2019 (12) TMI 1111 - AT - Income Tax

Claim of interest on capital and remuneration to partners from the assessed income - Scope of the partnership Deed - CIT(A) was of the opinion that since profit has been estimated on gross receipts after survey u/s 133A of the Act, the assessee is not entitled for any further deduction. - HELD THAT - We find that partnership deed dated 01.05.2008 at clause 8 contains provision for interest on capital @ 12% per annum and clause 17 provides for remuneration to whole time working partners and method of computation of remuneration is also provided. Vide supplementary deed dated 01.04.2010, manner of paying remuneration to whole time working partners have been revised. We find that in Assessment Years 2009-10 to 2011-12, the assessee has been claiming interest on capital and remuneration to partners, which are verifiable from the computation of income placed in the paper book. As relying on VIJAY CONSTRUCTIONS 2006 (8) TMI 607 - ALLAHABAD HIGH COURT we direct the Assessing Officer to allow remuneration to the partners and interest on capital as per provisions of law.

Summary

Issues:
Claim of interest on capital and remuneration to partners from assessed income.

Analysis:
The appeal was against the order of the Commissioner of Income Tax [Appeals] pertaining to the assessment year 2012-13. The assessee claimed interest on capital and remuneration to partners, which was denied by the CIT(A) on the grounds that profit had been estimated on gross receipts post-survey, hence no further deduction was allowed. The Assessing Officer rejected the book results, adopted 8% of gross turnover as net profit, and made an addition to the income. The assessee contended that the claim was as per the partnership deed and in line with Section 40B of the Act, citing Tribunal decisions in support.

The Tribunal noted that the partnership deed contained provisions for interest on capital and remuneration to partners. The supplementary deed revised the manner of paying remuneration to whole-time working partners. The Tribunal referred to previous assessment years where similar claims were made. Citing a High Court judgment, it emphasized that statutory deductions available to the assessee should not be denied in best judgment assessments unless expressly excluded by law. The Tribunal also referenced a coordinate bench decision supporting deductions for interest on capital and remuneration to partners even after profit estimation.

The Tribunal upheld the assessee's appeal, directing the Assessing Officer to allow remuneration to partners and interest on capital as per the law. It relied on the High Court decision and the coordinate bench ruling to support its decision. The appeal was allowed based on the legal provisions and precedents cited, ensuring the assessee's entitlement to the claimed deductions.