Partners salary revised just before end of financial year allowed being in accordance with deed

Partners salary revised just before end of financial year allowed being in accordance with terms of deed and law

ABCAUS Case Law Citation
ABCAUS 3458 (2021) (02) ITAT

In the instant case, the appellant assessee had challenged the order passed by the CIT(A) in confirming addition made by the AO out of partner’s remuneration paid on the ground that partner’s salary had been revised just before the few days of the end of financial years.

The Tribunal noted that undisputedly as per the amended partnership deed dated 28^th of the March, salary of one partner had been increased.

It was observed that relevant para of original partnership deed showed that it was decided in the partnership deed that the annual remuneration as per quantum therein may be drawn in   such instalments as may be decided by the Partners from time to time.

The Tribunal further observed that the supplementary partnership deed showed that partner’s salary had been enhanced with effect from 1st April. Accordingly, assessee had claimed partner’s salary with effect from 1st April.  

The Tribunal further observed that it was undisputed fact that out of two partners only one partner was active partner and was deriving salary and no salary was being drawn by the other partner.

In view of the above, the Tribunal held that the both partners had mutually agreed to decide the salary of the active partners. Therefore, when the salary of the partner had been enhanced in accordance with law and had been claimed as such, enhanced amount disallowed by the Assessing Officer (AO) was not sustainable in the eyes of law.

Hence, the ITAT ordered that the addition made by AO and confirmed by CIT(A) to be deleted and allowed the appeal in the favour of the assessee.

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