Lack of Evidence Costs Partnership Firm: ITAT Upholds Disallowance on Excessive Remuneration
The ITAT Ahmedabad dismissed an appeal filed by a partnership firm for the assessment year 2022-23 and sustained the CIT(A)’s ruling, which had partly upheld additions made by the Assessing Officer.
The assessee, a partnership firm, had initially declared its total income at Rs 1.54 crore for the Assessment Year 2022-23. However, during the assessment of the return under Section 143(3) of the Income Tax Act, the Assessing Officer (AO) made additions aggregating to Rs 15.32 lakh to the assessee’s income and declared total income at Rs 1.69 crore. The major addition was Rs 14.83 lakh, made on the grounds of alleged excessive remuneration paid to persons covered under Section 40A(2)(b) of the Act.
The aggrieved assessee filed an appeal before the Commissioner of Income Tax (Appeals), who granted partial relief to the assessee by setting aside the disallowance of Rs 43,465 and Rs 5,000 made under Section 43B and Section 80G, respectively; however, he sustained the Rs 14.83 lakh disallowance of excessive salary. The assessee thereafter approached ITAT Ahmedabad, where it claimed that salary was justified and explained using proper evidence showing the nature of work performed by these individuals or how their contributions justified higher payments.
When the tribunal analysed the facts of the case, it noted the partners were already receiving regular salary, and there was no clear reason to pay additional amounts for the same roles. It also found no evidence that these individuals brought extra business or performed exceptional duties to justify higher compensation. In conclusion to the aforementioned findings, the tribunal endorsed the findings of both the Assessing Officer and the CIT(A), holding that the disallowance was reasonable. Thus, the assessee’s appeal was dismissed.
Citation: R. Kumar Vs DCIT (ITAT Ahmedabad); ITA No. 1962/Ahd/2025; 27/03/2026; 2022-23
