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2019 (6) TMI 1303 - HC - Income TaxDeduction u/s 10AA - alleged that assessee taking undue benefit of Section 10AA by not claiming interest on the capital and remuneration to partners which resulted into increase in the exempt profit - CIT(A) held that the clause H of the Partnership Deed specifically restricts payment of Interest to Partners on their Capital as well as Remuneration to Partners - HELD THAT - It appears that the Appellate Tribunal, while dismissing the appeal preferred by the Revenue, placed strong reliance on a decision of this Court in the case of Pr. CIT v. Alidhra Taxspin Engineers and another 2017 (5) TMI 1684 - GUJARAT HIGH COURT . where in it was held that on interpretation of the partnership agreement and considering the wish of the partners reflected in the partnership deed, not to pay/charge interest on the partners capital and the remuneration, the learned tribunal has rightly deleted the disallowance made by the AO with respect to the deduction claimed u/s 80IB. We are of the view that the issue is squarely covered by the aforesaid decision of this Court - Appeal fails and is hereby dismissed
Issues Involved:
1. Legality of the disallowance of deduction claimed under Section 10AA of the Income Tax Act. 2. Validity of the Assessing Officer’s decision to enforce interest on capital and remuneration to partners despite the absence of such provisions in the partnership deed. 3. Applicability of precedents and judicial interpretations in similar cases. Issue-wise Detailed Analysis: 1. Legality of the Disallowance of Deduction Claimed under Section 10AA: The assessment was finalized under Section 143(3) of the Income Tax Act on 22nd December 2016, determining the total income at ?2,95,33,190 after disallowing the deduction claimed under Section 10AA amounting to ?2,95,33,190. The Assessing Officer (AO) contended that the assessee firm had taken undue benefit of Section 10AA by not claiming interest on the capital and remuneration to partners, which resulted in an increase in the exempt profit. 2. Validity of the AO’s Decision to Enforce Interest on Capital and Remuneration to Partners: The assessee challenged the AO's order before the CIT(A), arguing that the interest and remuneration to partners were not provided for in the partnership deed. The CIT(A) observed that the partnership deed explicitly restricted payment of interest and remuneration to partners. The CIT(A) noted that the AO relied on the case of Meridian Impex, where the facts were different. In the present case, the partnership deed did not have any clause pertaining to the payment of interest and remuneration, unlike in Meridian Impex, where a supplementary deed was involved. The CIT(A) referenced several judgments, including those from the jurisdictional ITAT Bench Ahmedabad and the Gujarat High Court, which held that the AO could not compel the appellant to charge interest or remuneration by invoking Section 40(b)(v) of the Act. The CIT(A) concluded that the disallowance made by the AO was erroneous and incorrect in law and facts, and thus, the addition made by the AO was deleted. 3. Applicability of Precedents and Judicial Interpretations: The Revenue, dissatisfied with the CIT(A)'s order, appealed to the Appellate Tribunal, Surat Bench. The Tribunal, concurring with the CIT(A), noted that the AO's reliance on Meridian Impex was misplaced due to differing facts. The Tribunal cited the Gujarat High Court decision in Alidhara Taxspin Engineers, which held that mere incorporation of interest and remuneration clauses in the partnership deed does not make them mandatory. The Tribunal affirmed that the appellant firm could not be compelled to charge interest or remuneration as per the partnership deed. The Tribunal dismissed the Revenue's appeal, confirming that the disallowance made by the AO was erroneous. The Tribunal emphasized that the partnership deed clearly stated no interest and remuneration were payable, aligning with the decisions of jurisdictional High Court and ITAT Bench Ahmedabad. Conclusion: The High Court, after hearing the Revenue and reviewing the materials, found that the issue was covered by the Gujarat High Court decision in Alidhara Taxspin Engineers. The Court observed no error in the Tribunal's dismissal of the Revenue's appeal and affirmed the CIT(A)'s order. The Court concluded that none of the questions raised constituted substantial questions of law, thereby dismissing the Tax Appeal and the connected appeal for the Assessment Year 2013-14.
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