The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT), allowed income tax addition to Luthra and Luthra LLP on the ground that Bonus paid to partners attracts Section 40(b)(v) of Income Tax Act, 1961.
The assessee, Luthra & Luthra LLP, filed its return of income at Rupees ninety-one lakhs. The return of income was taken up for scrutiny assessment under Section 143(3) of the Income Tax Act, 1961 and the assessment was also framed. The Assessing Officer (AO) made disallowance out of salary to partners under Section 40(b) of the Income Tax Act in respect of bonus paid to the partners amounting to Rupees fifteen lakhs.
Aggrieved against this, the assessee preferred appeal before the CIT(A), who after considering the submissions and material available on record, dismissed the appeal of the assessee. Hence the present appeal has been preferred.
The Counsel for the assessee submitted that thie issue is covered by the Co-ordinate Bench of this Tribunal in assessee’s own case for AY 2013-14 and submitted that the Tribunal had directed the AO to allow bonus to partners subject to verification that overall remuneration including bonus falls within the permissible limits as per section 40(b) of the Income Tax Act.
The Counsel also contended that the bonus paid to the partners is within the limits specified u/s 40(b)(v) of the Income Tax Act and that the bonus paid to the partners has been allowed in the past by the AO.
The Bench comprising N K Billaiya, Accountant Member and Kul Bharat, Judicial Member relied on the decision of the Co-ordinate Tribunal wherein it was held that “Total allowance of the remuneration to partners has to be judged in the light of the provisions contained section 40(b) of the Income Tax Act. The AO is directed to verify whether the overall remuneration including bonus is within the permissible limit of the relevant provisions of section 40 (b) of the Income Tax Act and if found so the same should be allowed.”
Allowing the appeal, the Bench noted that “Taking the consistent view and for the same reasoning the appeal raised by the assessee is allowed and the addition of Rupees fifteen lakhs made on account bonus paid to its partners.”
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