2019 (5) TMI 1880 - AT - Income Tax

Disallowance u/s 80(IA) r.w.s. 10AA(9) in giving deductions of interest on Capital and Remuneration to partners of the assessee - CIT-A deleted the addition after finding that the assessee had taken undue benefits of Section 10AA by not claiming Interest on Capital and Remuneration to partners which resulted increase in exempted profit of the assessee - whether CIT(A) is justified in not appreciating the fact that by not providing interest and remuneration to the partners the firm has claimed higher profits leading to higher claim of deduction u/s 10AA of the Act and thus devoiding the revenue from due amount of tax? - HELD THAT - In the present case undisputedly in the partnership deed there is no clause providing payment of interest on capital and remuneration to the partners therefore the ld. CIT(A) was right in denying application of order of Meridian Impex 2013 (9) TMI 605 - ITAT RAJKOT in favour of the Revenue in the present case having distinct and dissimilar facts and circumstances The appellant has not charged any interest and remuneration asper partnership deed therefore the appellant firm cannot be compelled to charge interest or remuneration. Therefore we are inclined to hold the ld. CIT(A) was right in observing that the disallowance made by the AO on account of non provision of interest and remuneration of s. 10AA of the Act deduction is erroneous and incorrect and law and facts as in the peculiar facts of the present case the partnership deed clearly lays down that no interest and remuneration is payable and hence the first appellate authority right in deleting the disallowance made by the AO on account of non provision of interest and remuneration from amount of deduction u/s. 10AA - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deductions under Section 80(IA) r.w.s. 10AA(9) for interest on capital and remuneration to partners.
2. Claiming higher profits by not providing interest and remuneration to partners, affecting deduction u/s 10AA.

Analysis:

Issue 1: Disallowance of deductions under Section 80(IA) r.w.s. 10AA(9) for interest on capital and remuneration to partners:
The Revenue challenged the deletion of disallowance made by the Assessing Officer regarding deductions for interest on capital and remuneration to partners under Section 80(IA) r.w.s. 10AA(9). The Revenue contended that the Assessee unduly benefited from Section 10AA by not claiming these deductions, resulting in increased exempted profit. The CIT (A) was criticized for not appreciating that the lack of interest and remuneration to partners led to higher profits and a higher claim of deduction u/s 10AA, depriving the revenue of due tax. The Revenue argued that the AO's disallowance was reasonable and justified, which the CIT (A) deleted without sustainable grounds.

Issue 2: Claiming higher profits by not providing interest and remuneration to partners, affecting deduction u/s 10AA:
The Assessee argued that the issue was settled by precedents, citing the decisions of the Hon'ble Gujarat High Court and the Surat bench of the Tribunal. The Tribunal noted that the facts of a previous case relied upon by the AO were different, as it involved specific clauses in the partnership deed regarding interest on capital and remuneration. In contrast, the present case's partnership deed did not contain such clauses. The Tribunal upheld the CIT (A)'s decision, emphasizing that the absence of provisions for interest and remuneration in the partnership deed meant the Assessee could not be compelled to provide them. Referring to the Gujarat High Court decision, the Tribunal concluded that the disallowance by the AO was erroneous, as the partnership deed clearly stated no interest or remuneration was payable. Thus, the Tribunal confirmed the deletion of the disallowance by the CIT (A).

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision to delete the disallowance of deductions for interest on capital and remuneration to partners under Section 80(IA) r.w.s. 10AA(9). The Tribunal found that the partnership deed's absence of provisions for interest and remuneration justified the Assessee's position and confirmed the CIT (A)'s ruling.