Case Law Details
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.
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