Partner Remuneration To Be Calculated On Book Profit After Adding Back Survey Income And Disallowances: ITAT [Read Order]
ITAT held that partner remuneration under Section 40(b) must be computed on book profit after adding back survey income and disallowances.
Partner Remuneration - Book Profit - Survey Income -Disallowances - ITAT - Taxscan
Partner Remuneration - Book Profit - Survey Income -Disallowances - ITAT - Taxscan
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) ruled on the issue of remuneration to partners under Section 40(b) of the Income Tax Act, 1961 and directed that the computation must be based on book profit after adding back survey income and disallowances.
Bharat Associates, the assessee, is a partnership firm engaged in business at Bundi. A survey under Section 133A was conducted on 09.03.2016, during which the assessee surrendered undisclosed income.
In the return of income, the assessee declared business profit and also claimed remuneration payable to partners in accordance with the partnership deed.
The Assessing Officer disallowed the claim of remuneration under Section 40(b), treating it as not allowable on the declared figures. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the disallowance.
Before the ITAT, the assessee’s representatives Adv. Mahendra Gargieya and Devang Gargieya argued that remuneration is to be computed as per the scheme of Section 40(b), which requires calculation on the basis of book profit.
The counsel further argued that book profit includes not only the returned income but also the additions and disallowances confirmed in assessment.
The two-member bench comprising Gagan Goyal (Accountant Member) and Narinder Kumar (Judicial Member) observed that the Assessing Officer and the CIT(A) erred in disallowing the remuneration claim without considering the proper computation mechanism under Section 40(b).
The tribunal explained that book profit must be calculated as business profit declared by the assessee, increased by additions made during assessment. Since the addition of Rs. 62,28,947 on account of surrendered income and a disallowance of Rs. 15,620 were already confirmed, these amounts must be added back to arrive at the correct book profit for the purpose of remuneration.
The tribunal directed the Assessing Officer to recompute the book profit accordingly and allow the remuneration as per Section 40(b). The appeal of the assessee on this ground was allowed.
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