2011 (11) TMI 740 - AT - Income Tax

Summary

Issues involved: Appeal against the Commissioner of Income-tax(Appeals) order u/s 143(3) of the Income Tax Act, 1961 for assessment years 2005-06 and 2006-07 regarding deduction claimed u/s 80IC.

Issue 1: Deduction under section 80IC

The Revenue challenged the deletion of addition of Rs. 7,53,650/- made by the Assessing Officer by disallowing deduction claimed under section 80IC. The Revenue contended that non-payment of interest and salary to partners was a colorable device for tax evasion. The Tribunal noted that the assessee qualified for deduction under section 80IC for profits earned in manufacturing activities. However, the Assessing Officer disallowed the deduction due to non-payment of salary and interest to partners as per the partnership deed. The Tribunal upheld the CIT (Appeals) decision based on a previous ruling in a similar case for assessment year 2004-05, stating that the arrangement did not result in more than ordinary profits for the assessee.

Issue 2: Interpretation of Section 80IA(10)

The Tribunal analyzed Section 80IA(10) which deals with close connections between the assessee and other persons leading to more than ordinary profits. It was argued that the non-payment of remuneration and interest to partners did not fall within the scope of "business transacted" for the purposes of the section. The Tribunal found that the partners had mutually agreed to waive these payments, and as there was no actual liability or payment made, the Assessing Officer could not reduce profits under Section 80IA(10). The Tribunal upheld the CIT (Appeals) decision based on this interpretation.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the CIT (Appeals) decision regarding the deduction under section 80IC. The issues raised were found to be similar to a previous case, and the Tribunal's decision was based on the interpretation of relevant sections of the Income Tax Act. Both appeals of the Revenue were ultimately dismissed.