The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the partner should be entitled to all the deductions which he was entitled while computing his share of profits in the firm.
The appeal was filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “CIT(A)”] dated 08.02.2023 for the A.Y.2014-15
The assessee filed its return of income on 26.12.2014 declaring total income of ₹.Nil. The return was processed under section143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, the case was selected for scrutiny under CASS and notices under section. 143(2) and 142(1) of the Act were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
Assessee has declared income under the head “Income from Business” “capital gains” and “other sources”. The assessee is a partner in M/s. Sri Jagannath Steel Co. and M/s. Gurunanak Metal Works. During the assessment proceedings, Assessing Officer observed that assessee has claimed interest of ₹.31,55,304/- against the remuneration received of ₹.15,00,000/- from partnership firm under the head “income from business & profession”. The assessee was asked to substantiate the above said claim and why the interest shou be allowed against the remuneration income and also prove the nexus for claiming interest against remuneration from the firm. After considering the submissions of the assessee the Assessing Officer rejected the same.
Aggrieved with the above order, assessee preferred an appeal before the CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee, CIT(A) dismissed the grounds raised by the assessee. Aggrieved, the assessee appealed before the tribunal.
After hearing both the parties, the tribunal noted that salary or remuneration received from the firm is no doubt compensation for the services rendered but it is considered as income from business otherwise as a return of share of profits to the partners of the firm.
Therefore, the partner should be entitled to all the deductions which he was entitled while computing his share of profits in the firm including the deduction in respect of interest paid on monies borrowed for investment in the firm as capital under section 67(3) of the Act. Following the earlier decisions, even in this case, assessee has introduced the capital in the firm by borrowing funds from various loan creditors, it has direct nexus with the remuneration and other profits earned by the partners.
The two member bench consisting of Vikas Awasthy (Judicial member) and S. Rifaur Rehman (Accountant member) held that CIT(A) has not addressed the issue under consideration and took it to a different dimension questioning the genuineness of the loan borrowed by the assessee. Thus the appeal was allowed.
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