2011 (5) TMI 962 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order u/s 143(3) for AY 2007-08 regarding disallowance of deduction u/s 80IC.

Summary:
The appeal was filed by the Revenue against the CIT(A) order related to the assessment year 2007-08 under section 143(3) of the Income Tax Act, 1961. The main ground of appeal was the deletion of the disallowance of deduction u/s 80IC amounting to Rs. 24,16,700. The assessee, a partnership firm, did not pay interest and salary to partners as per the partnership deed, resulting in higher profits. The Assessing Officer invoked section 80IA(10) to re-compute profits, which was upheld by CIT(A). However, the Tribunal referred to a similar case and held that the Assessing Officer wrongly invoked section 80IA(10) as the payments were not made based on mutual agreement among partners, thus dismissing the Revenue's appeal.

In the case of M/s Navkar Polyplast Company v ITO, the Tribunal clarified the requirements of section 80IA(10) regarding close connection between parties and arrangement leading to higher profits. It was established that the absence of actual payments and liabilities for remuneration and interest on capital contribution did not justify reducing profits u/s 80IA(10). The Tribunal affirmed the CIT(A) order, stating that the Assessing Officer misinterpreted the partnership deed and failed to prove excess profits due to the lack of payments. The Tribunal upheld the CIT(A) decision to delete the disallowance of deduction u/s 80IC, following the precedent set in previous cases.

Ultimately, the Tribunal dismissed the Revenue's appeal, finding no fault in the CIT(A) order regarding the deduction u/s 80IC. The decision was pronounced on May 13, 2011.