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2017 (11) TMI 68 - AT - Income TaxAddition towards salary paid to the partners - AO made the addition relying on the statement of the partners who state that they have no active role in chit fund company and the Managing Partner Shri A. Venkateswarlu only looks after the chit funds - Held that:- Similar disallowance was made in AY 2004- 05 by the revenue authorities and the Tribunal had deleted the disallowance by observing that the disallowance is not warranted. First of all, the statement recorded u/s. 131 clearly indicates that Shri Mohan Reddy is aware about his partnership in the firm and admits that he is responsible as a partner for all affairs of the firm. In fact, Question No.3 itself asks him about the 'active role in the day-to-day affairs of the chit fund’ for which he replied that he has no active role as it was looked after by Shri A. Venkatesh. This answer given to a specific question does not mean that he is not a working partner. Managing Partner and Working Partner have different roles. As seen from the P&L A/ c an amount of ₹ 54,000/- was paid as salaries to partners and three of the five partners are getting ₹ 18,000/- each. Only the salary paid to Shri Mohan Reddy was disallowed on the basis of so called statement. We do not agree with the observation of the AO as the disallowance has no basis. AO is directed to allow the amount as claimed. Addition towards partners’ sitting fee - AO justification in making the said addition of excess payment of interest of ₹ 2,47,600/- being in excess in interest @12% - Held that:- Similar issue arose in AY 2004-05 , thus following it we sustain the disallowance of ₹ 65,040/-, which is bribe and in personal nature. With regard to interest, we direct the AO to allow 12% of interest on capital employed by the partners during the year, as per the provision, the excess can be disallowed. Accordingly, ground raised by the assessee is partly allowed.
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