adarsh Machinery And Tools Vs ITO (ITAT Ahmedabad)
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 20/11/2025 for Assessment Year 2015-16. The dispute concerned the disallowance of partners’ remuneration amounting to Rs. 6,41,548/-.
The assessee contended that while filing the Income Tax Return (ITR), the remuneration paid to partners of Rs. 6,41,548/- was correctly disclosed at Point No. 38 of Part A-P&L. The same amount was also certified in Clause 21(c) of Form 3CD by the tax auditor, which recorded remuneration debited to the Profit & Loss Account of Rs. 6,41,549/- and remuneration allowable under Section 40(b) of the Income Tax Act at Rs. 6,41,548/-. However, due to a data entry oversight, the column relating to remuneration paid/payable to partners in the “Partners’/Members’/Trust Information” schedule of the ITR was left blank. According to the assessee, this schedule was only informative, while the remuneration had already been disclosed in the Profit & Loss Account. The assessee also submitted that the remuneration had already been considered as income in the hands of the respective partners.
While processing the return under Section 143(1), the Centralized Processing Centre (CPC) noticed that Schedule E reflected remuneration paid to partners as “0” and consequently disallowed the claim of Rs. 6,41,548/-. The assessee stated that the intimation under Section 143(1) had been sent by email but escaped its attention. The assessee claimed to have first become aware of the disallowance only upon receiving a recovery notice in 2024, after which it immediately filed an application for rectification under Section 154 before the Assessing Officer.
The Assessing Officer rejected the rectification application on the grounds that the remuneration had not been disclosed in Schedule E of the ITR and that the rectification application was barred by limitation under Section 154(7). The Commissioner (Appeals) also dismissed the assessee’s appeal.
After hearing the parties and examining the record, the Tribunal observed that the disallowance had resulted from a clerical mistake in entering the amount in the relevant schedule, whereas the remuneration had been claimed in the ITR and was supported by the audit report. The Tribunal also noted that the assessee had explained the delay in filing the rectification application before the Assessing Officer.
The Tribunal observed that it has been held time and again by various courts that the Income Tax Authorities should not punish assessees for bona fide mistakes and should collect only the legitimate taxes payable. Considering the interests of justice, the Tribunal set aside the order of the Commissioner (Appeals) and restored the matter to the file of the Assessing Officer with a direction to verify the assessee’s claim of remuneration paid to the partners and, if found admissible, allow the claim irrespective of the delay in filing the rectification application under Section 154.
Accordingly, the appeal was treated as allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘Ld. CIT(A)’] dated 20/11/2025 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2015- 16.
2. The assessee has raised the following grounds of appeal:
“1. The Learned Assessing Officer erred in rejecting the rectification application under section 154 without considering the fact that the disallowance of remuneration to partners was based on clerical error of data entry oversight, with no concealment or misreporting motive, which is a mistake apparent from the record.
2. The Learned Assessing Officer failed to consider that the remuneration amount of Rs. 6,41,548/- was correctly disclosed in the Profit & Loss A/c (point 38 of ITR) and the audit report, and merely left blank in the Schedule of Partners due to unintentional omission, which does not invalidate the claim.
3. The Learned Assessing Officer failed to consider that Schedule E (Partnership Details) of the ITR is an informative disclosure section, and data therein is not determinative of tax liability. The failure to duplicate the remuneration amount in this field, which was already present in the P&L, does not justify disallowance.
4. The Learned Assessing Officer further erred in holding that the application is barred by limitation under Section 154(7), without considering that the delay was caused due to non-receipt of the original intimation and that the assessee moved for rectification immediately upon knowledge of the demand.
5. The appellant craves leave to add, alter, amend or withdraw any of the above grounds at the time of hearing.”
3. The short issue involved in this appeal is pertain to disallowance of the remuneration paid to partners of Rs. 6,41,549/-.
4. The plea of the assessee is that in the ITR filed, the salary/remuneration paid to partners of Rs. 6,41,548/- was duly and correctly entered at Point No. 38 of Part A-P&L (Salary/Remuneration to Partners). This figure was also independently certified by the Tax Auditor at Clause 21(c) of Form 3CD, which expressly stated that remuneration debited in P&L of Rs. 6,41,549/-, and remuneration allowable u/s 40(b) of the Act was to the tune of Rs. 6,41,548/-. However, due to a data entry oversight at the time of filing, the ‘remuneration paid/payable to partners’ of column relating to “Partners’/Members’/Trust Information” of the ITR was inadvertently left blank. The figure was not duplicated from the P&L into this informative schedule. That the said amount of remuneration has already been considered as income by respective partners. The CPC while processing the return of the assessee u/s 143(1) of the Act finding that in the Schedule-E attached with the ITR, the amount of remuneration paid to the partners was mentioned as ‘0’, hence, disallowed the said remuneration of Rs. 6,41,548/- claimed by the assessee. The assessee claimed that the said intimation order passed by the CPC u/s 143(1) of the Act was sent on email. However, the same, somehow, escaped the attention of the assessee. The assessee for the first time got the knowledge of such order making of disallowance of remuneration paid to the partners when, the notice for recovery of outstanding tax was received in the year 2024. The assessee immediately filed a rectification application u/s 154 of the Act to the AO. However, the AO dismissed the said application observing that the assessee had not disclosed the said remuneration paid to the partners in Schedule-E attached with the ITR, further that the application filed by the assessee was time barred.
5. The Ld. CIT(A) also dismissed the appeal of the assessee.
6. We have heard the rival contentions and gone through the material on record. In this case, the disallowance of the remuneration paid to the partners has been made by the CPC due to some clerical mistake in mentioning the said amount in the relevant Schedule. However, the same was duly claimed by the assessee in the ITR which was supported with Audit Report. The assessee duly explained the reasons for delay in filing the rectification application before the AO. It has been held time and again by various courts of law that Income Tax Authorities should not punishes the assessees for their bona fide mistake and they should charge the assessees only legitimate taxes payable by them. Hence, considering the interests of justice, the impugned order of the CIT(A) is set-aside and the matter is restored to the file of the AO with a direction to verify the claim of remuneration paid to the partners and if admissible, allow the same to the assessee irrespective of any delay in filing the rectification application.
7. With the above observations, the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the Open Court on 06/07/2026.
