No Restriction of Payment of Remuneration to Partners u/s 40(b): ITAT Deletes ₹4.45 Lakh Disallowance [Read Order]

The Chennai Bench of the Income-Tax Appellate Tribunal (ITAT) deleted the disallowance made by the Assessing Officer (AO) and confirmed by the commissioner of the Income Tax (appeals) [CIT(A)] on account of remuneration paid to partners amounting to Rs. 4,45,000.

Meenakshi Traders (assessee), filed an appeal against the order dated 12.03.2025 passed by the CIT(A). Initially, the AO disallowed the sum of Rs. 4,45,000 in the account of the remuneration paid to the partners for the Assessment Year (AY) 2017-2018.

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Aggrieved by the AO’s order, the assessee filed an appeal before the CIT(A). The CIT(A) confirmed the disallowance amounting to Rs. 4,45,000 on account of remuneration paid to the partners.

Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT. The counsel for the assessee submitted that the disallowance made by the AO on the account of remuneration paid was not justified. The counsel for the assessee also highlighted that the provision of section 40(b) of the Income Tax Act did not impose such restriction.

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The two-member bench comprising S.S. Viswanethra Ravi (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) noted that as per the book profit, the allowable remuneration to partners was Rs. 11,20,009.

The tribunal observed that despite the allowable remuneration much higher, the assessee had restricted the claim to Rs. 6,95,000. The Tribunal further observed that the maximum remuneration allowable was Rs. 7,62,005, yet the assessee claimed a lower amount of Rs. 6,95,000/-.

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The Tribunal accepted the assessee’s counsel argument that there is no restriction of payment of remuneration to partners under section 40(b) of the Income Tax Act. The tribunal held that the disallowance on account of remuneration paid to partners made by the lower authorities was not justified.

Therefore, the Tribunal deleted the addition of Rs. 4,45,000. The appeal filed by the assessee was allowed.

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