BHARAT PAPER MART,MUMBAI V. ASSISTATANT COMMISSIONER OF INCME TAX CIRCLE 17(1), MUMBAI

ITA 5594/MUM/2025

AI Insights

Bharat Paper Mart appealed against the order of the National Faceless Appeal Centre (NFAC), which confirmed the disallowance of partner's remuneration and the taxation of commission income by the Assessing Officer. The Tribunal examined the partnership deed and the provisions of section 40(b) of the Income-tax Act, 1961, to determine the correct limits for partner's remuneration. It was found that the remuneration paid was within these limits, and thus, the addition made by the Assessing Officer was deleted. Regarding the commission income, the Tribunal accepted the assessee's argument that it was not received in the year under consideration and was accounted for in the subsequent year, leading to the deletion of the addition.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835618 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 09-09-2025
• Laws Referred To: Income-tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 143(3); 40(b)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 5594/MUM/2025 Assessment Year: 2013-14 Bharat Paper Mart 219, Podar Chambers, S.A. Brelvi Road, Fort, Mumbai Maharashtra 400001 (PAN: AAJFB0186H) Vs. Assistant Commissioner of Income Tax Circle-17(1), Mumbai (Appellant) (Respondent) Present for: Assessee : Dr. K. Shivaram. Sr. Advocate Revenue : Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 12.11.2025 Date of Pronouncement : 09.02.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2025-26/1078818110(1), dated 23.07.2025, passed against the assessment order by Assistant Commissioner of Income Tax- 17(1)(2), Mumbai, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 04.03.2016 for Assessment Year 2013-14. Printed from counselvise.com 2 ITA No. 5594/Mum/2025 Bharat Paper Mart AY 2013-14 2. Grounds taken by assessee are reproduced as under: 1. The learned National Faceless Appeal Centre (NFAC) erred in confirming order of Assessing Officer disallowing partner's remuneration of Rs.31,30,490/- paid to working partner out of remuneration of Rs.99,76,470/- paid to him without appreciating that said remuneration was paid in accordance with the provisions of section 40(b)(v) of Income tax act 1961 and hence the disallowance of remuneration of Rs. 31,30,490/- may be deleted. 2. The learned NFAC erred in confirming order of Assessing officer taxing commission income of Rs. 3,77,617/ on the basis of Form No. 26AS without appreciating that said commission income was not taxable in A.Y. 2013-14 and hence the addition of Rs. 3,77,617/- may be deleted. 3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal. 3. Brief facts of the case are that assessee is a partnership firm engaged in business of dealing in papers and boards. Assessee filed its return of income on 28.09.2013, reporting total income at Rs.64,96,120/-. It claimed a deduction towards partners remuneration, computed at Rs. 99,76,470/-. The computation in this respect is as under: STATEMENT OF REMUNERATION TO WORKING PARTNER Book profit as per prov of Sec 40 (b) First 300000 90% Next 16177450 60% 16477450 270000 9706470 Maximum amount of remuneration allowed 9976470 Restricted to 9976333 3.1. In respect of ground No.1, assessee furnished that its partnership deed provides for remuneration to working partners and the quantum of remuneration under the said partnership deed is akin to what is prescribed u/s.40(b) of the Act as existed at the time of formation of partnership deed. The said partnership firm was formed on 01.01.2009. Subsequently, another partnership deed was entered into on 04.03.2013 whereby the modification stated that 100% of remuneration Printed from counselvise.com 3 ITA No. 5594/Mum/2025 Bharat Paper Mart AY 2013-14 was payable to Shri Praful D. Sheth, one of the partners. For this resolution passed by the firm is placed on record. 3.2. While making the assessment, Ld. Assessing Officer noted from the partnership deeds furnished by the assessee that the erstwhile computation mechanism prescribed u/s.40(b) with the lower levels of limits were considered in the deed, i.e., to (a) On the first Rs. 75,000/- of the book profit, or in case of loss Rs. 50,000 or at the rate of 90% of the book profit, whichever is more (b) on the next Rs. 75,000/- of the book profit At the rate of 60% (c) on the balance of book profit At the rate of 40% 3.3. However, these limits were inadvertently taken note in the partnership deed. The correct limits for computation of allowability of partners remuneration, which the assessee adopted for its computation is as under: a) On the first Rs. 3,00,000/- of the book profit, or in case of loss at the rate of 90% of the book profit, whichever is more (c) on the balance of book profit At the rate of 60% 3.4. Owing to this discrepancy on taking into account the correct limits prescribed u/s.40(b), ld. Assessing Officer calculated the difference and made the addition of Rs.31,30,490/-. Ld. Assessing Officer computed the maximum allowable remuneration based on the limits which considered the first Rs.75,000/- of the book profit as against the first Rs.3,00,000/- of the book profit which ought to have been considered. 4. In this regard, it is important to note from the partnership deed, itself wherein explanation is noted below the tabulation of limit for Printed from counselvise.com 4 ITA No. 5594/Mum/2025 Bharat Paper Mart AY 2013-14 computation of remuneration to working partners placed in the paper book. The said extraction states: “For the purposes of this clause of expression 'Book Profit' shall mean the Book Profits as defined in S.40(b) of the I.T. Act, 1961 or sany statutory modification or re-enactment thereof, for the time being in force” 4.1. Thus, the partnership deed restricted the limits as prescribed u/s.40(b). According to the partnership deed, it authorises the payment of remuneration. It does not deal with quantification of the said remuneration. It is only in respect of allowability of such remuneration to the partners that reference is made to the provisions contained in section 40(b). 5. In the present case, ld. Assessing Officer has neither doubted the fact that remuneration is paid to the working partner nor doubted the fact that remuneration is not authorised by the partnership deed. The issue pertains to quantification of the remuneration paid to the working partner. Section 40(b) talks about remuneration being authorised by the partnership deed and payable to the working partner. Quantum of remuneration is to be decided by the firm and if such remuneration is paid by the firm to the partner is in excess of limits specified in section 40(b), the same needs to be disallowed. Section uses the term “authorise” and not the term “quantify”. It is not a case that the provisions contained in section 40(b) are ambiguous, therefore capable of more than one interpretation. It is a case where there is an inadvertent mistake on the part of the assessee while capturing the correct limits as prescribed in section 40(b) for the quantification of remuneration to the working partners. Further, it is important to note that concerned partner has offered the remuneration so received by him in his individual return which has been subjected to tax and there is no Printed from counselvise.com 5 ITA No. 5594/Mum/2025 Bharat Paper Mart AY 2013-14 loss to the Revenue. Disallowing component of the same again in the hands of assessee tantamount to taxing it twice. 6. Having perused the records placed in the paper book, provisions to section 40(b) as well as correct computation methodology applied by the assessee vis-à-vis provision of section 40(b) though inadvertently recorded incorrectly in the partnership deed, we find that, quantification of partners remuneration made by the assessee is allowable within limits prescribed u/s.40(b), since the payment of remuneration to the working partner is authorised by the partnership deed. Accordingly, addition made by the ld. Assessing Officer is deleted. 7. In the result, ground no.1 raised by the assessee is allowed. 8. In regard to ground no.2, whereby an addition of Rs.3,77,617/- has been made being commission income from one party Lotus Global Pvt. Ltd. Case of the assessee is that it offers commission/discount income on cash basis owing to uncertainty of intimation from the parties. This policy has been followed consistently by the assessee by appropriate disclosure of notes to accounts in its audited financial statements. In the year under consideration, Form–26AS reflected an entry towards TDS of Rs.37,762/- for the commission paid by Lotus Global Pvt. Ltd. to the assessee, which in fact was not received by the assessee in the year under consideration. Owing to its accounting policy, followed consistently, as stated above, this was not offered to tax in the year under consideration nor credit was claimed for the TDS so done. Fact of the matter is that, assessee offered the same to tax in the subsequent Assessment Year 2014-15 and claimed the credit for TDS also. Relevant documentary evidence in this regard are placed in the paper book. Considering these facts on record, verifiable from the documentary Printed from counselvise.com 6 ITA No. 5594/Mum/2025 Bharat Paper Mart AY 2013-14 evidence, addition made by the ld. Assessing Officer in this regard is not tenable, accordingly the same is deleted. Ground No.2 raised by the assessee is allowed. 9. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 09 February, 2026 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 09 February, 2026 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai Printed from counselvise.com "