The Income Tax Appellate Tribunal (ITAT), Mumbai bench, while observing that excess interest paid to the partners of the firm was due to a mistake in the Tax audit report, directed it for readjudication.
The assessee, Ruskin Chemipharm, is a registered partnership firm. For the year under consideration, it filed its return of income by declaring a total income of Rs. 1,34,90,214/- which comprised income under the head “profits and gains from business and profession”.
During the assessment proceedings, the Assessing Officer (AO) made an addition of Rs. 64,06,330 under Section 40(b) of the Income Tax Act on account of disallowance of interest paid to the partners. Subsequently, the assessee filed a rectification application under Section 154 of the Income Tax Act. However, the said application was also disposed of without granting any relief to the assessee.
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who confirmed the disallowance. Thus, the assessee filed a second appeal before the tribunal.
Satyaprakash Singh, Counsel for the assessee, submitted that the excess interest paid to the partners was mistakenly added in the audit report. The Auditor revised the Tax Audit Report in Form no. 3CB and rectified the mistake made in the earlier Tax Audit Report, wherein the interest paid to the partners was declared as inadmissible. A further revised Tax Audit Report was filed during the rectification proceedings.
Mahita Nair, counsel for revenue, supported the decision of the lower authorities.
The tribunal observed that, as may be mutually agreed, interest shall bear interest at 12% per annum. It found that, as per section 40(b)(iv) of the Income Tax Act, the interest paid to the partners in accordance with the terms of the partnership deed is not allowable insofar as such amount exceeds the amount calculated at the rate of 12% per annum.
During the proceedings, CIT(A) did not consider the rectification in respect of the tax audit report.
After reviewing the facts and records, the two-member bench of Prashant Maharishi (Accountant Member) and Sandeep Singh Karhail (Judicial Member) restored this issue to the file of the CIT(A) for de novo adjudication as per law after considering all the material available on record.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
