Difference in Share of Profit treated as ‘Income from Other Sources’: ITAT holds difference due to Mistake, Deletes Addition

The Pune Bench of the Income Tax Appellate Tribunal ( ITAT ) in the issue of difference in the share of profit treated as ‘Income from other sources, held that difference was due to mistake and deletes addition.

The appellant, Sumit Tayal, is an individual who filed his revised return claiming exemption of 10% share in the profit of the partnership firm, namely, M/s. Nirman Reality at Rs.49,97,480/-. The AO during assessment proceedings observed that the assessee’s 1/10th share in the partnership was only at Rs.45,85,406/-.

The Assessing Officer (AO) held the excess share of profit claimed by the assessee to the tune of Rs.4,12,074/- was in the nature of ‘Income from other sources and added to the total income of the assessee.The assessee appealed before CIT (A), which confirmed the addition. Aggrieved, the assessee filed appeal before the ITAT.

Mr. Krishna Gujarathi, Counsel for the appellant submitted that the accounts of the partnership firm were actually finalised and the assessee’s share was determined at Rs.45,85,406/- after filing of revised return. The change in the share of the partnership firm took place, inter alia, with the corresponding increase in the assessee’s salary from 3 lakhs to 5 lakhs. While filing the revised return, the assessee increased his taxable income by the additional salary of Rs.2.00 lakh but omitted to give effect to the figure of exempt share in the partnership firm which actually got reduced to Rs.45,85,406/- from the original share declared in the return at Rs.49,97,480/-.

The Tribunal observed that merely because of a mistake in not lowering the share in the profit of the firm cannot lead to the treatment of the differential amount as ‘Income from other sources when all the necessary details and facts show that the assessee’s share in the profit was at Rs.45,85,406/- at the time of finalization of the accounts of the firm, which was originally at the time of filing of the assessee’s return at Rs.49,97,480/-.

The Coram of Mr. R.S. Syal, Vice President, and Mr. S.S. Viswanethra Ravi, Judicial Member has held that “we are satisfied that there is no reason to treat the difference in the share of profit of the firm as ‘Income from other sources. The addition is directed to be deleted”.

Mr. M.G. Jasnani appeared on behalf of the revenue.

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