The Income Tax Appellate Tribunal ( ITAT ), Bangalore Bench held that Additional income offered as part of business income, entitled to deduction under Section 40(b)(v) of the Income Tax Act, 1961.
The assessee, M/s.Rathod Developers & Builders is a partnership firm engaged in the business of construction of residential and commercial buildings. It also undertakes development of layouts. A survey under Section 133A of the Income Tax Act was conductedat the business premises of the assessee.
During the course of survey, the Assessing Officer found a valuation report, wherein the cost of construction per square feet was mentioned at Rs.3,200, whereas the assessee had entered into sale agreement at an average rate of Rs.2,375 per sq.ft. The partner was confronted with the aforesaid valuation report. It was stated that the valuation report did not disclose the true and fair market value of the flat.
The A.O. completed the assessment order u/s 143(3) wherein he held a sum of Rs.2 crore declared during the course of survey cannot be treated as business receipts and had to be taxed u/s 115BBE of the Income Tax Act. The A.Orejected the argument of the assessee that remuneration claimed by it would be taxable in the hands of the partners at the rate of 30% by observing that the partner had reduced their taxability by claiming various expenses against such income.
Aggrieved by the order of the A.O., the assessee raised this issue before the first appellate authority. The CIT(A) rejected the contentions of the assessee by holding that there is nothing on record to suggest that a sum of Rs.2 crore surrendered by the assessee during the course of survey was its business income.
As regards the allowability of remuneration of Rs.1.20 crores in the hands of the partners are concerned, there is no dispute as regards the entitlement of the remuneration by the partners, since the A.O. had allowed the remuneration as per section 40(b)(v) to the extent of Rs 11 lakhs. The dispute is with regard to whether the assessee is entitled to remuneration as per section 40(b)(v) of the Income Tax Act on the additional income offered.
A Coram consisting of George George K, Judicial Member and Padmavathy S, Accountant Member held that “The additional income offered as part of the business income, the assessee would be entitled to deduction as per the provisions of section 40(b)(v) of the Income Tax Act.”
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