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2022 (7) TMI 1266 - AT - Income TaxRevision u/s 263 by CIT - deduction under Chapter-VIA under section 80IB(10) - HELD THAT - We note that in the case of Myhome Developers v. ACIT 2021 (3) TMI 345 - GUJARAT HIGH COURT assessee was a partnership firm engaged in activity of developing housing projects. The assessment in case of assessee was sought to be reopened on ground that assessee had claimed excessive deductions under section 80-IB(10), without providing interest on capital and remunerations to partners for respective years under consideration, which had escaped assessment. Though clauses of partnership deed provided for interest on partner's capital and remuneration, same was subject to their mutual agreement. Thus, it was noted that mere incorporation of clauses in partnership deed for interest on partner's capital and remuneration, did not signify that, interest and remuneration was to be paid to partners mandatorily.The record indicated that assessee had not provided any remuneration interest on capital payable to partners. Accordingly, the Gujarat High Court held that the impugned reopening noticed issued against assessee was unjustified and same was to be set aside. As twin conditions that the order is erroneous and is also prejudicial to interest of revenue are not satisfied in the instant facts. The issue on the claim of excessive deduction under Chapter-VIA under section 80IB(10) of the Act was specifically raised during the course of assessment proceedings and the assessee had filed detailed reply in response thereto during assessment proceedings. Further, as evident from the above judicial precedents, the view taken by the AO is a legally possible view. Therefore, we find no infirmity in the assessment order. Accordingly, we are of the view that Principal CIT has erred in holding that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. Appeal of the assessee is allowed.
Issues:
1. Validity of the order passed by the Principal Commissioner of Income Tax (PCIT). 2. Interpretation of partnership deed clauses regarding interest on capital. 3. Claim of excessive deduction under Chapter-VIA section 80IB(10) of the Income Tax Act. 4. Application of section 263 of the Income Tax Act for revision of the assessment order. Issue 1: Validity of the PCIT Order The appeal before the Appellate Tribunal ITAT Rajkot arose from the order of the PCIT under section 263 of the Income Tax Act, 1961. The PCIT held that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue. The PCIT observed that the assessee firm had not paid interest to the partners as per the partnership deed, leading to inflated profits eligible for deduction under section 80IB(10) of the Act. The PCIT directed the AO to pass a fresh assessment order after conducting necessary verifications and inquiries. Issue 2: Interpretation of Partnership Deed Clauses The crux of the dispute was the interpretation of the partnership deed clauses regarding interest on capital. The PCIT found that the assessee firm had not paid interest to the partners as per the terms of the partnership deed, resulting in inflated profits for deduction under section 80IB(10) of the Act. However, the counsel for the assessee argued that the partnership deed allowed partners to mutually agree to not pay interest on capital. The counsel relied on judicial precedents to support the contention that the partnership deed's provisions were discretionary, not mandatory, regarding interest payments. Issue 3: Claim of Excessive Deduction The PCIT raised concerns about the assessee firm claiming excessive deductions under Chapter-VIA section 80IB(10) without paying interest on partner's capital as per the partnership deed. However, the Appellate Tribunal noted that the assessing officer had raised this issue during assessment proceedings, and the assessee had provided a detailed response. The Tribunal referred to judicial precedents indicating that the partnership deed clauses regarding interest payments were subject to mutual agreement, and the AO's view was legally possible. Issue 4: Application of Section 263 The PCIT invoked section 263 of the Income Tax Act, asserting that the AO's order was erroneous and prejudicial to the revenue's interests. However, the Appellate Tribunal disagreed, stating that the AO had considered the issue of interest on partner's capital during assessment proceedings. The Tribunal found no infirmity in the assessment order and held that the PCIT erred in concluding that the AO's order was erroneous and prejudicial to the revenue's interests. In conclusion, the Appellate Tribunal allowed the appeal of the assessee, emphasizing that the assessing officer had appropriately addressed the issue raised during assessment proceedings, and the partnership deed clauses regarding interest payments were discretionary, not mandatory.
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