The officer says my partner is a sleeping partner because she is not in the office every day. Can he disallow her remuneration?
No, on these facts — but the case is decided on a wider ground first. For five of the seven years the disallowance fell on jurisdiction: those years were unabated when the search took place, and a statement recorded under s.132(4) is not incriminating material capable of supporting an addition under s.153A. On the merits, taken in the alternative and carrying the remaining two years, the Tribunal held that not attending the office daily does not make a partner a sleeping partner where the work she did was proved, and noted that the remuneration was taxed in her hands under s.28(v). The disallowance was made under s.37 as expenditure not for the purposes of the business, not under s.40(b).
Decided by the ITAT (ITAT Mumbai Bench 'D' — Saktijit Dey (Vice President) and Ms. Padmavathy S (Accountant Member)) on 2024-11-29, reported as (2025) 211 ITD 24 (Mum.)(Trib.); [2024] 169 taxmann.com 735 (Mumbai - Trib.); IT Appeal Nos. 4352 to 4358 (Mum) of 2023; assessment years 2014-15 to 2020-21. It bears on section 37(1), section 153A, section 132(4), section 28(v), section 143(3) of the Income Tax Act 1961, in Deductions & Disallowances, Assessment & Scrutiny and Search, Survey & Block Assessment matters.
Two things a reader can use. In a search assessment for an unabated year, a disallowance resting on nothing but a statement recorded under s.132(4) is vulnerable on jurisdiction before anyone reaches the merits, and that is the ground this Tribunal took first. On the merits, it fixes the test for a partner's remuneration on what the partner actually does rather than on attendance, and points to the two documents that carry it: the contemporaneous statement describing her work, and the return in which she offered the remuneration. Note the disallowance here was made under s.37 for want of business purpose; the order does not construe what makes a partner a working partner for s.40(b).
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a resident partnership firm. A search under s.132 was carried out on 16.10.2019, followed by proceedings under s.153A for the earlier years; for assessment year 2020-21 the assessment was a regular one under s.143(3). Seven appeals, one for each year from 2014-15 to 2020-21, were heard together. Two partners had been paid remuneration, Ms. Chhaya D. Vora and Shri Yash Vora. In a statement recorded under s.132(4) from a third partner, Shri Dhanraj Balachand Vora, it was said that the partners took remuneration as working partners but did not come to office daily, Ms. Chhaya D. Vora helping in maintaining the accounts and coming to the office once or twice a week. On that statement the Assessing Officer disallowed the remuneration paid to Ms. Chhaya D. Vora in every year as expenditure not laid out for the purposes of the business under s.37, and the Commissioner (Appeals) sustained it.
All seven appeals were allowed, all the disallowances were deleted and nothing was restored to the Assessing Officer. There were two independent grounds. The primary ground was jurisdictional: for assessment years 2014-15 to 2018-19 no assessment was pending on the date of search, so those years were unabated and an addition under s.153A required incriminating material found in the search; a statement recorded under s.132(4) is not itself incriminating material, and following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC) the additions for those five years were unsustainable. The alternative ground, introduced as 'even otherwise', went to the merits and carries the two remaining years: the fact that a partner does not attend the office daily is not a ground for holding her a sleeping partner and denying her remuneration, the work she did being proved on the record, and the remuneration was in any event taxable in her hands under s.28(v) and had been offered there.
The Tribunal admitted three additional grounds as purely legal and jurisdictional. On the first, it held that because no assessment for assessment years 2014-15 to 2018-19 was pending when the search took place on 16.10.2019, those years were unabated, so jurisdiction to assess or reassess under s.153A existed only on incriminating material found in the search. The only disallowance in those years was the partner's remuneration, and a statement recorded under s.132(4) cannot itself be treated as incriminating material for that purpose; following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC), the additions were deleted (para 11). It then dealt with the merits in the alternative. The officer had initially considered the remuneration under s.40(b) but ultimately made the disallowance under s.37, on the footing that the expenditure was not for the purposes of the business. On the statement itself it was said that the partner helped maintain the accounts and came to the office once or twice a week, so the fact that she attended and did that work stood proved; not attending daily is not a ground for treating her as a sleeping partner. The remuneration was in any event taxable in her hands under s.28(v) and had been offered to tax there. On that footing the disallowances for the two remaining years could not stand either (para 12). The other grounds admitted — that the approval under s.153D was mechanical, and that the disallowance produced a double addition — became academic and were not adjudicated.
Merely because she does not come to office on daily basis, cannot be a ground to hold that she is only a sleeping partner and, hence, not entitled to remuneration.
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Handle my notice → Ask a CA on WhatsAppNo, on these facts — but the case is decided on a wider ground first. For five of the seven years the disallowance fell on jurisdiction: those years were unabated when the search took place, and a statement recorded under s.132(4) is not incriminating material capable of supporting an addition under s.153A. On the merits, taken in the alternative and carrying the remaining two years, the Tribunal held that not attending the office daily does not make a partner a sleeping partner where the work she did was proved, and noted that the remuneration was taxed in her hands under s.28(v). The disallowance was made under s.37 as expenditure not for the purposes of the business, not under s.40(b). This was decided by the ITAT (ITAT Mumbai Bench 'D' — Saktijit Dey (Vice President) and Ms. Padmavathy S (Accountant Member)) and bears on section 37(1), section 153A, section 132(4), section 28(v), section 143(3) of the Income Tax Act 1961. It is reported as (2025) 211 ITD 24 (Mum.)(Trib.); [2024] 169 taxmann.com 735 (Mumbai - Trib.); IT Appeal Nos. 4352 to 4358 (Mum) of 2023; assessment years 2014-15 to 2020-21. Two things a reader can use. In a search assessment for an unabated year, a disallowance resting on nothing but a statement recorded under s.132(4) is vulnerable on jurisdiction before anyone reaches the merits, and that is the ground this Tribunal took first. On the merits, it fixes the test for a partner's remuneration on what the partner actually does rather than on attendance, and points to the two documents that carry it: the contemporaneous statement describing her work, and the return in which she offered the remuneration. Note the disallowance here was made under s.37 for want of business purpose; the order does not construe what makes a partner a working partner for s.40(b). If it applies to you, the first step is this: In a search case, check first whether the year was unabated and whether anything beyond a recorded statement was found; on this order a s.132(4) statement is not incriminating material for s.153A.
The assessee is a resident partnership firm. A search under s.132 was carried out on 16.10.2019, followed by proceedings under s.153A for the earlier years; for assessment year 2020-21 the assessment was a regular one under s.143(3). Seven appeals, one for each year from 2014-15 to 2020-21, were heard together. Two partners had been paid remuneration, Ms. Chhaya D. Vora and Shri Yash Vora. In a statement recorded under s.132(4) from a third partner, Shri Dhanraj Balachand Vora, it was said that the partners took remuneration as working partners but did not come to office daily, Ms. Chhaya D. Vora helping in maintaining the accounts and coming to the office once or twice a week. On that statement the Assessing Officer disallowed the remuneration paid to Ms. Chhaya D. Vora in every year as expenditure not laid out for the purposes of the business under s.37, and the Commissioner (Appeals) sustained it. The matter was decided on 2024-11-29 by the ITAT (ITAT Mumbai Bench 'D' — Saktijit Dey (Vice President) and Ms. Padmavathy S (Accountant Member)). On those facts the ITAT held as follows. All seven appeals were allowed, all the disallowances were deleted and nothing was restored to the Assessing Officer. There were two independent grounds. The primary ground was jurisdictional: for assessment years 2014-15 to 2018-19 no assessment was pending on the date of search, so those years were unabated and an addition under s.153A required incriminating material found in the search; a statement recorded under s.132(4) is not itself incriminating material, and following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC) the additions for those five years were unsustainable. The alternative ground, introduced as 'even otherwise', went to the merits and carries the two remaining years: the fact that a partner does not attend the office daily is not a ground for holding her a sleeping partner and denying her remuneration, the work she did being proved on the record, and the remuneration was in any event taxable in her hands under s.28(v) and had been offered there.
The Tribunal admitted three additional grounds as purely legal and jurisdictional. On the first, it held that because no assessment for assessment years 2014-15 to 2018-19 was pending when the search took place on 16.10.2019, those years were unabated, so jurisdiction to assess or reassess under s.153A existed only on incriminating material found in the search. The only disallowance in those years was the partner's remuneration, and a statement recorded under s.132(4) cannot itself be treated as incriminating material for that purpose; following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC), the additions were deleted (para 11). It then dealt with the merits in the alternative. The officer had initially considered the remuneration under s.40(b) but ultimately made the disallowance under s.37, on the footing that the expenditure was not for the purposes of the business. On the statement itself it was said that the partner helped maintain the accounts and came to the office once or twice a week, so the fact that she attended and did that work stood proved; not attending daily is not a ground for treating her as a sleeping partner. The remuneration was in any event taxable in her hands under s.28(v) and had been offered to tax there. On that footing the disallowances for the two remaining years could not stand either (para 12). The other grounds admitted — that the approval under s.153D was mechanical, and that the disallowance produced a double addition — became academic and were not adjudicated. In the words reproduced by the source cited on this page: "Merely because she does not come to office on daily basis, cannot be a ground to hold that she is only a sleeping partner and, hence, not entitled to remuneration." The decision followed or applied Pr. CIT, Central v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 / 293 Taxman 141 / 454 ITR 212 (SC) — followed, para 11.
It was decided by the ITAT on 2024-11-29 and is reported as (2025) 211 ITD 24 (Mum.)(Trib.); [2024] 169 taxmann.com 735 (Mumbai - Trib.); IT Appeal Nos. 4352 to 4358 (Mum) of 2023; assessment years 2014-15 to 2020-21. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 37(1), section 153A, section 132(4), section 28(v), section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All seven appeals were allowed, all the disallowances were deleted and nothing was restored to the Assessing Officer. There were two independent grounds. The primary ground was jurisdictional: for assessment years 2014-15 to 2018-19 no assessment was pending on the date of search, so those years were unabated and an addition under s.153A required incriminating material found in the search; a statement recorded under s.132(4) is not itself incriminating material, and following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC) the additions for those five years were unsustainable. The alternative ground, introduced as 'even otherwise', went to the merits and carries the two remaining years: the fact that a partner does not attend the office daily is not a ground for holding her a sleeping partner and denying her remuneration, the work she did being proved on the record, and the remuneration was in any event taxable in her hands under s.28(v) and had been offered there. It arises in Deductions & Disallowances, Assessment & Scrutiny and Search, Survey & Block Assessment matters, on section 37(1), section 153A, section 132(4), section 28(v), section 143(3) of the Income Tax Act 1961, and was decided by ITAT Mumbai Bench 'D' — Saktijit Dey (Vice President) and Ms. Padmavathy S (Accountant Member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Get the partner's role described contemporaneously — in the statement recorded during the search, in the deed, and in correspondence — and note that here the description came from another partner's statement, not from her own. Show that the remuneration was offered to tax by the partner under s.28(v); a revenue-neutral disallowance is a weaker case for the department. Identify the provision the officer is actually using: a disallowance for want of business purpose under s.37 is answered differently from one under s.40(b). Do not accept attendance registers or office timings as the test; put the actual functions on record.
Validity check could not be completed. No later treatment was found. A full-text search of a subscription research database on the party name returns exactly one record, the decision itself, so nothing in that corpus cites, applies, follows, distinguishes or doubts it, and the document carries no later-treatment note. No appeal is noted. Nothing contrary was found either, but absence of contrary authority is not good law, so the status stays unverified. One thing is worth knowing about the weight of the parts: the primary ground of the decision rests directly on Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 / 454 ITR 212 (SC), which binds, so the s.153A limb stands on far firmer ground than this order's own status suggests, while the s.37 remuneration limb stands alone. On the provision, the ceilings in s.40(b)(v) were raised with effect from assessment year 2025-26, but that is quantum only and this order does not turn on s.40(b) at all. Date scope: by the closing limb of s.153A(1) that section reaches only a search initiated, or a requisition made, after 31 May 2003 and on or before 31 March 2021, and s.153C is excluded by its own sub-section (3) from any search initiated on or after 1 April 2021, so this entry is authority on the s.153A and s.153C regime and on nothing else — a search initiated between 1 April 2021 and 31 August 2024 is a reassessment under ss.147 to 151 as they stood immediately before the Finance (No. 2) Act 2024, by force of s.152(3), and a search initiated on or after 1 September 2024 falls under the substituted Chapter XIV-B. The incriminating-material requirement worked out in this line rests on the words of s.153A and s.153C, which spoke only of assessing or reassessing total income and carried no material limb of their own; s.158BB(2) of the substituted Chapter has its own and considerably wider undisclosed-income limb, and whether the same requirement holds under it has not been decided, so the point should not be assumed either way for a block assessment. That finding was checked against a published source, which is linked on this page, on 2026-08-24. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order has now been read in full and the entry is drawn from its numbered paragraphs; the sentence formerly quoted here was a publisher's rendering of the finding and has been replaced with the Tribunal's own words at para 12. Two corrections of substance. The disallowance was made under s.37 for want of business purpose — the order records that the officer had initially considered s.40(b) but ultimately proceeded under s.37 — so this is not authority on what makes a partner a 'working partner' for s.40(b), and the slug's framing overstates it. And the statement under s.132(4) was recorded from a different partner, who described the work the remunerated partner did; it was not her own statement. The order decides seven appeals together and the primary ground for five of them is jurisdictional. One inconsistency in the order is disclosed rather than resolved: para 6 records that s.153A proceedings were initiated for assessment years 2014-15 to 2019-20, while paras 11 and 12 treat the unabated s.153A years as 2014-15 to 2018-19 and assessment year 2019-20 as abated. It does not construe s.40(b) or its Explanation 4, so it decides nothing about the statutory meaning of 'working partner' or about the ceiling in s.40(b)(v). It does not decide the two other grounds admitted — that the approval under s.153D was mechanical, and that the disallowance produced a double addition — both of which were left as academic. It does not say what evidence will do where the partner's role was never described contemporaneously by anyone. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All seven appeals were allowed, all the disallowances were deleted and nothing was restored to the Assessing Officer. There were two independent grounds. The primary ground was jurisdictional: for assessment years 2014-15 to 2018-19 no assessment was pending on the date of search, so those years were unabated and an addition under s.153A required incriminating material found in the search; a statement recorded under s.132(4) is not itself incriminating material, and following Pr. CIT v. Abhisar Buildwell (P.) Ltd. (SC) the additions for those five years were unsustainable. The alternative ground, introduced as 'even otherwise', went to the merits and carries the two remaining years: the fact that a partner does not attend the office daily is not a ground for holding her a sleeping partner and denying her remuneration, the work she did being proved on the record, and the remuneration was in any event taxable in her hands under s.28(v) and had been offered there.
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