2018 (12) TMI 597 - AT - Income Tax

Disallowance of exemption claimed u/s 10AA - Turnover for trading and treated entire sum as taxable income by not giving any specific findings - 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 CIT(A) was right in denying application of order of ITAT Rajkot in the case 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. In the present case the appellant has not charged any interest and remuneration as per partnership deed therefore the appellant firm cannot be compelled to charge interest or rumuneration. Therefore we are inclined to hold the 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 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. No valid reason to interfere with the same and thus we confirm the same. Accordingly grounds of Revenue are dismissed.

Summary

Issues:
1. Disallowance of exemption claimed under section 10AA for trading turnover.
2. Disallowance of deductions for interest on capital and remuneration to partners.
3. Higher profits claimed due to non-provision of interest and remuneration to partners.

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2014-15. The Revenue questioned the deletion of disallowance made by the Assessing Officer regarding the exemption claimed under section 10AA for trading turnover. The Departmental Representative argued that the assessee had taken undue benefits of section 10AA by not claiming interest on capital and remuneration to partners, resulting in an increase in exempted profit. The Revenue contended that the Assessing Officer's disallowance was reasonable and justified, which was deleted by the Commissioner of Income Tax (Appeals) without sustainable grounds.

2. The Tribunal considered the contentions of both the Revenue and the assessee. The Tribunal observed that the facts of the present case were distinct from a previous case relied upon by the Assessing Officer. In the previous case, there was a specific loss in the partnership deed regarding payment of interest on capital and partner's remuneration, which was subsequently amended. However, in the present case, the partnership deed did not provide for payment of interest and remuneration to partners. The Tribunal referred to a decision of the High Court, stating that the mere incorporation of interest on partners' capital account and remuneration does not mandate their payment. As the partnership deed in the present case did not include provisions for interest and remuneration, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to delete the disallowance made by the Assessing Officer.

3. The Tribunal concluded that the disallowance of deductions for interest and remuneration under section 10AA was erroneous in the peculiar facts of the case. The partnership deed clearly stated that no interest or remuneration was payable, and therefore, the assessee firm could not be compelled to charge interest or remuneration. The Tribunal found no valid reason to interfere with the decision of the Commissioner of Income Tax (Appeals) and dismissed the grounds raised by the Revenue. Consequently, the appeal of the Revenue was dismissed by the Tribunal.