H. R. International Vs PCIT (ITAT Amritsar)
The section 263 has two limbs, the erroneous order and prejudicial to the interest of revenue. The assessee in its partnership deed mentioned the drawing power of the salary is 24 lakh per annum for each partner. In fact more than salary Rs. 24 lakh will be disallowed as per section 40(b)(v) of the Act. Here it cannot say that the specific salary is not quantified. The assessment order has not pointed out about anything related to partnership deed. But during calculation of total income the said deed was considered & documents was within the record of the proceeding. On basis of remuneration clause in deed two views are different in between the ld. AO & ld Pr CIT. On other hand the disallowance of partners remuneration means the tax was paid by the assessee on Rs. 36 lakhs in its return income. So, the full partnership remuneration is under tax bracket. The general prudence of the law is that the same income cannot be taxed twice. On other hand, the partners are not liable to pay tax on the remuneration which was already paid by the firm in its return of income.
The beauty of the section 40(b)(5) is that the remuneration to the partner is fully regulated by the book profit. More book profit more remuneration of partner will be allowed. So as per act the assessee can claim more remuneration but it will be allowed subject to provision 40(b)(5) of the Act depending of its book profit. On the other hand, the same remuneration is taxed in the hands of the assessee. The learned Pr. Commissioner of Income Tax, during issuance of notice under section 263 of the act and also during passing the order under section 263 of the act did not cognizance on the calculation of tax and the benefit of the revenue.
We consider the order under section 263 of the act. The two opinions were formed by two Authorities in the question of acceptance of clause of partnership deed related Partners’ Remuneration. Respectful consideration of the judgments of Hon’able Apex court is in the case of Malabar Industrial Company Ltd vs CIT 243 ITR 083 (SC) & in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd. [2021] 130 taxmann.com 294 (SC).
Here, the view of ld. Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. Accordingly, the order of the ld AO cannot be considered erroneous or prejudicial to the interest of revenue.
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
The instant appeal was filed by the assessee against the order passed by the Ld. Pr. Commissioner of Income Tax-1, Jalandhar [in brevity the PCIT], bearing order No. Pr.CIT-1/JAL/263/2019-20/2128 dated 16.09.2019 passed u/s 263 of the Income Tax Act, 1961[in brevity the Act], 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) of the Act in summary matter. The learned Pr.CIT initiated the notice under section 263 of the Act on basis of that the partnership deed of the assessee. As per his observation the deed is not quantified the partners’ salary. As per section 40(b)(v) of the Act the remuneration of partners should be quantified. But the learned Pr.CIT observed that in partnership deed the amount is not quantified. Accordingly, the assessee is not eligible to get the benefit of section 40(b)(v) of the Act related remuneration of the partners. It is determined by the learned Pr CIT that the order of the Ld Assessing Officer is erroneous and prejudice to the interest of revenue. Considering this fact the order under section 263 was passed. The aggrieved assessee filed an appeal before us for further adjudication.
3. During the hearing the Council of the assessee Mr Tarun Bansal, Advocate filed the written submission on dated 24th March 2022 which is kept in the record. As per Mr Bansal the order passed by the learned Pr. CIT is perverse. In fact the Assessment order of the learned Assessing Officer is not erroneous because the issue related partnership deed is considered in assessment order during allowing the deduction U/s 40(b)(v) of the Act. During the assessment, the partnership deed was produced which is enclosed in Page number 5 of the paper book. In point number 7 of the deed, the remuneration is quantified. The point no. 7 of the deed is reproduced as under:-
“7. That all the 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:
