TMI Blog2021 (3) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... neration as per clause 5 of the partnership deed and in consonance with section 40(b)(v) of the Act has been paid to the working partners by the assessee firm and has been accepted by the Revenue. No distinguishing facts have been brought on record by the Revenue to take a divergent view. So, in the ordinary course of circumstances, Revenue is required to follow the rule of consistency though every assessment year is to be assessed separately and independently. Question framed is answered in affirmative and the ld. Pr.CIT is held to have erred in invoking the provisions contained u/s 263 of the Act directing the AO to disallow the remuneration to the working partners. - Decided in favour of assessee. - ITA No. 451/Del./2020 - - - Dated:- 23-3-2021 - SHRI R.K. PANDA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER ASSESSEE BY : SHRI AKHILESH KUMAR, ADVOCATE REVENUE BY : SHRI SATPAL GULATI, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Altmash Exports (hereinafter referred to as the assessee ) by filing the present appeal sought to set aside the impugned order dated 14.01.2020 passed by the Pr. Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor the same is quantifiable as per partnership deed. ld. Pr.CIT by invoking the CBDT Circular No.739 dated 25.03.1996 observed that no deduction u/s 40(b)(v) will be admissible unless the partnership deed either specified the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration. Consequently, ld. Pr.CIT issued show-cause notice as to why remuneration wrongly claimed by the assessee and wrongly allowed by the AO and consequent assessment order passed by the AO may not be held to be erroneous and prejudicial to the interest of Revenue or cancelled or modified u/s 263 of the Act as the AO could have made disallowance of ₹ 98,53,166/- on account of inadmissible remuneration. 3. Assessee filed reply and written submissions to the showcause notice, which could not find favour with ld. Pr.CIT who reached the conclusion that the assessment order dated 28.09.2017 passed by the AO is erroneous as well as prejudicial to the interest of Revenue and thereby directed the AO to enhance the assessed income of the assessee to the tune of ₹ 98,53,166/- being remuneration claimed by the assessee but not allowable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves of the parties to the appeal, the sole question arises for determination in this case is :- as to whether ld. Pr.CIT has erred in invoking the provisions contained u/s 263 of the Act by directing the AO to disallow the remuneration to working partners as the assessment framed u/s 143 (3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue? 9. It is settled principle of law that in order to invoke the provisions contained u/s 263 of the Act, twin conditions are required to be fulfilled : (i) that the assessment order framed by the AO is erroneous; and (ii) that the assessment order is prejudicial to the interest of the Revenue. 10. In order to proceed further, relevant clause 5 of the partnership deed under which remuneration has been paid by the assessee firm to its working partners is extracted for ready perusal as under :- 5. That after making provision of interest of partners as specified in clause 5 above both the partners, who are the working partners, would be entitle to Remuneration as per the provision of sub- clause (v) of clause (b) of section 40 of the Income Tax Act, 1961 or under any other provision as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration to any partner is not deductible under Section 40(b), the AO may amend the order of the assessment of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible. A conspectus of these provisions makes the opinion the ITAT consistent with the legal position. 9. Consequently, the Court finds no legal infirmity in the interpretation placed by the ITAT on Clause 6(a) of the partnership deed dated 22nd June 2008 to conclude that the salary paid to the partners was in accordance with Section 40(b)(v) of the Act and ought not to have been disallowed. Consequently, as regards this issue, no substantial question of law arises. 13. Hon ble jurisdictional High Court of Allahabad in case of CIT vs. Great City Manufacturing Co. (supra) also dealt with the provisions contained u/s 40(b) read with section 40A(2) of the Act and decided the issue in favour of the assessee by returning following findings :- 5. Sri Chopra submitted that in the partnership deed the terms and nature of the duties of each of the partners is not specified and therefore, if the Assessing Officer has found that they have been paid exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order framed by the AO is not erroneous. 15. So far as question of fulfilling the second condition that, assessment framed is prejudicial to the interest of the Revenue is concerned , again we are of the considered view that when it is undisputed fact that remuneration paid to the individual partners has been taxed @ 30%, the same rate to which income of the assessee firm was to be taxed, the assessment order is not prejudicial to the interest of the Revenue. 16. Apart from non-fulfilling twin conditions to invoke the provisions contained u/s 263 of the Act by ld. Pr.CIT, it is a matter of record that in the preceding years i.e. AYs 2013-14 2014-15, the same remuneration as per clause 5 of the partnership deed and in consonance with section 40(b)(v) of the Act has been paid to the working partners by the assessee firm and has been accepted by the Revenue. No distinguishing facts have been brought on record by the Revenue to take a divergent view. So, in the ordinary course of circumstances, Revenue is required to follow the rule of consistency though every assessment year is to be assessed separately and independently. 17. In view of what has been discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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