TMI Blog2018 (8) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that above clause of the partnership deed provides for payment of remuneration to partners which would be as per the provisions of the Act, which meant that the remuneration payable to partners would be quantified as per the provisions of the Act and shall not exceed the maximum remuneration provided. It is not in dispute that the partners were paid remuneration, which was less than the maximum provided by the Act. None of the authorities have disputed the payment of remuneration and has accepted the books of account of the assessee as correct and, therefore, the remuneration was deductible while computing the income of the assessee firm. We, therefore, set aside the orders of lower authorities and delete the disallowance. Adhoc disallowance of 20% out of salary paid to employees by the firm - Held that:- No material has been brought on record by the revenue to show that the expenses claimed on account of salary expenses to staff is excessive or inflated. The disallowance made by the AO is only on the ground that in his opinion, the expenses claimed are not corroborated with justifiable facts. Merely on the basis of surmises and conjectures of the AO, no disallowance of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of introduction of capital by the partner of the firm where the partners have owed that the monies deposited in their account are their own. The Assessing Officer is entitled or may proceed against the partners and assess the same in their hands if their explanation is not found satisfactory. For this, he relied on the decision of Hon ble Allahabad High Court in the case of CIT s. Jaiswal Motor Finance, 141 ITR 706 (All). 6. On the other hand, ld D.R. supported the orders of lower authorities. 7. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. In the instant case, the partner of the assessee firm Smt. Lalita Jain introduced ₹ 11 lakhs in cash towards her capital in the assessee firm. The assessee produced copy of income tax return for assessment years 2011-12, 2012-13 and 2013-14 together with balance sheet of Smt. Lalita Jain, which is placed at page Nos.22-27 of the paper book. It was pointed out from the balance sheet of Smt Lalita Jain that she had cash in hand of ₹ 11,34,830/- as on 31.3.2011 and ₹ 13,39,090/- as on 31.3.2012. It was submitted that from this cash balance of the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has claimed deduction of ₹ 6,64,923/- towards remuneration to partners. He observed that as per clause -11 of the partnership deed, remuneration will be payable to partners as per provisions of section 40(b) of the Act. He observed that this quantification of the remuneration is not apparent from clause -11 of the partnership deed and, therefore, he disallowed deduction for remuneration of ₹ 6,64,923/- and added the same to the income of the assessee. 12. On appeal, the CIT(A) confirmed the action of the Assessing Officer by observing that remuneration to partners were allowable deduction u/s 40(b) of the Act if in the deed of partnership either the amount of remuneration payable to individual working partners is fixed or the deed provides for the manner of quantifying such remuneration. In the case of the assessee, the remuneration to the individual partners has neither been fixed in the deed nor the deed provide for the manner of quantification of such remuneration. Hence, the Assessing Officer is justified in disallowing the remuneration payment to the partners. 13. Before us, ld A.R. submitted that the requirement of law is that remuneration should h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng partner is in accordance with the terms of the partnership deed and does not exceed the aggregate amount as laid down in the subsequent portion of the section the deduction is permissible. The assessee was a firm. The partnership deed provided that the working partners were to be actively engaged in looking after the affairs of the business of the firm diligently and honestly and each of them would be paid a monthly salary as per the Income-tax provisions and which could be revised from time to time in the best interest of the partnership. The Assessing Officer was of the opinion that the partnership deed did not provide for payment of remuneration in terms of CBDT Circular No. 739, dated March 25, 1996, because it did not specify the amount of remuneration payable to the individual working partner or lay down the manner of quantifying such remuneration. The remuneration was not deductible. This was upheld by the Tribunal. On appeal to the High Court : Held, that when the partnership deed provided that the remuneration would be as per the provisions of the Act, it clearly meant that the remuneration payable to the partners would be quantified as per the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance of ₹ 6,64,923/- and allow this ground of appeal of the assessee. 21. In Ground No.3 of the appeal, the grievance of the assessee is that the CIT(A) erred in confirming adhoc disallowance of 20% out of salary paid to employees by the firm. 22. The Assessing Officer observed that the assessee claimed salary of ₹ 35,50,800/- during the year under consideration. The Assessing Officer observed that the assessee has shown gross profit of ₹ 49,05,425/- and salary claimed of ₹ 25,50,800/- towards staff is around 52% of gross profit. The salary paid to each of the employee on monthly basis exceeded ₹ 5000/- per month and also in round figures. He observed that no individual ledger account maintained and each employee have been paid by cash. Thus, the little evidence produced by the assessee in support under salary could not be accepted as it is not corroborated with justifiable facts supported with evidence. Accordingly, he disallowed 20% of the salary expenses claimed by the assessee and added ₹ 5,10,160/-. 23. On appeal, the CIT(A) observed that the only thing to be considered is whether the disallowance of 20% is reasonable o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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